NCI Building Reports Loss, Beats

NCI Building Systems Inc.’s ( ( NCS - Analyst Report ) ) adjusted loss for the second quarter of fiscal 2011 was 48 cents compared with the year-ago loss of 86 cents per share. The reported loss was an improvement from the Zacks Consensus Estimate of a loss of 81 cents.

The loss per share excluded a non-cash conversion charge and other special charges. Including these charges, reported loss per share was 51 cents versus $14.15 during the corresponding period of 2010.

The company’s sales were $225.6 million, up 11.9% from $201.6 million during the prior-year period and ahead of the Zacks Consensus Estimate of $211 million. This improvement came on the back of strong performance in the Engineered Building Systems group.

Operational Update

Cost of goods sold during the quarter increased 9% to $174.8 million and, as a percentage of revenue, decreased 240 basis points year over year to 77.5%. Adjusted gross profit decreased 25% to $50.8 million from the year-ago level with adjusted gross margin improving 240 basis points to 22.5%.

Selling, general and administrative (SG&A) expenses increased 7% to $52.7 million and, as a percentage of total revenue, decreased 100 basis points over the year-ago quarter to 23.3%. On a GAAP basis, operating loss in the quarter narrowed down to $1.8 million from an operating loss of $8.4 million in the year ago quarter. Excluding special items, NCI Buildings reported an operating loss of $547,000 in the quarter.

Segment Performance

The Engineered Building segment’s revenue increased 14% to $129.8 million from prior-year’s $113.4 million benefitting from past investments in engineering, drafting and manufacturing efficiencies, which are providing a competitive edge in bidding for quick-turn projects. The segment reported an operating loss of $0.154 million in the quarter compared with a loss of $5.1 million a year ago.

Revenue from the Metal Coil Coating segment increased 7% year over year to $47.9 million from $44.7 million during the same period in 2010. Operating profit improved 7% to $4.4 million in the quarter, as the segment continues to benefit from successful end-market diversification programs and adherence to strict cost controls.

The Metal Component segment generated revenues of $103.4 million, up 9% year over year from $95 million. Demand for retrofit roofing products and energy-efficient insulated metal panels contributed to the improvement in sales. Operating profit for the segment improved 51% to $8.7 million.

Financial Update

As of May 1, 2011, NCI Building Systems had cash and cash equivalents of $57.4 million, down from $65.2 million as of January 30, 2011. The company generated cash flow of $5 million from operating activities during the first six months of fiscal 2011 versus a cash outflow of $43.7 million during the same period in 2010.

NCI Building Systems incurred $8 million of capital expenditure during the same period in 2011 compared with $3.9 million in the corresponding year ago period.

Guidance

NCI Buildings did not provide any specific earnings guidance for fiscal 2011. The company, however, stated that it witnessed a pick-up in quoting activity from the commercial/industrial sector of the market, which prior to the economic downturn had accounted for 70% of its business.

The company remains encouraged by sequential bookings increase of 16% and the increasingly greater proportion of backlog and bookings represented by commercial/industrial work.

Our Take

The company’s results have been affected by weak non-residential construction activity and rising steel prices. Added to it are extremely competitive market conditions in its Engineered Building Systems and Metal Components businesses that have intensified pricing pressure.

We do not expect any significant improvement in NCI Building Systems in the coming quarters, given the economic uncertainty. However, we believe the company’s aggressive restructuring actions will help its return to profitability when industry conditions improve. The company is currently allotted a Zacks #3 Rank (short-term Hold rating) on the stock.

Based in Houston, Texas, NCI Buildings manufactures and markets metal products primarily for the non-residential construction industry in North America. It competes with privately held American Buildings Company, Butler Manufacturing Company and Varco Pruden Buildings.