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Why Is Beacon Roofing (BECN) Up 12.7% Since Last Earnings Report?

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It has been about a month since the last earnings report for Beacon Roofing Supply (BECN - Free Report) . Shares have added about 12.7% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Beacon Roofing due for a pullback? 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 Q4 Earnings & Revenues Miss, Up Y/Y

Beacon Roofing Supply, Inc. reported fourth-quarter of fiscal 2018 results, wherein earnings and revenues missed the Zacks Consensus Estimate.

Adjusted earnings of $1.07 per share missed the consensus estimate of $1.36 by 21.3%. However, the reported figure increased 0.9% from $1.06 a year ago.

The year-over-year improvement was primarily driven by solid segmental performances, favorable contributions from acquired operations along with positive price-cost performance. However, significant volume challenges across the historical hail markets and unfavorable weather partly offset the positives.

On a reported basis, the company recorded earnings of 54 cents per share compared with 73 cents a year ago.

Operational Update

Beacon Roofing, one of the largest distributors of residential as well as commercial roofing materials and complementary building products, posted a record sale of $1.94 billion, up 50.1% year over year. However, the reported figure missed the consensus mark of $2.01 billion by 3.9%.
The record sales were positively impacted by strategic acquisitions of Allied, Tri-State and Atlas. That said, organic sales declined 5.6% year over year due to significant volume challenges across the historical hail markets. The downside was partially offset by mid-to-high single-digit price increases along with strong contribution in Florida as a result of hurricane Irma.

Sales in the Residential roofing product segment grew 17.8% and that of Non-residential roofing product increased 33.8% from a year ago. Complementary product’s sales surged a whopping 170.6% year over year. However, existing markets sales (excluding acquisitions) decreased 5.6% as a result of bad weather conditions.

Cost of goods sold (accounting for 74.6% of net sales) of $1,444.5 million climbed 49.3% year over year. Gross profit came in at $491.3 million, which was significantly up 52.3% from a year ago. Also, gross margin expanded 40 basis points (bps) to 25.4%. However, operating expenses grew 62.8% year over year during the quarter.

Although Beacon Roofing reported operating income of $108.1 million, up from the prior-year figure of $87.3 million, operating margin contracted 130 bps to 5.5% in the quarter. Additionally, adjusted EBITDA margin declined 110 bps in the reported quarter.

Cash Position

As of Sep 30, 2018, Beacon Roofing reported cash and cash equivalents of $129.9 million, down from $138.3 million reported on Sep 30, 2017. The company generated $539.4 million cash from operating activities in fiscal 2018 compared with $315.2 million in fiscal 2017.

Fiscal 2018 Review

Beacon Roofing reported adjusted earnings of $2.70 per share, which inched up 0.7% year over year. Also, revenues of $6.42 billion in fiscal 2018 were up 46.6% year over year. Notably, both the top and bottom lines marked annual record performances for the company. However, both the reported figures lagged the consensus mark by 1.2% and 10.3%, respectively.

On a reported basis, the company recorded fiscal 2018 earnings of $1.05 per share compared with $1.64 a year ago. However, adjusted EBITDA margin in fiscal 2018 contracted 80 bps from a year ago.

2019 Guidance

For fiscal 2019, the company projects total sales in the range of $7-$7.35 billion. While Allied is expected to contribute approximately $600 million during the fiscal first quarter of 2019, Tri-State and Atlas are likely to add nearly $30 million during fiscal 2019. 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.

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 -26.56% due to these changes.

VGM Scores

At this time, Beacon Roofing has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, 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. It's no surprise Beacon Roofing has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.


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