In spite of reporting a loss in its bottom line for first-quarter fiscal 2014 due to severe winter, NCI Building Systems Inc.’s (NCS) Chairman, President and Chief Executive Officer, Norm Chambers maintained an optimistic stance in the recent conference call. Notably, Chambers declared that the company’s results would improve in the remainder of 2014 based on the company’s capitalization of the strengthening non-residential market as the weather improves.
NCI Building Systems’ sales climbed 4.4% year over year in the first quarter of fiscal 2014, despite a 5.5% decline in low-rise non-residential new construction starts. According to Chambers, the revenue growth was driven by efficient value pricing initiatives and customer support, which helped to counter the unexpectedly rough weather conditions.
However, ice storms in the winter, supply chain disruption, additional plant closure days and higher transportation costs eventually led to a first-quarter fiscal 2014 loss of 5 cents per share. Nevertheless, this was narrower than the year ago quarter’s loss of 19 cents.
Chamber’s positive view is affirmed by the fact that generally, 60%–90% of the company’s earnings are generated in the second half of the fiscal year. The company expects second-half earnings in 2014 to be closer to the higher end of this range. The company is benefiting from the reorganization of its manufacturing operations.
There has been substantial improvement in certain aspects of its manufacturing cost per ton. Chambers stated these efficiencies will lead to expanded margins in the second half of the year.
As the economy improves, Chambers declared that the company’s bookings and backlog would continue growing throughout 2014. Earnings would also benefit from significant pent-up demand. Key market indicators are expected to accelerate through 2014 and beyond. Industrial vacancy rates continue to fall and 2013 ended with the strongest quarterly absorption figure since 2005.
In addition, the latest Fed Senior Loan Officer Survey showed a relaxation of lending standards. The ABI index has been above the benchmark of 50 for 7 out of the past 10 months, which shows that the economy is stabilizing.
NCI Building’s growth strategy comprises driving profitability through operating leverage, increase of distribution channels and market penetration by new products. The company will continue to focus on boosting manufacturing efficiencies through its integrated business model. The maximization of balance sheet flexibility and improvement in supply chain efficiencies will also drive profitability.
The company expects its Coatings division to expand based on non-construction sales growth and the company’s transformation into a supply chain partner for national manufacturers. The Components division will benefit from sales growth in industrial and agricultural products as well as legacy products and insulated metal panels. Timely delivery of products and cost control initiatives will drive growth at the Buildings division.
Acquisitions also form part of the company’s growth. Notably, the recent Metl-Span acquisition will position NCI Building as a leader in the insulated metal panel business by diversifying and expanding its existing product range. The company will also benefit from a growing customer base as well as a distribution network in North America.
NCI Building also remains committed to high-end architectural offering through commercial and industrial distribution channels. The company continues to target increasing product margin to record levels through value pricing and mix improvements.
Currently, NCI Building Systems carries a Zacks Rank #5 (Strong Sell). However, some better-ranked stocks in the same sector include CaesarStone Sdot-Yam Ltd. (CSTE), USG Corp. (USG) and Wolseley plc (WOSYY). While CaesarStone sports a Zacks Rank #1 (Strong Buy), USG Corporation and Wolseley have a Zacks Rank #2 (Buy).