Beacon Roofing Supply, Inc. (BECN) tumbled around 9.8% and closed at $26.25 on Nov 25 after reporting dismal fourth-quarter and fiscal 2014 (ended Sep 30, 2014) earnings. Fourth-quarter adjusted earnings declined over 14% year over year to 48 cents per share owing to lower gross margins from reduced selling prices due to weak demand and a continued unfavorable shift in sales mix to lower margin direct shipment and commercial business. Earnings also fell short of the Zacks Consensus Estimate of 61 cents.
The company’s reported earnings came in at 48 cents per share, decreasing 12.7% from 55 cents reported in the year-ago quarter.
Operational Update
The distributor of residential and non-residential roofing materials posted record fourth quarter and fiscal 2014 sales, driven by the success of 26 new greenfields opened in the current year.
Total revenue increased 6.3% year over year to a record $726.5 million and came ahead of the Zacks Consensus Estimate of $732 million. Complementary product sales increased 14.5% followed by a 5.1% rise in residential roofing products while Non-residential roofing product sales went up 4.9%.
Geographically, Beacon Roofing witnessed organic growth in five out of the seven reported regions in the quarter. The Midwest and Northeast led the way with double-digit gains fueled by storm and greenfield volume from the 2013 and 2014 openings. The company also viewed solid growth in the West, Canada and mid-Atlantic regions, whereas the Southeast and Southwest regions, both down double digits in the quarter, continued to struggle with volume as a lack of normal storm volume, lower residential reroof and new construction work has impacted overall demand and pricing.
Cost of goods sold went up 7% year over year to $563 million. Gross profit was $163 million, compared with $157.7 million in the year-ago quarter. Gross margin contracted 60 basis points (bps) from the prior-year quarter to 22.5% primarily due to decline in total pricing, mainly seen across the residential roofing products and commercial roofing products.
Operating expenses for the quarter increased 9% year over year to $120 million. The company posted an operating profit of $43.2 million, down 9% from $47.6 million in the prior-year quarter.
Fiscal 2014 Performance
Beacon Roofing shares have declined over 29% in the last 12 months because of company’s poor performance in fiscal 2014. Soft demand in the residential market, tough weather conditions and pricing pressure led to the slump.
Beacon Roofing posted adjusted earnings of $1.08 per share for fiscal 2014, which slumped 25.5% from $1.45 a share in fiscal 2013 due to softer overall demand following the adverse and extended weather conditions during the first half of 2014 along with incremental operating expenses. Earnings, however, came ahead of the Zacks Consensus Estimate of $1.21. Including special items, earnings were $1.08 per share for the year compared with $1.47 in fiscal 2013.
However, revenues for the full year increased 3.8% year over year to a record $2.33 billion from $2.24 billion in fiscal 2013. Revenues came in line with the Zacks Consensus Estimate.
Financials
As of Sep 30, 2014, cash and cash equivalents amounted to $54.5 million versus $47 million as of Sep 30, 2013. As of Sep 30, 2014, long-term debt was $30.8 million, compared with $12.7 million as of Sep 30, 2013.
Cash from operations for the twelve-month period ended Sep 30, 2014, were $55.5 million, down from $78.5 million in the year-ago comparable period, led by decrease in net income.
Outlook
The company did not provide any specific outlook but hinted that sales will benefit from the three acquisitions completed in Aug and Oct 2014 that will add over $88 million to revenue in fiscal 2015. Further Beacon Roofing’s continuous investment in the business through opening of the new greenfield branches will drive sales growth.
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. The company went above its internal goal of 20 to 25 branches by opening 26 branches in fiscal 2014. However, the company continues to experience pressure on gross margins due to a soft residential market coupled with heightened competition.
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 #5 (Strong Sell). However, some better-ranked stocks in the same industry include Lowe's Companies Inc. (LOW), O'Reilly Automotive Inc. (ORLY) and NVR, Inc. (NVR). All these stocks carry a Zacks Rank #2 (Buy).
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