Beacon Roofing Supply Inc. (BECN) reported a net income of 51 cents per share in the third quarter of fiscal 2011, comfortably surpassing the Zacks Consensus Estimate of 46 cents per share. Results were a remarkable improvement of 46% over the prior year quarter's earnings of 35 cents.
Higher sales leading to higher gross margin rate, coupled with lower interest expense benefited the quarter. However, these positives were somewhat dwarfed by higher operating expenses and a higher income tax provision.
Operational Update
Net sales in the quarter under review increased 14% year over year to gross $540.7 million, outpacing the Zacks Consensus Estimate of $497 million.
Residential roofing product sales improved 14.6% while non-residential roofing product sales increased 15.4% over the prior year quarter. Higher average selling prices and new business aided the improvement in roofing sales.
However, complementary product sales declined 6.6%.
Cost of goods sold in the reported quarter increased 12% year over year to $414 million, while operating expenses also increased 12% to $83.6 million.
Operations income of $43 million improved 43% over the year-ago quarter.
Financial Position
The company ended the quarter with cash and cash equivalents of $107.9 million, improving substantially from $82.1 million as of June 30, 2010.
Cash from operating activities also improved to $37.7 million during the nine months, from $26.0 million in the year-earlier period. Higher operating income coupled with the increase in accounts payable and accrued expenses, partially offset by an unfavorable impact from larger increases in inventories and accounts receivable fueled the improvement.
Capital expenditure in the nine months totaled $9.8 million, higher than $5.5 million in the year-ago period.
We maintain our “Neutral” recommendation on Beacon Roofing. The quantitative Zacks #2 Rank (short-term Buy rating) for the company indicates upward pressure on the shares over the near term.
Beacon is one of the three largest roofing materials distributors in the United States and Canada, with more than 90% of sales coming from the U.S. Beacon competes with privately-held American Builders & Contractors Supply Co Inc., Guardian Building Products Distribution Inc. and Stock Building Supply Inc.
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