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Why Is TopBuild (BLD) Up 15.2% Since Last Earnings Report?

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It has been about a month since the last earnings report for TopBuild (BLD - Free Report) . Shares have added about 15.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is TopBuild due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

TopBuild (BLD - Free Report) Q2 Earnings and Revenues Beat

TopBuild Corp. reported better-than-expected results for second-quarter 2020. Its earnings not only surpassed the Zacks Consensus Estimate but also grew impressively from the prior-year quarter, backed by margin improvement in both the segments.

The company did not provide its revenue and EBITDA guidance for 2020 due to persistent uncertainty related to the COVID-19 pandemic. Nonetheless, it remains bullish about the long-term health of residential and commercial markets served.

Jerry Volas, chief executive officer of TopBuild, said, “As a result of the uncertainty in early March related to COVID-19, we suspended our acquisition program. As the second quarter progressed, the outlook for the housing industry improved, and we are now moving forward with a number of the companies in our robust acquisition pipeline.”

Inside the Headlines

The company reported adjusted earnings of $1.68 per share, which surpassed the consensus estimate of $1.19 by 41.2% and grew 17.5% from the prior-year period.

Total net sales of $646.1 million declined 2.1% on a year-over-year basis but topped the consensus mark of $609 million by 6%. The downside was due to lower sales volumes due to the COVID-19 pandemic. Same branch contributed 99% to total revenues.

Segmental Performance

Installation (TruTeam) revenues decreased 3.4% year over year to $466.6 million. Acquisitions and selling price added 1.4% and 0.7% to revenues, respectively. Volume fell 5.5% from the prior-year quarter. Adjusted operating margin for the quarter expanded 100 bps to 15.2%.

Revenues of the Distribution (Service Partners) segment grew 1.3% year over year to $216.3 million, driven by 1.7% volume growth, partially offset by 0.4% selling price decline. Operating margin improved 170 bps from the year-ago level to 11.6%.

Operating Highlights

Adjusted gross margin of 27.8% expanded 130 bps. Adjusted operating profit of $83.5 million also increased 9.3% year over year. Adjusted operating margin improved 130 bps from the year-ago period to 12.9%. Both the gross and operating margin improvements were driven by operational efficiencies, cost-reduction initiatives, and lower insurance, travel and entertainment costs, partially offset by higher depreciation as well as restructuring expenses.

Adjusted EBITDA grew 14.6% from the year-ago quarter to $107.8 million. Adjusted EBITDA margin improved 250 bps to 16.7% for the quarter.

Financial Update

As of Jun 30, 2020, cash and cash equivalents were $258.8 million, up from $184.8 million at 2019-end. The company has $389.6 million available borrowing capacity under the revolving facility.

At quarter-end, long-term debt was $694.3 million, slightly down from $698 million at 2019-end. In the first six months of 2020, net cash provided by operating activities was $178.2 million compared with $96.3 million a year ago.

It repurchased 262,889 shares for $76.17 per share during the second quarter. As of Jun 30, 2020, $55 million was remaining under the $200-million stock repurchase authorization.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 49.05% due to these changes.

VGM Scores

Currently, TopBuild has a nice Growth Score of B, a grade with the same score on the momentum front. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise TopBuild has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.


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