Record FY11 for Beacon Roofing

Beacon Roofing Supply Inc. (BECN - Analyst Report) reported record adjusted EPS of 56 cents in the fourth quarter of fiscal 2011, ahead of the Zacks Consensus Estimate of 53 cents and a remarkable improvement of 51% over the prior year quarter's EPS of 37 cents.

Reported EPS excluded a tax benefit, including which the EPS in the quarter stood at 67 cents compared with 37 cents in the year-ago quarter.

Higher sales leading to elevated gross margins, coupled with lower interest expense, benefited the quarter. However, these positives were somewhat offset by higher operating expenses and a higher income tax provision.

Operational Update

Net sales in the quarter under review increased 19% year over year to gross $575.6 million, outpacing the Zacks Consensus Estimate of $547 million. Organic growth in the quarter was 15.6%.

Residential roofing product sales improved 32% while non-residential roofing product sales increased 12% over the prior-year quarter. Both the businesses benefited from a pick-up in volume, including some storm related business, besides higher average selling prices. A 1% dip in complementary product sales was a minor offset.

Cost of goods sold in the reported quarter increased 17.7% year over year to $442.7 million, and operating expenses also rose 12.7% to $85.3 million. Operating income of $47.6 million improved 55% over the year-ago quarter.

Fiscal Year Results

In fiscal 2011, EPS was a record $1.16, up 55% from the year-ago EPS of 75 cents and above the Zacks Consensus Estimate of $1.14. Including the tax benefit recorded in the fourth quarter, EPS stood at $1.27 for fiscal 2011. Net sales surged 13% year over year to a record $1.8 billion, nominally falling short of the Zacks Consensus Estimate of $1.9 billion. Organic growth was 9.3%.

Financial Position

The company ended the year with cash and cash equivalents of $143 million, improving substantially from $117 million as of 2010 end.

Cash from operating activities also improved to $79.3 million during the year from $73.9 million in the last fiscal. Higher operating income along with the increase in accounts payable and accrued expenses, partially offset by an unfavorable impact from larger increases in inventories and accounts receivable, fueled the improvement.

Beacon Roofing continues to focus on cost controls to improve its margins. The company also remains active on the acquisition front. Notwithstanding the strong numbers reported in the quarter and the fiscal year we remain cautious on the stock due to the continued weakness in the housing industry.

We maintain our Neutral recommendation on Beacon Roofing. The quantitative Zacks #3 Rank (short-term hold rating) for the company indicates no clear directional pressure on the stock over the near term.

Beacon numbers among the three largest roofing materials distributors in the United States and Canada, with more than 90% of sales coming from the U.S. Beacon competes with privately held American Builders & Contractors Supply Co Inc., Guardian Building Products Distribution Inc. and Stock Building Supply Inc.

Read the full analyst report on BECN