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Why Beacon Roofing Supply Stock Dropped 14%

What happened

Shares of Beacon Roofing Supply (NASDAQ: BECN) closed down 14% on Wednesday, after the company reported Q3 earnings results that fell far short of Wall Street's estimates.

Beacon had been expected to report earning $1.32 per share on sales of $2.07 billion for its fiscal third quarter. In fact, sales came in at just $1.93 billion, and earnings were only $1.18 pro forma -- and just $0.55 GAAP.

Glowing red arrow trending down
Glowing red arrow trending down

Image source: Getty Images.

So what

Beacon missed earnings but still experienced significant growth compared with the year-ago quarter. Thanks largely to its late 2017 acquisition of Allied Building Products from CRH plc, Beacon's sales were up 59% year over year, and gross margin on those sales expanded by 100 basis points to 25.5%.

Still, profit declined 25% year over year -- this time hurt by the Allied acquisition, and specifically by the "acquisition-related costs" tied to it.

Now what

As for what happens next, that's not entirely clear. Beacon didn't provide earnings guidance in its report, although it did note that "the integration of Allied is tracking better than expected for 2018, and we remain committed to realizing our long-term synergy goals," which suggests further margin improvements could be in the offing.

As for Wall Street, analysts expect to see Beacon's sales grow a further 71% in this Q3 that's currently under way, to $2.2 billion, and profit is expected to grow a nearly as strong 70%, to $1.58 per share.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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