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Beacon Roofing (BECN) Posts Narrower Q2 Loss, Beats on Sales

Zacks Equity Research

Beacon Roofing Supply, Inc. BECN reported better-than-expected results in second-quarter fiscal 2019. The top and bottom lines improved from the prior-year period, backed by positive organic growth, increased daily sales, aggressive cost-control measures, alongside solid price-cost performance during the reported quarter. Consequently, shares of the nations’ largest publicly traded distributor of roofing materials and complementary building products company grew nearly 2% in the after-hour trading session, following the earnings release.

Beacon Roofing reported adjusted loss of 45 cents per share, which is narrower than the Zacks Consensus Estimate of a loss of 51 cents by 11.8%. Also, the reported figure narrowed 28.6% from a loss of 35 cents per share a year ago. The upside was primarily attributable to strong sales in the markets that were less affected by inclement weather and lower operating expense, partially offset by pressurized gross margins.


Beacon Roofing Supply, Inc. Price, Consensus and EPS Surprise


Beacon Roofing Supply, Inc. Price, Consensus and EPS Surprise | Beacon Roofing Supply, Inc. Quote

Net sales of $1.43 billion topped the consensus mark of $1.39 billion by 3% and grew 0.2% year over year. The improvement was backed by highly attractive markets served by the company, along with steady repair & remodeling activity.

Segment & Operating Details

Sales in the Residential roofing product segment increased 2.9% to $598.9 million, while that of Non-residential roofing product unit decreased 5.7% from a year ago to $313.6 million. Complementary products’ sales of $516.5 million rose 1.1% year over year.

However, existing markets sales declined 0.4% from the prior-year quarter as a result of poor weather conditions. Nonetheless, the same metric climbed 1.2% year over year on the basis of business day.

Cost of goods sold (accounting for 76.6% of net sales) totaled $1,094 million, increasing 0.1% year over year. Gross margin contracted 30 basis points (bps) to 23.4%.

Operating expenses decreased 60 bps to 27.2% of total net sales during the quarter. Resultantly, its operating losses narrowed 30 bps from the prior-year quarter to 3.8% of net sales. However, adjusted EBITDA margin contracted 30 bps to 1.9%.

Cash Position

As of Mar 31, 2019, Beacon Roofing had cash and cash equivalents of $0.6 million, down from $16 million reported in the corresponding period of 2018. Cash used in operations were $242.1 million in the first six months of fiscal 2019 versus cash provided by operations of $40 million a year ago.

2019 Guidance Reiterated

For fiscal 2019, the company projects total sales in the range of $7-$7.35 billion. Organically, sales are anticipated to grow in the mid-single-digit range.

Adjusted EBITDA is expected in the range of $540-$610 million. Adjusted earnings per share are likely to be at the lower end of the previously expected range of $2.90-$3.35. Free cash flow is expected in the $200-$300 million range.

Zacks Rank and Stocks to Consider

Beacon Roofing currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some better-ranked stocks in the Zacks Retail-Wholesale sector include Williams-Sonoma, Inc. WSM, Build-A-Bear Workshop, Inc. BBW and Ethan Allen Interiors Inc. ETH, each carrying a Zacks Rank #2 (Buy).

Williams-Sonoma and Build-A-Bear have a three-five year expected EPS growth rate of 7.2% and 9%, respectively.

Ethan Allen's EPS growth rate for the current year is expected to be 17.8%.

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