Shares of Beacon Roofing Supply, Inc. BECN fell as much as 0.3% since it reported third-quarter fiscal 2015 (ended Jun 30, 2015) results on Aug 6. The company’s earnings of 56 cents per share increased around 3.7% year over year but missed the Zacks Consensus Estimate of 64 cents.
Operational Update
The distributor of residential and non-residential roofing materials posted record third-quarter sales of $718 million, up 8.3% year over year. Sales, however, failed to match the Zacks Consensus Estimate of $732 million.
The year-over-year sales increase was led by growth in all product lines of the company. Execution of growth strategies in existing stores, new branch openings and acquisitions also aided growth. Residential product sales increased 13.2%, followed by a 9.8% rise in complementary product sales. Non-residential roofing product sales increased 1.3%.
Cost of goods sold went up 7% year over year to $548.8 million. Gross profit was $169.4 million, increasing from $150.8 million in the year-ago quarter. Gross margin expanded 90 basis points (bps) year over year to 23.6% due to shift in mix to more residential and complementary sales.
Operating expenses for the quarter increased 15.7% year over year to $121.4 million owing to the incremental costs associated with investments in greenfields and acquisitions. The company posted operating income of $48 million compared with $45.8 million in the prior-year quarter.
Financials
Beacon Roofing reported cash and cash equivalents of $17.6 million at the end of third-quarter fiscal 2015 compared with $26.4 million in the prior-year quarter. The company generated $11.2 million in cash from operating activities for the period of nine months ended Jun 30, 2015 compared with cash usage of $46.8 million in the comparable period last year. Long-term debt was $23.6 million as of Jun 30, 2015, compared with $23.1 million as of Jun 30, 2014.
Outlook
For fiscal 2015, Beacon Roofing expects adjusted earnings per share to be in the range of $1.30 to $1.35 and adjusted EBITDA in the band of $161 million to $165 million. The company remains optimistic about its fourth-quarter performance.
During the third quarter, Beacon Roofing acquired Denver-based ProCoat Systems. ProCoat is the fourth acquisition completed in the last 12 months which will add to Beacon Roofing’s complementary-based products. In relation to RSG, Beacon Roofing is planning to close the acquisition on Oct 1 by developing integration plan, lining up the financing elements and communicating with both the Beacon and RSG teams. The company also remains focused on cash management and cash generation for fiscal 2015.
With regards to new branch openings during 2015, Beacon Roofing has opened six new branches to-date. The company targets to open 10 greenfields in 2015. For 2016, the company is evaluating potential markets, which fit its strategy of continued expansion, for greenfield openings.
The company remains focused on maximizing earnings for the year by executing the fundamentals of business plan, focusing on excellent customer service, sales growth and cost control. However, pricing, demand and weather remain headwinds for the company.
Our Take
Solid progress on elements of strategic plan, driven by new acquisitions, greenfield branch openings and organic growth in all lines of business will remain tailwinds for Beacon Roofing. Leading indicators for non-residential construction activity continue to trend positive, which bodes well for the company.
Peabody, MA-based Beacon Roofing is one of the major distributors of residential and non-residential roofing materials as well as complementary building products in the U.S. and Canada, with more than 90% of sales coming from the U.S.
Beacon Roofing currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader Retail-Wholesale sector are Aaron's, Inc. AAN, Amazon.com Inc. AMZN and Build-A-Bear Workshop Inc. BBW. All these stocks carry a Zacks Rank #1 (Strong Buy).
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