NCI Building Cuts 4Q Losses

NCI Building Systems Inc.’s (NCS - Analyst Report) adjusted loss for the fourth quarter of fiscal 2011 ending October 31 of 11 cents was substantially narrower than the Zacks Consensus Estimate of a loss of 32 cents. The company also fared better than the year-ago quarter’s loss of 72 cents.

Including the effect of the convertible preferred stock's beneficial conversion feature, restructuring charges, asset impairment charges and other one-time items, the company reported a net loss per share of 24 cents in the quarter under review, an improvement from a loss of $1.01 in the fourth quarter of fiscal 2010.

Operational Update

The company’s sales improved 16.7% year over year to $281.8 million in the quarter, surpassing the Zacks Consensus Estimate of $272 million. This outperformance came on the back of strong performance across all the segments.

Cost of sales during the quarter increased 14% to $221.4 million. Selling, general and administrative (SG&A) expenses also rose 5% to $51.1 million. Adjusted operating income of $9.3 million in the reported quarter was a stark improvement from year-ago operating loss of $1.7 million.

Segment Performance

Revenue at Engineered Building increased 21% year over year to $162.3 million in the quarter. The segment reported an operating income of $11.9 million in the quarter reversing the loss of $2.1 million a year ago. The improvement was largely attributable to cost containment measures as well as improved demand for design and build projects.

Revenue from the Metal Coil Coating segment increased 20% year over year to $56.4 million. Operating profit was $4.9 million in the quarter, up 31% from the prior-year quarter, driven by expanding volumes.

The Metal Component segment generated revenues of $127.9 million, up 8% year over year due to higher volumes. Operating profit for the segment declined 30% year over year to $6.3 million hurt by higher raw material costs, which were somewhat offset by benefits from cost containment measures.

Fiscal 2011 Performance

The company reported an adjusted loss per share of $1.96 compared with a loss per share of $3.21 in the previous year, outperforming the Zacks Consensus Estimate of a loss per share of $2.67. Including the effect of the convertible preferred stock's beneficial conversion feature, restructuring charges, asset impairment charges and other one-time items, net loss per share was $2.58, a substantial improvement from a loss per share of $17.07 in fiscal 2010. Revenues increased 10% to $960 million in the year.

Financial Update

At fiscal 2011 end, NCI Building Systems had cash and cash equivalents of $79 million, up from $77 million as of fiscal 2011 end. Long-term debt declined to $130.7 million at the end of fiscal 2011 from $136.3 million as of fiscal 2010 end. The company generated cash flows of $41.9 million from operating activities in fiscal 2011 compared with $6.3 million in the preceding year.

Our Take

NCI Building has been in the red for eight straight quarters due to continued weakness in nonresidential construction activity. However, losses have tapered down through the quarters of 2011. In particular, the second half of fiscal 2011 saw the company benefiting from improved conditions in markets such as manufacturing, energy and mining, which have historically accounted for a large portion of its business.

According to the American Institute of Architects, the architecture billings index, a predictor of construction spending 9 to 12 months in the future, rose 2.5 points to 49.4 in October. Though the increase is encouraging, any reading below 50 indicates an overall decrease in demand for design services.

The company has resorted to restructuring in its manufacturing, engineering and supply-chain operations over the past three years, which has helped it to deliver improvement in profitability, outpacing revenue and volume gains. Furthermore, the Engineered Building segment’s bookings and backlog increased substantially in the quarter, holding promise for 2012.

All said, we retain our Neutral recommendation on NCI Building. The quantitative Zacks#3 Rank(short-term Hold rating) indicatesno clear directional pressure on the stock over the near term

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.