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Why Is Gibraltar Industries (ROCK) Down 6.4% Since Last Earnings Report?

Zacks Equity Research
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It has been about a month since the last earnings report for Gibraltar Industries (ROCK). Shares have lost about 6.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Gibraltar Industries 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 drivers.

Gibraltar's Q4 Earnings Beat, Revenues Miss Estimates

Gibraltar Industries, Inc. reported mixed fourth-quarter 2018 results, wherein earnings beat the Zacks Consensus Estimate while revenues missed the same. Nonetheless, the company provided encouraging guidance for 2019 on the back of solid performance in 2018 across the business.

The bottom line of 47 cents surpassed the consensus estimate of 40 cents by 17.5%. Also, the reported figure increased 14.6% year over year on the back of robust performance from the Industrial and Infrastructure segment, effective price-material cost management and enduring benefits from 80/20 simplification initiatives.

Its top line of $240.9 million missed the consensus mark of $245.6 million in the reported quarter. Also, the reported figure declined 6.7% year over year, due to lesser construction seasons during the quarter compared with the prior-year period.

Segmental Details

Net sales of the Residential Products segment were $102.2 million in the reported quarter, declining 2.9% on a year-over-year basis. Segment sales decreased mainly due to an unfavorable year-over-year comparison, as higher storm-related activity and subsequently milder weather in the prior year extended the roofing activity season into fourth-quarter 2017. Adjusted operating margins also contracted 90 bps during the quarter. Unfavorable product mix and lower volume added to the woes.

Industrial and Infrastructure Products segment’s net sales increased 2.9% year over year to $50.5 million. The upside was mainly driven by increased activity in the Infrastructure business. Adjusted operating margins expanded 240 bps in the reported quarter, backed by its solid execution of 80/20 simplification initiatives, effective management of material costs to customer selling prices and improved mix of higher-margin innovative products.

Quarterly sales at the Renewable Energy and Conservation segment fell 15% year over year to $88.1 million in the quarter. The decline resulted from an extended construction season in the prior year (due to favorable weather conditions) compared with the current quarter. Operating margins decreased 40 bps to 11.6% due to unfavorable volume and product mix.

Costs and Margins

Cost of sales in the quarter was $187.7 million, declining 6.8% year over year. Gross profit margin came in at 22.1%, up 10 bps year over year.

Selling, general and administrative expenses totaled $33.3 million compared with $34.1 million a year ago. Adjusted operating margin came in at 8.7%, contacting 50 bps year over year.

Balance Sheet and Cash Flow

As of Dec 31, 2018, Gibraltar had cash and cash equivalents worth $297 million compared with $222.3 million recorded in the comparable period of 2017. Long-term debt was $1.6 million, significantly lower than $209.6 million recorded at the end of 2017.

In 2018, the company provided $97.5 million cash from operating activities compared with $70.1 million a year ago.

Full-Year 2018 Review

In full-year 2018, the company reported adjusted earnings of $2.14 per share, up 25.1% on a year-over-year basis. Revenues of $1 billion also grew 1.6% from a year ago. Adjusted operating margins were in line with the prior-year figure of 10.1%.

2019 Guidance

Although Gibraltar remains confident about the end markets across the business, it is cautious of the continued volatility in economy and material costs. The company intends to gain efficiency on the back of innovative product development, strategic acquisitions and implementation of 80/20 simplification projects.

For 2019, Gibraltar expects consolidated revenues to be more than $1 billion. Gibraltar 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 first-quarter 2019, the company anticipates to generate revenues in the range of $218-$224 million. Also, adjusted earnings are projected within 27-32 cents per share.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -14.87% due to these changes.

VGM Scores

At this time, Gibraltar Industries has an average Growth Score of C, 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 top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Gibraltar Industries has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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