On Jun 21, 2013, we downgraded steel producer,
Gibraltar Industries Inc.
), to Underperform from Neutral based on the company's dismal
first quarter results.
Why the Downgrade?
Gibraltar reported weak results for the first quarter of 2013,
with earnings per share falling 55.6% year over year to 4 cents.
It missed the Zacks Consensus Estimate of 12 cents by 66.7%. The
decline is attributed to poor seasonal variations, customers'
inventory control as well as reduced prices of its products.
Revenues for the quarter rose by 2.4% year over year to $196.8
million, on the back of acquisitions. The business of Gibraltar
depends on the expenditure incurred by its customers. However, an
inventory control undertaken by the customers due to a prolonged
winter reduced the revenue generation for Gibraltar.
Gibraltar's product prices experienced a decline in the last
quarter. This resulted in a lower gross margin on a
year-over-year basis after shipping an equivalent volume of
commodities. Moreover, the company is expected to reduce its
prices as the cost of raw materials drop.
In the reported quarter, sales from North America were down
4.6%, while those from Europe slid 18.7%, led by lower pricing,
soft demand and a highly competitive market. It is expected that
the industrial weakness experienced by Gibraltar in the first
quarter of 2013 will continue through the third quarter.
Gibraltar is exposed to customer concentration risks as well,
deriving a large portion of its sales from only a handful of
customers. Moreover, the company does not have long-term
contracts with its customers, which may lead to termination of
purchase causing a severe loss to the business.
Other Stocks to Consider
Gibraltar currently carries a Zacks Rank #5 (Strong Sell).
However, not all steel producers are performing as badly as the
Shiloh Industries Inc.
) with a Zacks Rank #1 (Strong Buy),
L.B. Foster Co.
Sutor Technology Group Limited
), carrying a Zacks Rank #2 (Buy) each, look attractive and are
worth considering at the moment.
FOSTER LB CO (FSTR): Free Stock Analysis
GIBRALTAR INDUS (ROCK): Free Stock Analysis
SHILOH INDS INC (SHLO): Get Free Report
SUTOR TECH GRP (SUTR): Get Free Report
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