) reported income from continuing operations of $9.3 million or
13 cents per share in the third quarter of 2013, up from $2
million or 3 cents in the prior-year quarter. The results,
however, missed the Zacks Consensus Estimate of 18 cents.
Total revenue was $197 million in the reported quarter, up 12%
year over year but below the Zacks Consensus Estimate of $198
Cost of sales increased 12% to $138.5 million from $123 million
in the year-ago quarter. Gross profit improved 12% year over year
to $58.5 million. However, gross margin expanded 10 basis points
(bps) to 29.7% in the quarter. Adjusted EBIDTA improved 32% year
over year to $37.9 million.
Selling, general and administrative expenses decreased 3.4% year
over year to $28 million. Adjusted operating profit was $23
million, compared with $15.9 million in the year-ago quarter.
Consequently, operating margin expanded 270 bps year over year to
Light Building Products:
Revenues increased 21% year over year to $118 million driven by a
strong Texas market and strength in new residential construction.
The rise was partly offset by challenging weather conditions.
Operating income rose 29% year over year to $15.5 million.
Heavy Construction Materials:
Segment revenues in the quarter were $75.1 million, up 1% from
$74.7 million in the prior-year quarter. The improvement was
mainly backed by new service contracts and price increase, partly
offset by reduced shipments of high quality fly ash, the loss of
a service contract and adverse weather conditions in the Midwest
and Northeast. The segment's operating income improved 8% year
over year to $12.8 million.
Reported sales were $3.9 million, up 5% from the year-ago
quarter. The segment reported an operating loss of $0.3 million,
compared with a loss of $1.2 million in the year-ago quarter.
As of Jun 30, 2013, cash and cash equivalents amounted to $40.5
million versus $53.7 million as of Sep 30, 2012. Long-term debt
was $449.4 million as of Jun 30, 2013, compared with $500.5
million as of Sep 30, 2012.
For full-year 2013, Headwaters reaffirmed the adjusted EBITDA
range of $110 million to $125 million. The company is optimistic
that revenues will improve in the remaining year once growth in
new housing starts. Headwaters expects weakness in repair and
remodel end markets but growth from the renewal of school
construction. The company will also continue to pursue
opportunities to repay the debt maturing in 2014 before its due
date. However, cost inflation will be a headwind in the future.
Headwaters is well positioned to benefit from its strong presence
in light building products and heavy construction materials. A
significant contribution from margins together with the uptick in
demand will help the company generate adequate cash, facilitating
debt reduction and promising capital return to investors.
Macro drivers comprising population growth, household formation,
inventory trends and the psychology of customers will likely
bolster the company's long-term growth. Headwaters will be
successful in achieving its goal largely due a to multi-year
appreciation cycle and positive remodel trends in the housing
market, which will provide significant opportunities to serve the
residential real estate end markets.
South Jordan, Utah-based Headwaters is a diversified company
providing building products, technologies and services to the
heavy construction materials, light building products, and energy
Headwaters currently carries a Zacks Rank #3 (Hold). However, the
James Hardie Industries plc
) with a Zacks Rank #2 (Buy) are good investment options in the
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