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Beacon (BECN) FYQ2 Sales to Grow 10% Y/Y on End-Market Demand

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Beacon Roofing Supply, Inc. BECN has been benefiting from strong end-market demand for residential roofing products and favorable pricing execution. The company now expects net sales for second-quarter fiscal 2021 to benefit from the same and grow impressively from the year-ago period.

In its filing, Beacon projected net sales for the fiscal second quarter (ended Mar 31, 2021) between $1.31 billion and $1.32 billion. This indicates 10% growth from $1.197 billion in the year-ago quarter.

Furthermore, it expects net income (loss) from continuing operations and adjusted EBITDA for the quarter to improve significantly year over year (after reflecting the Interior Products business as discontinued operations).

The potential improvements should have been mainly driven by higher sales, gross margin expansion and operating leverage.

Robust Residential Market Bodes Well

Beacon Roofing — the largest distributor of residential and non-residential roofing materials — has been gaining strength from solid residential backdrop, stronger gross margins and reduced operating expenses.

Solid U.S. housing market fundamentals and repair & remodeling activities have been benefiting Beacon Roofing. Housing markets have been showing resilience of late, given low mortgage rates. With the reopening of the economy, the demand for housing and building material products has been improving, given the increasing trend of consumers to invest more in homes amid the pandemic. In addition to remarkable recovery in single-family housing construction, repair/remodel activity also has been robust, supported by do-it-yourself and professional activity.

In the last reported quarter, sales of residential roofing products (accounting for 53.6% of net sales) grew 21.2% and complementary products (21.1%) rose 8.8%, while non-residential roofing products (25.3%) declined 3.3%.

Meanwhile, cost-saving efforts and productivity initiatives helped it bring down operating expenses, thereby driving margins. Gross margin improved 140 basis points (bps) year over year for first-quarter fiscal 2021. Moreover, adjusted EBITDA margin expanded 370 bps year over year. Successful implementation of price increase, timing benefits related to the same and corresponding increase in the cost of goods sold helped the company register higher margin. As a percentage of net sales, SG&A expenses contracted to 16.8% or 250 bps from a year ago.

Shares of Beacon Roofing have gained 39.7% year to date, outperforming the Zacks Building Products - Retail industry’s 21.1% rally. In addition to solid residential backdrop, cost-saving efforts and productivity initiatives, its increased focus on the e-commerce platform, new OTC (On-Time and Complete) Delivery Network and a newly-designed website are other positives that are expected to drive growth further.

Zacks Rank & Key Picks

Beacon Roofing currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader construction sector include Owens Corning Inc. OC, TopBuild Corp. BLD and Advanced Drainage Systems, Inc. WMS, each holding a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Owens Corning, TopBuild and Advanced Drainage Systems are expected to witness 25.9%, 33.2% and 193.2% earnings growth this year, respectively.

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