BECN

Beacon Roofing Supply, Inc. (BECN)

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Beacon Roofing Supply, Inc. (BECN)

F3Q08 (Qtr End 06/30/08) Earnings Call Transcript

August 8, 2008 11:00 am ET

Executives

Robert Buck – Chairman and CEO

David Grace – SVP and CFO

Paul Isabella – President and COO

Analysts

Ray Horner [ph] – JP Morgan

Tom Hayes – Piper Jaffray

David Manthey – Robert W. Baird

Jeff Germanotta – William Blair

Tek Tens [ph] – Needham & Co.

Robert Kelly – Sidoti

Ashwin Reddy [ph] – Manor Capital [ph]

Brent Rakers – Morgan Keegan

Justin Harrison [ph] – Ramsey Asset Management

Presentation

Operator

Good day, ladies and gentlemen, and welcome to Beacon Roofing Supply fiscal year 2008 third quarter earnings conference call. My name is Teresa and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will be conducting a question-and-answer session towards the end of this conference. (Operator instructions)

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 Factors section of 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, Teresa. And welcome everyone to our third quarter 2008 earnings call. As you might imagine, we are very excited to announce these results and we are particularly excited for our fellow shareholders and employees. I will begin the call with a few summary comments and then David Grace, our CFO, will present the financial details for the quarter. When David is finished, Paul Isabella, our President and COO, will cover several questions and answers of important topics that we know you want addressed during this call. When Paul has completed his comments, we will then open the call for other questions you might have.

If you recall, I concluded our last earnings call by stating that our third quarter was off to a strong start. And I’m very excited now to report that the third quarter stayed strong the entire time. You can see from our just released financial results that we posted good organic growth, particularly for residential products, our gross margins increase, and our good expense controls, saving price as well.

Earnings per share for the quarter came in approximately $0.10 above the highest estimates. And you can imagine that we are grateful for that, as you are too I’m sure. I’m also pleased to report that the fourth quarter is off to a very good start and there is general optimism throughout our company. And at this time, I will turn the call over to David, who will present the financial details for the quarter. And let’s go a little easy on him today, the man from (inaudible). He has been a little bit under weather. So, David, it’s your floor at this point.

David Grace

Thanks, Bob. In the third quarter of fiscal 2008, our net sales increased by 6.1% to $514.6 million from $484.9 million in 2007. Existing markets, which for the quarter now only include one branch, saw a sales growth of $28.5 million or 5.9%, while our acquired markets increased net sales by $1.3 million. Towards the end of our second quarter, we began raising our prices to our customers in response to price increases we see from some of our vendors.

We estimate our inflation by our product cost based upon our current inventory’s product mix and the invoice cost as compared to the invoice cost of the same products a year ago. Based upon this method, our product costs are up about 4.4% to 6% compared to 2007 levels. The price increases for many of our products range from 5% to 25%, the higher beginning in February. But many of these did not become effective to our customers immediately. Thus we feel our average price increases to our customers have been 5% to 7%, but were higher in residential products.

In our existing markets, residential roofing products grew by 12.4% during 2008, with regions affected by hailstorms especially strong. Our non-residential roofing sales grew by 7.4% with most markets still seeing good activity. Complementary products, which have been slightly high amidst of new construction, continue to struggle, down 11.3% in across most of the markets we sell those products in.

We did not open or close any branches during the current quarter compared to one branch opening during the third quarter of 2007. We operated a total 177 branches as of the end of this quarter compared to 178 last year. We had 64 business days in both 2008 and 2007. Our overall third quarter gross profit was $120.2 million for 2008 as compared to $107.8 million in 2007, 11.5% increase, with overall gross margins increasing to 23.4% from 22.2%.

Our acquired markets contributed an increase of $0.4 million in gross profit, while existing markets saw an increase of $11.9 million or 11.1%, well above the related increase in revenues. Existing markets had gross margins of 23.3% for 2008 compared to 22.2% for 2007. We use a weighted cost method at weighted average cost method in valuing our inventory. And that combined with buying ahead of some of the price increases has allowed us to increase gross margins as we increase prices to our customers in concert with the vendor announced price increases we saw. This led to slightly higher gross margins in residential roofing products while complementary products in non-residential roofing products’ gross margins were relatively flat last year.

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