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Why Is Beacon Roofing (BECN) Down 10.3% Since Last Earnings Report?

Zacks Equity Research
Polaris Industries (PII) delivered earnings and revenue surprises of 4.22% and 0.15%, respectively, for the quarter ended June 2019. Do the numbers hold clues to what lies ahead for the stock?

It has been about a month since the last earnings report for Beacon Roofing Supply (BECN). Shares have lost about 10.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Beacon Roofing due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

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

Beacon Roofing Supply, Inc. 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.

Beacon Roofing incurred adjusted loss of 45 cents per share, which is narrower than the Zacks Consensus Estimate of a loss of 51 cents by 11.8%. However, the reported figure widened 28.6% from a loss of 35 cents per share a year ago. The result was primarily hurt by gross margin contraction.

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.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -6.56% due to these changes.

VGM Scores

At this time, Beacon Roofing has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 20% 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.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Beacon Roofing has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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