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NCI Building (NCS) Hits 52-Week High on Strong Q2 Results

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Shares of NCI Building Systems Inc. crafted a new 52-week high of $16.43 on June 2. The new high is due to strong second-quarter fiscal 2016 results and expectation of better second-half fiscal 2016 performance.

The stock closed a notch lower at $16.31 at the end of trading yesterday, with a solid one-year return of over 9% and year-to-date return of about 31.4%. The average volume of shares traded over the last three months was roughly 321K.

The manufacturer of metal products for the building industry has a market cap of $1.2 billion. NCI Building has beaten the Zacks Consensus Estimate three times in trailing four quarters with an average surprise of 102.10%.

Growth Drivers

On May 31, NCI Building posted adjusted earnings of 4 cents per share in second-quarter fiscal 2016, which reversed from a loss of 6 cents in the prior-year quarter. Earnings were driven by internal improvements in commercial, manufacturing and supply chain groups. Sales rose 3.4% year over year during the quarter.

NCI Building estimates consolidated revenue will range between $435–$455 million in third-quarter fiscal 2016 with gross margins ranging between 23% and 25.5%. The company expects 2016 to be better than 2015 in terms of both gross margin and adjusted EBITDA. It also anticipates second-half fiscal 2016 performance to be stronger than the first half due to seasonality.

The company’s gross margin expanded 290 basis points year over year to 24% in the second quarter. The margin came on the upper end of its guided range, driven by optimization of manufacturing footprint and supply chain management and focus on commercial discipline. NCI Building has made progress in its manufacturing reorganization plans, which are expected to result in annual cost savings and efficiency improvement of $15–$20 million annually that will be phased in through the end of FY18.

Further, NCI Building’s ongoing restructuring and reorganization efforts over the past two years are beginning to contribute to earnings growth. During second-quarter fiscal 2016, the company completed the consolidation and closing of two manufacturing facilities in metal components segment. The company believes that successful execution of the plans in phases over the next 6–30 months will result in annual cost savings ranging between $15–$20 million when completed. Over the remainder of this year, the company will continue to further these initiatives and look for opportunities to trim costs, eliminate redundancies and identify synergies.

Moreover, NCI Building will benefit from its efforts to simplify the organizational structure. The CENTRIA acquisition, improvement in non-residential construction activity, share repurchases and backlog growth also remains tailwinds.

NCI Building currently has a Zacks Rank #2 (Buy).

Stocks to Consider

Some other stocks worth considering in the same sector include Installed Building Products, Inc. (IBP - Free Report) , Simpson Manufacturing Co., Inc. (SSD - Free Report) and TopBuild Corp. (BLD - Free Report) . All of these stocks sport a Zacks Rank #1 (Strong Buy).

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