PGT, Inc. (PGTI) reported an 8% year-over-year decline in its third-quarter earnings to 12 cents per share on Oct 29, due to increased material costs. Earnings also missed the Zacks Consensus Estimate of 13 cents. Shares of the company lost 7% of its value as a result of the decline in earnings, despite top-line growth.
Including one-time items, the leading U.S. manufacturer and supplier of residential impact-resistant windows and doors reported earnings of 5 cents, a 62% decline from 13 cents in the year-ago quarter.
Operational Update
Net sales in the second quarter grew 19% year over year to $77 million, at the high end of management’s guidance of $74 to $77 million. This was primarily driven by a 47.2% increase in new construction sales and 5.2% rise in sales in repair and remodel markets. Impact sales grew 19% over the prior-year quarter. Revenue also came ahead of the Zacks Consensus Estimate of $76 million.
Adjusted cost of sales went up 22% year over year to $53.8 million. Adjusted gross profit rose 12.4% to $23.5 million from the year-ago quarter driven by sales growth. However, gross margin contracted 190 basis points (bps) year over year to 30.4%. Increased material costs due to the costs of purchasing finished glass units, as well as an increase in the cost of aluminum, and of a shift in mix toward new constructions sales led to the decline.
Adjusted selling, general and administrative expenses decreased 5% to $12.8 million from $13.4 million in the prior-year quarter. The company posted an adjusted operating income of $10.8 million, up from $7.5 million in the year-ago quarter. Adjusted EBITDA was at $12.1 million compared with $10.2 million in the prior-year quarter. Adjusted margin was 15.6% compared with 15.8% in the year-ago quarter.
Financial Performance
PGT ended the third quarter with cash and cash equivalents of $43.7 million, compared with $30.2 million as of 2013-end. Long-term debt of the company increased substantially to $192 million as of Sep 27, 2014 from $72.4 million as of Dec 31, 2013. This led an increase in the debt-to-capitalization ratio to 73% as of Sep 27, 2014 from 61% as of Dec 31, 2013.
During the quarter, PGT completed the acquisition of CGI Windows and Doors, Inc., and a manufacturing facility in Miami. The company also started production in its new glass facility.
Guidance
The company is expecting fourth-quarter core PGT sales in the range of $70 million to $72 million. This reflects growth range of 13% to 16% from $62 million recorded in the year-ago quarter. PGT expects sales growth both organically as well as through the contribution of CGI, which is expected to be between $11 and $12 million. This will result in total sales between $81 and $84 million for the quarter.
Our Take
The company expects improvement in new construction and the repair and remodeling markets to drive growth. PGT will also benefit from its cost cutting initiatives. The company has expanded its current glass fabrication capabilities with the recent completion of its new glass facility, which is expected to improve margins by approximately 2% in 2015.
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 as well as to expand manufacturing footprint and provide synergies by maximizing efficiencies and scale.
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 #4 (Sell). A better-ranked stock in the sector is Trex Co. Inc. (TREX) with a Zacks Rank #2 (Buy).
Peer Performance
Trex’s third-quarter earnings of 28 cents per share reversed the prior-year quarter loss of 45 cents per share and also outpaced the Zacks Consensus Estimate of 24 cents.
Continental Building Products, Inc. (CBPX) reported adjusted earnings per share of 22 cents, a 120% improvement from 10 cents per share in the prior-year quarter. Earnings also outpaced the Zacks Consensus Estimate of 18 cents.
Gibraltar Industries, Inc. (ROCK) reported adjusted earnings of 30 cents per share in the third quarter of 2014, slightly down compared with 31 cents earned in the year-ago quarter. However, the bottom line surpassed the Zacks Consensus Estimate of 23 cents.
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