On Sep 19, we downgraded our recommendation on
Beacon Roofing Supply, Inc.
), one of the three largest roofing material distributors in the
U.S. and Canada, to Underperform following weak third-quarter
fiscal 2013 (ended Jun 30) results and its downwardly revised
Why the Downgrade?
On Aug 9, Beacon Roofing reported adjusted earnings of 55 cents
per share for the third quarter, down 11.3% year over year,
impacted by tough weather conditions and increase in product
cost. The results also missed the Zacks Consensus Estimate of 71
cents. Net sales rose 12% year over year to $627.2 million, but
missed the Zacks Consensus Estimate of $663 million.
The inability of Beacon Roofing to successfully pass on higher
raw material costs to customers will also have a negative impact
on its results. Since Dec 2012, two major price increases on
shingles have been announced by manufacturers. Some of these
increases were passed along with the product cost. In the third
quarter, gross margin contracted 150 basis points (bps) year over
year to 23.5%, largely owing to pricing pressure.
For 2013, Beacon Roofing lowered its earnings per share forecast
to $1.50-$1.60 from $1.75-$1.85 due to subdued demand and
increase in competition. Additionally, higher construction costs,
labor shortage, lack of funds for real estate projects, and
adverse effects of sequestration are likely to remain headwinds
for the non-residential construction sector and may affect the
Following the last earnings release, the Zacks Consensus Estimate
for 2013 and 2014 have gone down 13.9% and 8.6%, respectively, to
$1.55 and $1.92 per share, respectively. With earnings estimates
moving down, Beacon Roofing retains a Zacks Rank #5 (Strong
Other Stocks to Consider
Among the other stocks in the same industry with favorable Zacks
Lumber Liquidators Holdings, Inc.
Builders FirstSource, Inc.
The Home Depot, Inc.
) are worth a look. While Lumber Liquidators holds a Zacks Rank
#1 (Strong Buy), both Builders FirstSource and The Home Depot
carry a Zacks Rank #2 (Buy).
BEACON ROOFING (BECN): Free Stock Analysis
BUILDERS FIRSTS (BLDR): Free Stock Analysis
HOME DEPOT (HD): Free Stock Analysis Report
LUMBER LIQUIDAT (LL): Free Stock Analysis
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