NCI Building Q2 Loss Wider-than-Expected
NCI Building Systems Inc. (NCS) posted adjusted loss per share of 7 cents in the second quarter of fiscal 2014. The adjusted loss was wider than the Zacks Consensus Estimate of a loss of 4 cents per share. However, it was narrower than the prior-year quarter loss of 28 cents per share. The loss was mainly due to adverse weather and spending on growth initiatives.
Operational Update
Sales climbed 4.2% year over year to $305.8 million in the second quarter although it lagged the Zacks Consensus Estimate of $309 million. The improvement was mainly driven by sales growth in each of the operating segments. Backlog at the end of the quarter was $335 million, up 6% year over year.
Cost of sales during the quarter increased 6% to $246.5 million. Adjusted gross profit fell 1.5% to $59.9 million from $60.8 million in the year-ago quarter. Consequently, gross margin contracted 120 basis points to 19.5% in the quarter. The decrease was largely due to rough weather conditions, which resulted in 22 plant closure days.
Engineering, selling, general and administrative expenses increased 3.7% to $65.1 million. The company reported an adjusted operating loss of $5.5 million, compared with an operating loss of $1.9 million the prior-year quarter.
Segment Performance
Revenues at the Engineered Building Systems segment increased 1.6% year over year to $144.6 million. The benefits from value pricing, improvement in sales margin and product mix were offset by weather induced lower volumes and increased freight expenses. The segment reported an adjusted operating income of $0.4 million, down from the year-ago quarter income of $4.2 million.
Metal Coil Coating segment’s revenues climbed 16.5% year over year to $25.5 million as coating and tolling sales increased for both the light gauge and heavy gauge product lines. In addition, volume improvement was enhanced by favorable mix but offset by elevated steel costs, increased marketing expenditures and high utility expenses. Adjusted operating profit declined 18% year over year to $3.9 million as compared with the prior-year quarter.
The Metal Component segment generated revenues of $135.7 million, up 5.1% year over year driven by growth in the legacy single skin products and favorable pricing. Adjusted operating profit for the segment decreased 11% to $4.6 million due to increased costs, weather related decline in commercial and industrial insulated panel volumes and costs associated with the ramp-up of architectural insulated metal panel plant in Richmond, VA.
Financial Update
As of May 4, 2014, the company had cash and cash equivalents of $12.5 million, down from $77.4 million as of Nov 3, 2013. Long-term debt was $234 million as of May 4, 2014 compared with $235 million as of Nov 3, 2013.
Cash flow used in operating activities was $30.5 million for the period of six months ended May 4, 2014 compared with $3.8 million for the period of six months ended April 28, 2013.
Outlook
Management did not provide any specific guidance for fiscal 2014. However, NCI Building is optimistic about the fact that it has historically generated approximately 60% to 90% of its annual EBITDA in the second half of the year. The company sees no exception to this trend in 2014 as well. The company also expects mid-single digit growth in low rise new non-residential starts in fiscal 2014.
The main indicators for non-residential construction activity continue to trend positive. Furthermore, the recent booking trends seem to support this momentum. The company anticipates improved margins in fiscal 2014 guided by greater commercial discipline, manufacturing efficiencies and volume-driven operating leverage.
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 Systems carries a Zacks Rank #5 (Strong Sell). Some better-ranked stocks in the same sector include Gibraltar Industries, Inc. (ROCK), Simpson Manufacturing Co., Inc. (SSD) and United Rentals, Inc. (URI). All these carry a Zacks Rank #1 (Strong Buy).
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