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Beacon Roofing Supply Inc. (BECN - Analyst Report) reported adjusted EPS of 39 cents in the first quarter of fiscal 2012, way ahead of the Zacks Consensus Estimate of 29 cents, improving from the prior-year quarter of 22 cents. Reported EPS excluded a tax benefit in the reported quarter, including which the EPS stood at 41 cents compared with 22 cents in the year-ago quarter.

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

Operational Update

Net sales in the quarter under review increased 21% year over year to gross $489.9 million, outpacing the Zacks Consensus Estimate of $475 million. Organic growth in the quarter was 17.0%.

Residential roofing product sales improved 25.4% while non-residential roofing product sales increased 15.5% over the prior-year quarter. Both the businesses benefited from a pick-up in re-roofing activities, including impact of storm related business, besides higher average selling prices. A 2.6% dip in complementary product sales was a minor offset.

Cost of goods sold in the reported quarter increased 20.2%% year over year to $372.5 million, and operating expenses also rose 10.7% to $82.9 million. Operating income of $34.3 million improved 73% over the year-ago quarter.

Financial Position

Cash and cash equivalents were $155.2 million as of December 31, 2011, compared with $175.7 million as of December 31, 2010. Cash from operating activities improved marginally to $58.9 million as of December 31, 2011 from $57.5 million as of December 31, 2010. Higher operating income was partially offset by an unfavorable impact on working capital.

In Conclusion         

Beacon Roofing continues to focus on cost controls to improve its margins. The company also remains active on the acquisition front. The company’s strategy is to buy market leaders in different geographic areas and thus expand into potential yet unexplored markets.

Currently, the shares of Beacon Roofing maintain a Zacks#1 Rank (short-term “Strong Buy” recommendation).

Beacon numbers among the three largest roofing material 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.

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