BECN

Beacon Roofing Supply, Inc. (BECN)

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Beacon Roofing Supply, Inc. (BECN)

F1Q09 (Qtr End 12/31/08) Earnings Call

February 06, 2009 10:00 AM ET

Executives

Robert Buck - Chairman and Chief Executive Officer

David R. Grace - Senior Vice President and Chief Financial Officer

Paul M. Isabella - President and Chief Operating Officer

David Manthey - Robert W. Baird

Analysts

Tom Hayes - Piper Jaffray

Brent Rakers - Morgan Keegan

Robert Kelly - Sidoti & Company

Scott Ciccarelli - RBC Capital Markets

Theodor Kundtz - Needham &Company

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Beacon Roofing Supply Fiscal Year 2009 First Quarter Conference Call. My name is Connie, and I'll be your coordinator for today.

At this time, all participants are in a listen-only mode. We will be conducting a question-and-answer session towards the end of the conference.

At that time, I will give you instructions on how to ask a question. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

On this call, Beacon Roofing Supply may make forward-looking statements including statements about its plans and objectives and future economic performance. Forward-looking statements are subject to a number of risks and uncertainties. Actual results may differ materially from those indicated by such forward-looking statements, as a result of various important factors including but not limited to those set forth in the risk factor section as the company's latest Form 10-K.

On the call today for Beacon Roofing Supply will be Mr. Robert Buck, Chairman and CEO; Mr. Paul Isabella, President and COO; and Mr. David Grace, Chief Financial Officer.

I would now like to turn the call over to Mr. Robert Buck, Chairman and CEO. Please proceed, Mr. Buck.

Robert Buck

Thank you, Connie. Welcome everyone to our first quarter earnings call for fiscal year 2009. We are obviously very pleased to announce these results, and it's always satisfying to exceed the expectations of our analysts, which intern is very good for our loyal shareholders and fellow employees. A lot of hard work by our employees made these results possible.

As usual David Grace, our CFO, will present the financial details, and when David is finished; Paul Isabella, our President and COO, will answer prepared questions. When Paul is finished, we will open the call for additional questions that you may have.

And let me just say that our new fiscal year, fiscal '09 is of to a very strong start. Our growth was solid, gross margins improved and expenses were well controlled.

In addition, you can quickly see the quality of our balance sheet and in particular the quality of the receivables and a continued reduction of our debt ratios.

Again the fiscal year is of to a strong start and we were looking, working hard to keep it going that way. We have a good -- very good tactical and strategic plans in place that are being executed very well by our officers under Paul's leadership.

I will now turn the call over to David, and he will present the financial details of this performance and then Paul will take over. Thank you. David?

David R. Grace

Thank you, Bob. And just as a reminder, all of our results for the quarter are now from existing markets.

Sales increased 16.3% to $463.3 million from $398.4 million in 2007 with residential roofing sales increasing 58.4% as we benefited from higher year-over-year prices combined with strong demand from the damage caused by Hurricane Ike.

Non-residential roofing products declined 14.7%, as activity -- 4.7%, as activity slowed especially in the regions which experienced an early onset of winter.

Complimentary products, which we believe are more discretionary in nature than our roofing products were down 17.3% and continue to be negatively impacted by both the slowdown in the economy, in the lower levels of residential construction.

We estimate inflation in product cost base upon our current inventory product mix in the invoice cost, as compared to the invoice cost of the same products a year ago.

Based upon this estimate, our product cost were up 12% to 14% compared to 2007 months, or pricing to our customers increase slight ahead of the product cost increases.

In addition, we have 62 business days in 2008, as compared to 61 days in 2007, which we estimate further boosted up sales flow by 1.9%.

Almost all of our overall sales growth on a sales based basis in the quarter gain from price increases.

Volume gains and residential roofing were offset by volume losses in non-residential and complementary products. We close four branches and did not open any during the quarter compared to one new branch opening and one closing during the first quarter of 2007.

Today, we operate a total of 170 branches as of the end of the quarter, compared to 178 last year.

First quarter gross profit was 116.0 million for 2008, as compared to 91.7 million in 2007, a 26.5% increase, with gross margins increasing to 25.0% from 23.0%. The increase was largely the result of a product mix shift to more residential roofing products, which has substantially higher gross margins and the more competitive non-residential products.

And continuing from the fourth quarter, we also still experienced the benefit of lower weighted average cost of residential roofing products in comparison to town price levels of those products in the marketplace.

We do not expect this weighted average cost benefit to continue much beyond the first quarter, and expect future gross margins to range from 23% to 24.5% depended upon product mix.

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