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Beacon Roofing's Q2 Performance to be Hit by Adverse Weather

Zacks Equity Research

Beacon Roofing Supply, Inc. BECN expects its second quarter of fiscal 2019 bottom line to be impacted by unfavorable weather conditions. The company expects to incur loss between 45 cents and 55 cents per share (on an adjusted basis), which is much wider than the current Zacks Consensus Estimate of 26 cents.

Historically, the second quarter has been the most difficult quarter. The company experienced extremely harsh weather conditions in this fiscal second quarter, mostly in February and early March. Through mid-March, the weather negatively impacted 40% to 75% of the company’s available selling days, depending on geography. Higher-than-normal seasonal pressure impacted margins that contracted more than the company had anticipated. It also resulted in higher variable expenses given weather fluctuations.

Beacon Roofing expects its fiscal 2019 earnings to be toward the lower end of its earlier guided range of $2.90 to $3.35.

A Look at Beacon Roofing’s Q1 Performance

In the last reported quarter, the company’s top and bottom lines surpassed the Zacks Consensus Estimate by 3.6% and 7.1%, respectively on higher revenues and gross margin. 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 in the fiscal first quarter, up 53.4% year over year.

However, earnings decreased 11.8% from a year ago, primarily due to 80.1% increase in operating expense during the quarter. Increased interest expenses along with preferred dividend payments associated with the acquisition of Allied added to the woes. Also, its earnings lagged the consensus mark in five of the trailing seven quarters.

On a positive note, the company remains confident that it will be able to overcome the current weather-related unfavorable impact in the second half of fiscal 2019 on the back of higher volumes and margin expansion.

Over the past three months, the company’s shares have gained 10.8%, compared with its industry’s rally of 12.1%. Higher contribution from the Allied Building Products acquisition and successful price increases associated with solid demand environment are expected to support Beacon Roofing's growth. Also, its focus on productivity enhancement is  likely to aid this Zacks Rank #2 (Buy) company’s performance. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.



 

Other Key Picks

Other top-ranked stocks from the Zacks Retail-Wholesale sector include Fastenal Company FAST, Kohl's Corporation KSS and The Kroger Co. KR, each carrying a Zacks Rank #2.

Fastenal has a long-term earnings growth rate of 16%.

Kohl's surpassed the Zacks Consensus Estimate in all the trailing four quarters, with the average positive surprise being 10.7%.

Kroger has a solid return on equity of 23.5%, much higher than its industry’s 10%.

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