NCI Building Systems Inc. NCS posted adjusted earnings of 31 cents per share for the fourth quarter (ended Nov 1, 2015) of fiscal 2015, which surged 63% from 19 cents earned in the prior-year quarter. Despite continued weak market conditions, improved earnings were driven by increased volumes, commercial discipline and manufacturing improvements. Earnings per share also beat the Zacks Consensus Estimate of 22 cents by 41%.
Including one-time items, the company reported earnings per share of 25 cents, up from 19 cents recorded in the prior-year quarter.
Operational Update
Sales rose 17% year over year to $460 million in the quarter, surpassing the Zacks Consensus Estimate of $453 million. Growth in revenues was attributable to contribution from the CENTRIA business as well increase in volume across all three segments. Legacy single skin and insulated metal panel (IMP) product lines and the Buildings group delivered strong revenue growth.
Cost of sales increased 12% to $336 million from $299 million in the year-ago quarter. Adjusted gross profit grew 32% year over year to $124 million. Consequently, gross margin expanded 310 basis points to 26.9% in the quarter, primarily driven by commercial discipline, effective supply-chain initiatives and impact of operating leverage created by increased utilization.
Engineering, selling, general and administrative expenses increased 13% to $76.4 million mainly due to the CENTRIA acquisition followed by increased incentive compensation. The company reported adjusted operating income of $43.8 million for the quarter, which improved 75% from $25 million in the prior-year quarter led by improved gross margins.
Segment Performance
Revenues at the Engineered Building Systems segment edged up 1% year over year to $192.5 million, primarily driven by higher volume from an improved product portfolio mix. The segment reported adjusted operating income of $26.4 million, up 36% from $19.4 million in the year-ago quarter, aided by improvements in commercial discipline, supply-chain management and manufacturing efficiencies.
Metal Coil Coating segment’s revenues declined 18% year over year to $26.7 million. On an adjusted basis, operating profit increased 4% year over year to $7.2 million.
The Metal Component segment generated revenues of $240.6 million, which rose 41% year over year. Contribution from CENTRIA as well as continued strength of the legacy single skin and roll-up door product lines led to the improvement. Adjusted operating profit for the segment jumped 88% to $26.9 million, thanks to CENTRIA's contribution, improved product mix and commercial discipline.
Fiscal 2015 Performance
NCI Building Systems reported adjusted earnings per share of 42 cents in fiscal 2015, up 163% from 16 cents per share recorded in the prior fiscal year. Earnings beat the Zacks Consensus Estimate of 34 cents per share. Including one time items, the bottom line came in at 24 cents, up 60% from 15 cents in fiscal 2015.
Revenues increased 14% year over year to $1,564 million from $1,370 million in fiscal 2014. Revenues trumped the Zacks Consensus Estimate of $1,557 million.
Financial Update
At the end of fiscal 2015, NCI Building had cash and cash equivalents of $99.7 million compared with $66.6 million a year ago. The company generated $105 million in cash from operating activities for fiscal 2015 as against $34 million in the prior year. Long-term debt was $444 million at fiscal 2015-end compared with $233 million at the end of fiscal 2014. NCI's proforma net debt leverage ratio at the end of the fiscal 2015 improved to 2.7x, moving closer to the previous pre-CENTRIA acquisition leverage of 2.2x.
NCI Building’s Engineered Building Systems backlog grew 13% year over year, and consolidated backlog increased 48% to $494.5 million at the end of fiscal 2015. This includes CENTRIA’s backlog of $115.2 million.
Other Updates
NCI Buildings intends to improve cost efficiency by optimizing its manufacturing footprint through integration of operations from its recent acquisitions. Successful execution of these improvement plans over the next 12–36 months will lead to cost-savings of $15–20 million on an annual basis.
Outlook
Though management did not provide any specific guidance for fiscal 2016, NCI Building remains committed toward its strategic initiatives for optimizing manufacturing footprint and decrease cost structure over the next several quarters. The company anticipates low-to mid-single digit nonresidential market growth rates for calendar year 2016.
Given that backlog remains strong and includes a greater proportion of higher-complexity projects that have a longer lead time for production, this bodes well for the first half of fiscal 2016. Moreover, investments made over the past few years in IMP will help the company capitalize on the anticipated growth potential of the under-penetrated North American market.
NCI Building’s expects to deliver year-over-year improvement in fiscal 2016. Nevertheless, the second-half performance of fiscal 2016 is expected to be stronger than the first half due to seasonality.
Headquartered in Texas, NCI Building Systems is a leading integrated manufacturer of metal products in the North American non-residential construction industry.
Currently, NCI Building carries a Zacks Rank #3 (Hold). Better-ranked stocks in the same sector include Gibraltar Industries, Inc. ROCK, Quanex Building Products Corporation NX and Masco Corporation MAS. While Gibraltar Industries and Quanex sport a Zacks Rank #1 (Strong Buy), Masco holds a Zacks Rank #2 (Buy).
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