NCI Building Systems Inc.’s (NCS) adjusted loss for the first quarter of fiscal 2012 ending January 29, 2012 of 32 cents was substantially narrower than the Zacks Consensus Estimate of a loss of 69 cents. The company also fared better than the year-ago quarter’s loss of 99 cents.
Including the effect of the convertible preferred stock's beneficial conversion feature and other one-time items, the company reported a net loss per share of 54 cents in the quarter under review, an improvement from a loss of $1.14 in the first quarter of fiscal 2011.
Operational Update
The company’s sales improved 28.2% year over year to $243.6 million in the quarter, surpassing the Zacks Consensus Estimate of $210 million. This outperformance came on the back of strong performance across all the segments.
Cost of sales during the quarter increased 21% to $190 million. Gross margin expanded 440 basis points to 22% in the quarter. Selling, general and administrative (SG&A) expenses also rose 3% to $49.3 million. Adjusted operating income of $4.3 million in the reported quarter was a stark improvement from year-ago operating loss of $12.8 million.
Segment Performance
Revenue at Engineered Building increased 38% year over year to $136 million in the quarter. The segment reported an operating income of $7.6 million in the quarter reversing the loss of $5.4 million a year ago. The improvement was largely attributable to increased demand in the manufacturing, warehousing and energy sectors and profitability improvement from the production efficiencies.
Revenue from the Metal Coil Coating segment increased 18% year over year to $20.2 million. Operating profit was $5.3 million in the quarter, up 54% from the prior-year quarter, driven by expanding volumes.
The Metal Component segment generated revenues of $87.3million, up 18% year over year reflecting increased demand in certain manufacturing sectors as well as growth in new products. Operating profit for the segment improved substantially to $5.5 million in the quarter from $0.35 million in the prior year quarter driven increased activity levels and lower operating costs.
Financial Update
At the quarter end, NCI Building Systems had cash and cash equivalents of $67 million, down from $79 million as of fiscal 2011 end. Long-term debt remained flat at $130.2 million at the end of the quarter. Net cash used in operating activities was $4.2 million in the quarter compared with $0.3 million in the prior year quarter.
Our Take
NCI Building has been in the red for nine straight quarters due to continued weakness in nonresidential construction activity. According to the American Institute of Architects, the architecture billings index, a predictor of construction spending 9 to 12 months in the future, was 50.9 in January, this marked the fifth consecutive month that the commercial and industrial component of the Index remained above 50.
The commercial and industrial component is an indicator of private building activity. The increase is encouraging as a reading above 50 indicates an overall increase in demand.
The company has resorted to restructuring in its manufacturing, engineering and supply-chain operations over the past three years, which has helped it to deliver improvement in profitability, outpacing revenue and volume gains. Furthermore, the company’s bookings and backlog increased substantially in the quarter, holding promise for 2012.
All said, we retain our Neutral recommendation on NCI Building. The quantitative Zacks #3 Rank (short-term Hold rating) indicates no clear directional pressure on the stock over the near term
Based in Houston, Texas, NCI Buildings manufactures and markets metal products primarily for the non-residential construction industry in North America. It competes with privately held American Buildings Company, Butler Manufacturing Company and Varco Pruden Buildings.
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