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Beacon Roofing (BECN) Up 4.2% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

It has been about a month since the last earnings report for Beacon Roofing Supply (BECN). Shares have added about 4.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Beacon Roofing due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Beacon Roofing (BECN) Q4 Earnings Lag Estimates

Beacon Roofing Supply, Inc. reported lower-than-expected earnings and net sales in the fourth quarter of fiscal 2019. Also, its bottom line declined from the prior-year period due to higher product and acquisition-related costs.

Beacon Roofing reported adjusted earnings of $1.04 per share, missing the Zacks Consensus Estimate of $1.17 by 11.1%. The reported figure declined 2.8% from $1.07 per share a year ago.

Net sales of $2.03 billion lagged the consensus mark of $2.06 billion by 1.4%. Nonetheless, the said figure grew 4.9% year over year. The improvement was backed by 3.2% organic sales improvement, driven by residential roofing organic growth of 11.5%.

Segment & Operating Details

Sales in the Residential roofing product segment (accounting for 44.9% of total net sales) increased 12.7% to $912.2 million and that of Non-residential roofing product unit (24.9%) was up 2.4% from a year ago to $505.2 million. However, Complementary products’ (30.2%) sales were down 3.2% year over year to $612.6 million.

Existing market sales increased 4.8% from the prior-year quarter, attributed to 13.2% growth in residential roofing. Also, the metric climbed 3.2% year over year on the basis of business day.

Cost of goods sold (accounting for 75.7% of net sales) totaled $1,536.5 million, increasing 1.1% year over year. Gross margin contracted 110 basis points (bps) to 24.3%.

Operating expenses remained on par with the prior-year figure. However, operating income fell 110 bps. Adjusted EBITDA margin contracted 90 bps to 8.3%.

Cash Position

As of Sep 30, 2019, Beacon Roofing had cash and cash equivalents of $72.3 million, down from $129.9 million at 2018-end. Cash provided by operations was $212.7 million compared with $539.4 million reported a year ago.

Fiscal 2019 Highlights

Beacon Roofing’s adjusted earnings of $2.26 per share increased 16.3% year over year and surpassed analysts’ expectation by 2.7%. Also, revenues of $7.11 billion in fiscal 2019 were up 10.7% year over year. However, net sales lagged the consensus mark by 0.5%.

Adjusted EBITDA margin in fiscal 2019 contracted 80 bps from a year ago.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -37.65% due to these changes.

VGM Scores

Currently, Beacon Roofing has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Beacon Roofing has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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