PGT, Inc. PGTI reported a 33% year-over-year decline in its fourth-quarter earnings to 8 cents per share on Feb 25. Earnings also missed the Zacks Consensus Estimate of 10 cents. Nevertheless, shares of the company gained 20% as it outpaced the underlying markets in terms of top-line growth.
Including one-time items, the leading U.S. manufacturer and supplier of residential impact-resistant windows and doors reported earnings of 6 cents, a 45% decline from 11 cents earned in the year-ago quarter.
Operational Update
Net sales in the quarter grew 37% year over year to $85 million, outperforming management’s guidance of $81 to $84 million. Revenue also came ahead of the Zacks Consensus Estimate of $80 million. Sales growth included 10% organic growth and a contribution of $12.7 million from the CGI acquisition.
Cost of sales went up 47% year over year to $61 million. Gross profit rose 15% to $23.6 million from the year-ago quarter driven by sales growth. However, gross margin contracted 520 basis points (bps) year over year to 28%. Gross margin adjusted for costs related to the start up of a new glass facility and new product launch was 29.6%. The year-over-year decline was due to a 1.2% negative impact of an extra week of fixed costs as a result of 2014's fiscal calendar containing 53 weeks, and other items including a rise in scrap and labor costs, increased healthcare costs, higher cost of aluminum and a shift in mix toward new construction and vinyl sales.
Selling, general and administrative expenses increased 14% to $15.8 million from $13.8 million in the prior-year quarter. The company’s operating income came in at $7.9 million, up from $6.8 million in the year-ago quarter. Adjusted EBITDA was at $12.1 million compared with $9.5 million in the prior-year quarter. Adjusted margin was 14.2% compared with 15.3% in the year-ago quarter.
Fiscal 2014 Performance
PGT reported adjusted earnings per share of 43 cents, 2% lower than 44 cents earned in the prior year and also below the Zacks Consensus Estimate of 45 cents. Including one-time items, earnings for the year stood at 33 cents compared with 51 cents in the prior fiscal. Revenues increased 28% year over year to $306 million, ahead of the Zacks Consensus Estimate of $301 million.
Financial Performance
PGT ended fiscal 2014 with cash and cash equivalents of $42.6 million compared with $30.2 million as of 2013-end. The company’s long-term debt increased substantially to $192 million as of 2014-end from $72.4 million as of Dec 31, 2013. This led an increase in the debt-to-capitalization ratio to 72% as of fiscal 2014-end from 61% as of fiscal 2013-end.
2015 Guidance
Both organic growth and CGI acquisition are expected to help continue the sales growth momentum in 2015. For the first quarter of fiscal 2015, sales are expected to range between $90 and $93 million. The company stated that direct labor and scrap have improved 0.3% and 1.0% of sales so far in the first quarter on a sequential basis, which will help boost gross margins in the quarter. Given the current sales mix and improved operational performance PGT projects gross margin to range from 31.5% to 33.0% in the quarter.
Our Take
The company is further expanding its glass capacity in 2015, including a laminating line towards the end of the second quarter. This will allow it to reduce dependence on outsourced finished glass units and fully realize its expected glass capacity related savings.
In addition, PGT’s acquisition of CGI presents an exceptional opportunity for the company. The acquisition will help PGT to diversify and broaden its product portfolio while expanding its manufacturing footprint and providing synergies by maximizing efficiencies and scale. The CGI acquisition and the launch of its new vinyl WinGuard and EnergyVue products in first-quarter 2015 will help PGTI to benefit from the housing market rebound and recovery in new housing construction in its primary markets of Florida.
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 #3 (Hold). Some better-ranked stocks in the sector include Graña y Montero SAA GRAM, Trex Co. Inc. TREX and Quanex Building Products Corporation NX. While Graña y Montero sports a Zacks Rank #1 (Strong Buy), Trex and Quanex Building hold a Zacks Rank #2 (Buy).
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