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NCI Building (NCS) Stock Up on Q2 Earnings and Sales Beat

Shares of NCI Building Systems Inc.NCS gained around 2.5% yesterday after the company reported results for the second quarter (ended May 1, 2016) of fiscal 2016. It posted adjusted earnings of 4 cents per share in the quarter, which reversed from a loss of 6 cents in the prior-year quarter. Earnings also came ahead of the Zacks Consensus Estimate of breakeven results. Despite volatile seasonal patterns and slow recovery innon-residential market, earnings were driven by internal improvements in its commercial, manufacturing and supply chain groups.

The company reported earnings per share of 3 cents against a loss of 10 cents a share in the prior-year quarter, including one-time items.

Operational Update

Sales rose 3.4% year over year to $372 million in the quarter, surpassing the Zacks Consensus Estimate of $363 million. The growth was boosted by increased volumes across all three segments.

Cost of sales decreased to $283.8 million from $284.3 million in the year-ago quarter. Adjusted gross profit grew 16.5% year over year to $88.4 million. Consequently, adjusted gross margin expanded 270 basis points to 23.8% in the quarter, accelerated by consistent focus on commercial discipline, supply chain effectiveness and higher plant utilization.

Engineering, selling, general and administrative expenses increased 2.2% to $74.6 million, mainly due to increased volume which led to higher selling cost and higher incentive compensation charges. The company reported adjusted operating income of $11.4 million, which surged seven times from $1.6 million in the prior-year quarter led by improved gross margins.

Segment Performance

Revenues at the Engineered Building Systems segment declined to $134.5 million from $138.7 million in the year-ago quarter. The segment reported adjusted operating income of $6.4 million, significantly higher from $3.6 million in the year-ago quarter.

Metal Coil Coating reported revenues of $26.1 million, up 14.6% year over year. Adjusted operating profit grew 79% year over year to $4.7 million, supported by increased operating leverage on higher total volumes processed, combined with cost reductions from restructuring efforts.

The Metal Component segment's revenues increased 6.5% year over year to $211.7 million led by the continued strength of the legacy metal component product lines. On an adjusted basis, operating profit increased 73% year over year to $18.5 million, driven by a combination of effective supply chain management and commercial discipline. Greater efficiencies as a result of the reorganization in manufacturing also supported growth in operating profit.

Financial Update

At the end of the second quarter of fiscal 2016, NCI Building had cash and cash equivalents of $77.9 million compared with $99.7 million as of Nov 1, 2015. The company reported cash from operations of $20 million in the six-month period ending May 1, 2016, compared with cash usage of $3.3 million in the comparable year-ago period. Long-term debt was $424 million as of May 1, 2016, compared with $444 million as of Nov 1, 2015. NCI Building's consolidated backlog increased 5.7% to $533.4 million at the end of the quarter.

Outlook

Though management did not provide any specific guidance for fiscal 2016, NCI Building continues to expect 2016 to be better than 2015 in terms of both gross margin and adjusted EBITDA. The company also anticipates second-half fiscal 2016 performance to be stronger than the first half due to seasonality.

Headquartered in Texas, NCI Building Systems is a leading integrated manufacturer of metal products in the North American non-residential construction industry.

Currently, NCI Building carries a Zacks Rank #3 (Hold). Some better-ranked stocks worth considering in the same sector include Installed Building Products, Inc. IBP , Simpson Manufacturing Co., Inc. SSD and TopBuild Corp. BLD . All three stocks sport a Zacks Rank #1 (Strong 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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