Beacon Roofing Supply, Inc.
) reported earnings per share of 54 cents in the third quarter of
fiscal 2014 (ended Jun 30, 2014), a 2% year-over-year decline, on
May 9. Earnings also fell short of the Zacks Consensus Estimate of
59 cents. Lower gross margins from reduced selling prices due to
weak demand and a continued unfavorable shift in sales mix to lower
margin direct shipment and commercial business resulted in the
year-over-year decline in earnings. However, this marked a
significant turnaround from the loss per share of 25 cents recorded
in the second quarter of fiscal 2014.
Beacon Roofing Supply, Inc - Earnings
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Total revenue increased 6% year over year to a record $663
million but lagged the Zacks Consensus Estimate of $665 million.
Non-residential roofing product sales increased 9.7% followed by
a 6.4% rise in complementary product sales while residential
roofing products sales went up 2.7%.
Cost of goods sold went up 7% year over year to $512 million.
Gross profit was $151 million, compared with $147 million in the
year-ago quarter. Gross margin contracted 80 basis points (bps)
from the prior-year quarter to 22.7% primarily due to continued
price pressure along with increased mix of commercial and direct
ship business that typically carry lower margins.
Operating expenses for the quarter increased 6% year over year
to $105 million. However, as a percentage of sales, operating
expenses remained flat at 15.8% due to continued cost controls and
sales base growth despite the company investing $5 million in new
stores to expand its footprint in the existing as well as new
markets. The company posted an operating profit of $46 million,
down 4% from $48 million in the prior-year quarter.
As of Jun 30, 2014, Beacon Roofing had cash and cash equivalents
of $26 million, flat compared with Jun 30, 2013. Total debt was
$227 million as of Jun 30, 2014 against $225 million as of Jun 30,
2013. The debt-to-capitalization ratio was at 27% as of Jun 30,
2014, flat with Jun 30, 2013, figure.
Cash used in operations was $47 million for the nine-month
period ended Jun 30, 2014, compared with cash inflow of $49 million
in the prior-year comparable period. This was due to seasonal
increases in accounts receivable balances driven by increased sales
during the third quarter of 2014, as well as increased inventory
The company expects strong demand to continue in the fourth
quarter of fiscal 2014, benefiting from its diverse product
offering along with its greenfield strategy and lead to sales
growth in the range of 7% to 10% for the fourth quarter compared
with the 7.4% organic growth in the fourth quarter of 2013. With
the pickup in residential demand, Beacon Roofing expects gross
margins to improve sequentially in the fourth quarter.
For the full year, Beacon Roofing expects organic sales growth
in the range of 4% to 5%.
Beacon Roofing will benefit from its consistent focus on cost
control. Its investments in equipment and inventory, along with
employee training and greenfield expansion will drive growth. For
the last 4 to 5 quarters, Beacon Roofing has witnessed positive
sales growth for all 3 product lines.
The company opened 9 new branches in the quarter and is on track
to open 25 new branches in 2014. These new branches should add 2%
organic growth for the year. For 2015 and beyond, Beacon Roofing is
planning to open at least 20 branches per year.
The complementary product business will grow in the balance of
fiscal 2014, driven by development in new construction and
remodeling activity. Commercial business will also expand in the
second half, given the number of projects and bids currently in
Both residential and non-residential construction sectors are
showing signs of improvement, which bodes well for the company.
However, a difficult pricing environment will continue to weigh on
Peabody, MA-based Beacon Roofing is one of the major
distributors of residential and non-residential roofing materials
as well as complementary building products in the U.S. and Canada,
with more than 90% of sales coming from the U.S.
Beacon Roofing currently has a Zacks Rank #5 (Strong Sell).
However, a better-ranked stock in the same industry include Travis
Perkins plc (
) with a Zacks Rank #1 (Strong Buy).
Among Beacon Roofing's peers, Fastenal Company's (
) reported adjusted earnings of 44 cents per share in the second
quarter of 2014, in line with the Zacks Consensus Estimate.
Earnings grew 7.3% year over year as strong top-line performance
was offset by weak margins.
Lumber Liquidators Holdings, Inc.'s (
) second-quarter 2014 earnings per share of 60 cents came in line
with the Zacks Consensus Estimate, but fell 17.8% year over
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