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What's in Store for Builders FirstSource's (BLDR) Q3 Earnings?

Builders FirstSource, Inc. BLDR is scheduled to release third-quarter 2020 results on Oct 29, after market close. In the last reported quarter, the company delivered an earnings surprise of 148.2%. We note that its earnings outperformed the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 50.97%.

The Zacks Consensus Estimate for third-quarter earnings is pegged at 63 cents, suggesting a 12.5% decline from the year-ago quarter’s reported figure. Moreover, the consensus estimate has declined 4.8% in the past 30 days. The consensus mark for quarterly revenues is pegged at $2.32 billion, indicating 16.9% growth from the year-ago period’s reported figure.

Key Factors to Note

Builders FirstSource has been witnessing growth in value-added product volume, led by strong sales for Windows, Doors and Millwork product as well as in the repair and remodel/other category. With the lifting of restrictions on homebuilding in most parts of the United States, the company has been witnessing a recovery in order volumes, which is expected to get reflected in its top-line results for the third quarter. Further, it is likely to have benefited from increased sales volume for value-added product categories, backed by investments made over the years.

Additionally, its operational excellence initiatives, including investments in distribution and logistics software, pricing and margin management tools, back office process efficiencies, and Information System enhancements, bode well.

Builders FirstSource, Inc. Price and EPS Surprise

 

Builders FirstSource, Inc. Price and EPS Surprise

Builders FirstSource, Inc. price-eps-surprise | Builders FirstSource, Inc. Quote

Moreover, the homebuilding markets have been resilient, with improving housing starts, record-low mortgage rates and the shift toward suburban living. The positive fundamentals are likely to have continued to support the demand for the company’s products and services in the third quarter. In the last reported quarter’s earnings call, management noted that Builders FirstSource is well-poised to take advantage of the aforementioned housing tailwinds, which continued in July.

However, cost-related headwinds in the lumber and lumber sheet product categories are likely to have hurt the company’s bottom line in the third quarter. Notably, it has been witnessing sharp commodity inflation in lumber and panel costs since May. The commodity cost inflation and the related spike in prices to customers has been hurting the gross margin for the past few quarters and has also been impacting short-term pricing commitments.

Driven by the speed and magnitude of the commodity inflation, the company on its last reported quarter’s earnings call predicted gross margin rate to be below the normalized levels in the third quarter. It expects gross margin rate in the low 24% range for the third quarter compared with its normalized levels of more than 26% when commodities are at more stable prices.

Additionally, economic slowdowns related to the pandemic, mainly in the Northeast, Northwest, Midwest and Florida, have been impacting the demand across manufacturing product categories. This is likely to have hurt the bottom line to some extent.

Based on these factors, management predicted flat adjusted EBITDA year over year at $160 million for the third quarter. It anticipates year-over-year core organic sales growth in the mid-single digits.

What the Zacks Model Unveils

Our proven model does not conclusively predict an earnings beat for Builders FirstSource this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
 
Builders FirstSource carries a Zacks Rank #3 and an Earnings ESP of -10.76%.

Stocks With Favorable Combinations

Here are some companies you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat.

Beacon Roofing Supply, Inc. BECN presently has an Earnings ESP of +3.42% and it sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Lowes Companies, Inc. LOW has an Earnings ESP of +2.90% and a Zacks Rank #2 at present.

The Home Depot, Inc. HD currently has an Earnings ESP of +2.03% and a Zacks Rank #3.

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Builders FirstSource, Inc. (BLDR): Free Stock Analysis Report
 
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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.

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