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Beacon Roofing (BECN) Q1 Earnings & Revenues Top, Shares Up

Zacks Equity Research

Beacon Roofing Supply, Inc. BECN reported first-quarter fiscal 2019 results, wherein the top and bottom lines surpassed the Zacks Consensus Estimate, given higher revenues and gross margin. Shares of the company gained more than 6% in the after-hour trading session following the earnings release.

Adjusted earnings of 60 cents per share surpassed the consensus estimate of 56 cents by 7.1%. However, the reported figure decreased 11.8% from 68 cents a year ago. The year-over-year downside was primarily due to higher operating expenses. Also, increased interest expenses along with preferred dividend payments associated with the acquisition of Allied added to the woes.

On a reported basis, the company incurred a loss of 10 cents per share against earnings of 98 cents a year ago.

Beacon Roofing, one of the largest distributors of residential as well as commercial roofing materials and complementary building products, posted record sales of $1.72 billion, up 53.4% year over year. Also, the reported figure topped the consensus mark of $1.66 billion by 3.6%.

The record sales were positively impacted by strategic acquisitions of Allied, Tri-State and Atlas. That said, organic sales declined 3.5% year over year. Pricing was up about 7%, with gains across all the three product categories.

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

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

Segment Details

Sales in the Residential roofing product segment grew 24.4% and that of Non-residential roofing product segment increased 27.6% from a year ago. Complementary products’ sales surged a whopping 178.9% year over year. However, existing markets sales (excluding acquisitions) decreased 1.9% as a result of bad weather conditions.

Cost of goods sold (accounting for 74.7% of net sales) of $1,286.1 million climbed 50.9% year over year. Gross profit came in at $435.6 million, which was significantly up 61.5% from a year ago. Also, gross margin expanded 130 basis points (bps) to 25.3%, benefiting from the favorable margin profile of acquired businesses as well as synergy contributions related to Allied.

However, operating expenses grew 80.1% year over year during the quarter.

Resultantly, Beacon Roofing’s operating income of $38.3 million declined from the prior-year figure of $49.1 million. Operating margin contracted 220 bps to 2.1% in the quarter.

Adjusted EBITDA increased 41.6% but EBITDA margin declined 60 bps in the reported quarter.

Cash Position

As of Dec 31, 2018, Beacon Roofing reported cash and cash equivalents of $18.4 million, down from $63.8 million reported in the corresponding period of 2017. The company used $336.9 million cash from operating activities in the fiscal first quarter compared with $40.5 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, and adjusted earnings per share are likely to be between $2.90 and $3.35. Free cash flow is expected in the $200-$300 million range.

Zacks Rank and Other Stocks to Consider

Beacon Roofing currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Other top-ranked stocks in the Zacks Retail-Wholesale sector include Fastenal Company FAST, Lowe's Companies, Inc. LOW and Lumber Liquidators Holdings, Inc. LL, each carrying a Zacks Rank #2.

Fastenal and Lowe's EPS growth rate for the current year is expected to be 7.6% and 18.5%, respectively.

Lumber Liquidators’ three-five year expected EPS growth rate is pegged at 27.5%.

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