Shares of PGT, Inc. (PGTI) gained over 29% and closed at $9.55 on Aug 5, following its impressive second-quarter 2014 results on Jul 28. Earnings per share of PGT improved 14.3% year over year to 16 cents in the reported quarter, surpassing the Zacks Consensus Estimate of 12 cents.
The prior-year quarter excluded expenses related to secondary offering, debt refinancing and a discrete tax item. Including these, earnings in the year-ago quarter were at 19 cents. Compared with this, earnings of 16 cents in the reported quarter declined 15.8%.
Operational Update
Net sales in the second quarter grew 29.9% year over year to $81.6 million, primarily driven by new construction sales as well as focus on marketing programs. This marks the 7th straight quarter of over 25% rise in top-line and the highest quarterly sales since 2006. Revenue also came ahead of the Zacks Consensus Estimate of $76 million.
Cost of sales went up 32.7% year over year to $55.5 million. Gross profit rose 24% to $26 million from the year-ago quarter. However, gross margin contracted 150 basis points (bps) year over year to 32%.
Selling, general and administrative expenses decreased 9% to $13 million from $14.3 million in the prior-year quarter. The company posted an operating income of $13 million, up from $6.7 million in the year-ago quarter.
Financial Performance
PGT ended the second quarter with cash and cash equivalents of $33 million, compared with $30.2 million as of 2013-end. Long-term debt of the company decreased to $70.6 million as of Jun 28, 2014 from $72.4 million as of Dec 31, 2013. Debt-to-capitalization ratio was 53.5% as of Jun 28, 2014 as against 61% as of Dec 31, 2013.
Guidance
PGT is expecting third quarter sales in the range of $74 million to $77 million, up compared with $64.9 million recorded in the year-ago quarter. The company remains optimistic about growth in new construction and the repair and remodeling markets which will drive growth. PGT will also benefit from its cost cutting initiatives.
PGT also anticipates that construction of a new glass facility will further strengthen its presence in Florida along with addressing internal capacity shortages and reduce its reliance on outsourced finished glass. Once the new plant is fully operational, it will improve margins by approximately 2% to 3% based on sales levels.
In addition, the recently announced agreement to acquire CGI presents an exceptional opportunity for PGT. The acquisition will help to diversify and broaden PGT’s product portfolio as well as expand manufacturing footprint and provide synergies by maximizing efficiencies and scale.
Our View
PGT will benefit from recent acquisitions and new plant addition. The WinGuard product lines are also expected to deliver strong growth going forward. However PGT’s gross margin will be affected by an increase in material cost from purchased finished glass units.
North Venice, FL-based PGT is a leading U.S. manufacturer and supplier of residential impact-resistant windows and doors. PGT's product line includes a variety of aluminum and vinyl windows and doors, which are ideal for new construction and replacement projects serving the residential, commercial, high-rise and institutional markets.
PGT currently has a Zacks Rank #2 (Buy). Other stocks worth considering in the sector include Quanex Building Products Corporation (NX), Boise Cascade Company (BCC) and RPM International Inc. (RPM). All these stocks carry a Zacks Rank #2 (Buy).
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