It has been about a month since the last earnings report for Gibraltar Industries (ROCK). Shares have added about 0.7% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Gibraltar Industries due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Gibraltar (ROCK) Q2 Earnings & Sales Miss, Q3 View Strong
Gibraltar Industries, Inc. reported second-quarter 2019 results. The company’s adjusted earnings of 73 cents per share lagged the Zacks Consensus Estimate of 78 cents by 6.4%. Also, net sales of $262.7 million missed the consensus mark of $275 million by 4.3%.
On a year-over-year basis, its top line decreased 1.2%, while bottom line increased 2.8% on the back of enduring benefits from 80/20 simplification, interest savings on loan repayment and supply-chain initiatives. Yet, challenging market dynamics in Residential and Industrial businesses, as well as incremental field ramp-up of cost for its new solar tracking solution impacted the results.
Notably, the company recorded a backlog of $242 million across the business, up 30% year over year. The improvement was mainly driven by strengthening solar, greenhouse, perimeter security and infrastructure businesses.
Residential Products: Net sales in the segment fell 0.5% year over year to $130.4 million during the quarter, mainly due to lower demand for building products, caused by adverse weather conditions and labor shortages. Nonetheless, the decline was partially offset by an increase in selling price, implemented during the second half of 2018.
Adjusted operating margins contracted 230 basis points (bps) to 16.2%. The downside was mainly due to lower volumes, material cost alignment and unfavorable product mix.
Industrial and Infrastructure Products: Segment’s sales decreased 8.2% year over year to $56.2 million. The drop was mainly due to lower volumes in the Industrial business for its core expanded metal products. Meanwhile, declining steel prices resulted in delaying new orders in the Industrial business. Nonetheless, the Infrastructure business grew year over year on strong end-market activity and enhanced new business bidding activities.
Adjusted operating margins contracted 120 bps to 9.6%, owing to lower volume in the Industrial business, product mix and the alignment of material costs to pricing.
Renewable Energy and Conservation: Quarterly net sales at the segment rose 3.1% year over year to $76 million. The improved results were attributable to strong demand for its greenhouse solutions and contribution from the prior-year acquisition of SolarBos. Meanwhile, revenues for its solar tracker solution were muted during the quarter as the company stopped accepting new orders, while implementing field modifications for customers.
Adjusted operating margins of 12.6% were down 40 bps due to additional expenses incurred for its tracker solution, in a bid to improve durability and performance.
Costs and Margins
Cost of sales during the quarter totaled $199.1 million, up 1.8% year over year. Gross margin came in at 24.2%, down 230 bps year over year. Selling, general and administrative expenses grew 3.3% year over year to $37 million. Adjusted operating margin of 11.6% contacted 70 bps year over year.
Balance Sheet and Cash Flow
As of Jun 30, 2019, Gibraltar had cash and cash equivalents worth $81.9 million compared with $297 million recorded at the end of 2018.
In the first six months of 2019, the company provided $6.5 million cash for operating activities compared with $3.8 million cash used in operations in the comparable year-ago period.
Gibraltar remains confident about end-markets served across the business, given solid backlog level. The company intends to gain efficiency on the back of innovative product development, strategic acquisitions and the implementation of 80/20 simplification projects.
For 2019, Gibraltar has reiterated its previously announced revenue and earnings guidance. It expects consolidated revenues to be more than $1 billion. The company projects adjusted earnings in the range of $2.40-$2.55 per share. Adjusted operating income is expected in the range of $110-$117 million. Adjusted operating margin is expected in the range of 10.6-11.1%.
For third-quarter 2019, Gibraltar anticipates to generate revenues in the range of $288-$298 million compared with $280.1 million reported in the prior-year period. Adjusted earnings are projected within 84-91 cents per share, indicating an improvement from 71 cents reported in the year-ago quarter.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month.
Currently, Gibraltar Industries has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile 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.
Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise Gibraltar Industries has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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