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Why Is Beacon Roofing (BECN) Up 12% Since the Last Earnings Report?

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About a month has gone by since the last earnings report for Beacon Roofing Supply, Inc. (BECN - Free Report) . Shares have added about 12% in the past month, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it 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 catalysts.

Beacon Roofing Q3 Earnings & Revenues Lag Estimates

Beacon Roofing Supply reported adjusted earnings of 84 cents per share for third-quarter fiscal 2017, falling behind the Zacks Consensus Estimate of 90 cents. However, earnings increased 9% on a year-over-year basis positively impacted by sustained strength in residential roofing, strong complementary products demand and attractive operating cost leverage.

Including acquisition-related items, the company reported a profit of 73 cents per share in the quarter compared with 68 cents in the prior-year quarter.

Operational Update

This distributor of residential and non-residential roofing materials posted record sales of $1.214 billion, exhibiting a 5.3% year-over-year rise, also marked the fourth consecutive quarter of sales exceeding $1 billion. Revenues however missed the Zacks Consensus Estimate of $1.27 billion.

Residential roofing product sales increased 8%, while non-residential roofing product sales dropped 4.7%. Complementary product sales were up 15.7%. Existing markets same day sales, excluding acquisitions, increased 2.2% for the quarter.

Cost of goods sold increased 5.2% to $916 million. Gross profit was $298 million, up 6% from $282 million in the year-ago quarter. Gross margin remained flat at 24.5%.

Operating expenses for the quarter increased 8% year over year to $213 million. Operating income in the quarter was $85 million, compared with $78 million in the prior-year quarter.

Financials

Beacon Roofing reported cash and cash equivalents of $33 million as of Jun 30, 2017, compared with $31.4 million as of Sep 30, 2016. The company generated $74 million in cash from operating activities for nine months ended Jun 30 2017, flat compared with prior-year comparable period.

2017 Outlook

The company guided revenue growth range for 2017 from 6–9% to 5–6%. This factors in lower-than-expected sales rate in the third quarter due to higher rain and more limited reroof work as a result of milder winter weather. While the company expects a more normal rainfall impacting the fourth quarter, the drag effect from this past winter will continue in certain northern markets, impacting the quarter’s sales. Organic growth outlook for the full year is 2–4% on a daily sales basis. The company now expects adjusted full year EPS to be between $2.15 and $2.25.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend for fresh estimates. There has been one revision lower for the current quarter.

VGM Scores

At this time, Beacon Roofing's stock has an average Growth Score of C, though it is lagging a lot on the momentum front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

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

Zacks' style scores indicate that the company's stock is suitable for value and growth investors.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift.  It's no surprise that the stock has a Zacks Rank #4 (Sell). We are expecting a below average return from the stock in the next few months.




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