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Beacon Roofing Up as Q2 Loss Narrows on Improved Margins - Analyst Blog

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Shares of Beacon Roofing Supply, Inc.BECN rose around 3.4% and closed at $31.36 on May 8 after the company reported its second-quarter fiscal 2015 (ended Mar 31, 2 015) results. The company's loss narrowed to 20 cents per share in the quarter from a loss of 25 cents per share recorded in the prior-year quarter on the back of favorable gross margins. The bottom line came in line with the Zacks Consensus Estimate.

Beacon Roofing Supply Inc. - Earnings Surprise | FindTheCompany

Operational Update

The distributor of residential and non-residential roofing materials posted record second-quarter sales of $413 million, up 7.4% year over year. Execution of growth strategy through existing stores, new branch openings and acquisitions drove sales growth. Complementary product sales increased 13.7% followed by a 9.7% rise in residential product sales. Non-residential roofing product sales increased 1.2%. Sales, however, failed to match the Zacks Consensus Estimate of $438 million.

Acquisitions and new branches made up most of the gain with same branch sales adding just less than 1%. Beacon Roofing also witnessed sales growth in four out of seven regions. The West and Midwest led the way with double-digit gains fueled by storm damage repair, new branch openings and increase in same branch sales. The company also posted solid growth in Canada and the Mid-Atlantic region aided by rise in same-branch sales across all product lines.

Cost of goods sold went up 6% year over year to $316 million. Gross profit was $96.8 million, increasing from $86.8 million in the year-ago quarter. Gross margin expanded 80 basis points (bps) year over year to 23.4% as pricing remained relatively flat with the prior-year period, offset by a product cost decline. Rise in gross margin can also be attributed to a shift in mix to more residential and complementary sales.

Operating expenses for the quarter increased 6.7% year over year to $111 million, owing to the incremental costs associated with the two acquisitions made in the first quarter and the greenfields opened in the last 18 months. The company posted an operating loss of $14 million versus a loss of $17 million in the prior-year quarter.

Financials

Beacon Roofing reported cash and cash equivalents of $23 million at the end of second-quarter fiscal 2015 versus $34 million in the previous quarter. The company generated $62.5 million in cash from operating activities during the quarter compared with $36 million in the prior-year quarter driven by a slightly higher net income, combined with significant improvements in working capital requirements. Long-term debt was $24.8 million as of Mar 31, 2015, compared with $20.6 million as of Mar 31, 2014.

Outlook

With the combination of acquisitions, new branches and existing branch growth, Beacon Roofing guided sales growth in the 6% to 8% range for 2015. The company maintained its expectations for gross margins in the range of 22.5% to 24% led by improving system pricing and reducing product costs.

Earlier in second quarter, Beacon Roofing announced price increases of most product lines based on price hikes by manufacturers. The price increases will come in effect in the month of May. In regards to new branch openings for 2015, the company is planning to open approximately 10 branches for the year and has already announced five year-to-date.

The company remains focused on maximizing earnings for the year by executing the fundamentals of business plan, focusing on excellent customer service, sales growth and cost control. However, pricing, demand and weather remain headwinds for the company.

Our Take

Solid progress on elements of strategic plan driven by new acquisitions, greenfield branch openings and organic growth in all lines of business will remain tailwinds for Beacon Roofing. Leading indicators for non-residential construction activity continue to trend positive, which bodes well for Beacon Roofing.

Peabody, MA-based Beacon Roofing is one of the major distributors of residential and non-residential roofing materials as well as complementary building products in the U.S. and Canada, with more than 90% of sales coming from the U.S.

Beacon Roofing currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the sector include Tractor Supply Company TSCO , Tecnoglass Inc. TGLS and Tempur Sealy International Inc. TPX . All these stocks carry a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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