NCI Building Reports In Line (NCS)

Operational Update

Sales increased 28% year over year to $361.7 million in the quarter, outpacing the Zacks Consensus Estimate of $357 million, driven by a 21% increase in volume. The year-over-year growth was driven mainly by the Metal Components segment followed by the Engineered Building systems segment.

Cost of sales during the quarter increased 28% to $283 million. Adjusted gross profit increased 30% to $78.8 million with gross margin expanding 40 basis points to 21.8% in the quarter.

Engineering, selling, general and administrative expenses increased 24% to $63.2 million. Adjusted operating income of $15.6 million in the reported quarter was the highest in the last 12 quarters and improved 68% from the year-ago quarter’s operating income of $9.3 million. Operating margin expanded 100 basis points to 4.3% in the quarter.

Segment Performance

Revenue at Engineered Building Systems increased 17% year over year to $190 million in the quarter. The segment reported operating income of $14 million in the quarter, up 19% from the year-ago quarter’s adjusted income of $11.9 million. Operating income benefited from higher plant utilization and improved engineering efficiency.

Revenue from the Metal Coil Coating segment increased 2% year over year to $57.7 million. Operating profit was $7 million in the quarter, up 43% from the prior-year quarter.

The Metal Component segment generated revenues of $180 million, up 41% year over year. Operating profit for the segment surged 61% to $10.2 million in the quarter. The segment benefited from the contribution from the company's recent Metl-Span acquisition.

Financial Update

As of fiscal 2012 end, NCI Building Systems had cash and cash equivalents of $55 million, down from $78 million at the end of the fiscal 2011. Long-term debt increased to $234 million from $130.7 million at the end of the fiscal 2011. Cash flow from operating activities for fiscal 2012 was $47.7 million compared with $41.4 million in the prior year.

Fiscal 2012 Performance

NCI Building reported adjusted loss of 23 cents in fiscal 2012 compared with a loss per share of $1.96 in the prior fiscal. The reported loss per share compared unfavorably with the Zacks Consensus Estimate of a profit per share of 8 cents. Including special items, the company reported a loss per share of $3.81 versus a loss per share of $2.58 in the prior year. Sales increased 20% year over year to $1.15 billion.

Outlook

Management did not provide any specific guidance for fiscal 2013. However, the company expects revenues, adjusted EBITDA, operating income and net income to post solid year-over-year growth in fiscal 2013, despite the near-term effects of Hurricane Sandy, higher costs in the Coatings group related to the ramp-up of production at Middletown and a temporary mix shift on the seasonally slowest first quarter performance.

Our Take

NCI Building Systems has acquired Metl-Span LLC for $145 million. Metl-Span is a leader in the advancement of insulated panel technology and serves the architectural, commercial, industrial and cold Storage industries (non-residential building products market) with energy efficient and cost effective insulated metal wall and roof panels.

The acquisition will position NCI Building as a leader in the insulated metal panel business by diversifying and expanding its existing product range. In addition, NCI Building will also be benefited by a growing customer base as well as distribution network in North America.

During the fourth quarter, bookings increased 6% in dollars and 11% in volume annually. Backlog at the end of the year stood at $262.2 million, up 22% from 2011 levels. Both indicate toward a better performance in the upcoming quarters.

NCI Building Systems has expanded its product portfolio in the Coating segment to industries outside the non-residential construction market and has been providing competent services to a wider customer base. It has plans to increase toll and package sales of the coating segment. This initiative will reduce the dependence of the coating segment on the weaker construction market.

Even though in the quarter, new starts in the non-residential construction market, measured in square footage, declined 2%, for 2013, McGraw Hill predicts that non-residential construction activity will be 744 million in calendar 2013, up from 703 million in calendar 2012. This includes commercial and industrial sector growth of 11%.

Based in Texas, NCI Building Systems is one of the largest integrated manufacturers of metal products for the North American non-residential construction industry. It competes with privately held companies like American Buildings Company, Butler Manufacturing Company and Varco Pruden Buildings. Currently, the shares of NCI Building Systems retain a short-term Zacks #3 Rank (Hold).