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Why Is Beacon Roofing (BECN) Down 4.6% Since Last Earnings Report?

Zacks Equity Research
Zuora (ZUO) closed the most recent trading day at $22.39, moving -0.89% from the previous trading session.

It has been about a month since the last earnings report for Beacon Roofing Supply (BECN). Shares have lost about 4.6% 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 Q1 Earnings & Revenues Top Estimates

Beacon Roofing Supply, Inc. reported first-quarter fiscal 2019 results, wherein the top and bottom lines surpassed the Zacks Consensus Estimate, given higher revenues and gross margin.

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. 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 increased about 7%, with gains across all the three product categories.

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 market 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 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.


 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

At this time, Beacon Roofing has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Beacon Roofing has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.



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