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NCI Building Poised on Improving Construction & IMP Products

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On Jan 25, we issued an updated research report on NCI Building Systems, Inc. NCS. The company is poised to gain from its focus on growth strategy around insulated metal panels (IMP) along with investments in automation and process innovation. Further, efforts to improve cost efficiency through the optimization of manufacturing plant footprint will drive growth.
 
Upbeat View
 
NCI Building delivered adjusted earnings of 32 cents per share for fourth-quarter fiscal 2017 (ended Oct 29, 2017), up 14% from 28 cents recorded in the prior-year quarter and also beat the Zacks Consensus Estimate of 31 cents.
 
For first-quarter fiscal 2018, NCI Building estimates revenues to be in the range of $390-$410 million, reflecting 2% year-over-year growth at the mid-point. The company projects adjusted EBITDA to be in the $24-$34 million range in first-quarter fiscal 2018. It anticipates gross margins to improve in fiscal 2018 driven by a solid cost structure. The company expects to witness a strong fiscal 2018 as compared with fiscal 2017.
 
Improving Construction Sector to Aid Growth
 
NCI Building expects low-rise non-residential construction starts in fiscal 2018 to grow in mid-single digits, with the adjustable markets for legacy businesses projected to be up in the range of 2-4%. 
 
According to Dodge Data & Analytics, total U.S. construction starts for 2018 will go up 3% to $765 billion. There are several tailwinds for construction in the year. The U.S. economy is anticipated to witness moderate job growth and long-term interest rates may see some upward movement. For the year, by major sector, residential building is expected to rise 4%, nonresidential building to inch up 2%; while non-building construction is expected to stabilize after two years of decline.
 
Given that NCI Building is one of North America’s largest integrated manufacturers and marketers of metal products for the non-residential construction industry, it is poised well to gain from expected growth.
 
IMP Sales to Drive Growth
 
NCI Building’s focus on growth strategy around IMP products is likely to be fruitful in the long run. Given their several physical and cost-effective attributes, such as energy efficiency IMP Products are considered compelling alternatives to competing building materials. Moreover, the adoption of stricter standards and codes by numerous states in the United States will enhance the demand for IMP products in construction projects. Buoyed by these factors, growth within the IMP market will continue to outpace the broader metal building sector and the non-residential construction industry as a whole.
 
Investments to Boost Results
 
The company is focused on investments in automation and process innovation which will slash operating costs, improve margins, quality and service, as well as enhance operational flexibility. It will also focus on continued improvement in manufacturing, and delivering cost reductions with the Lean and Six Sigma initiatives across the entire business. The step will reduce excess operational back-office costs and simplify the business.
 
Houston, TX-based NCI Building falls under the Zacks Construction Building Products - Miscellaneous industry  along with other players like Armstrong World Industries, Inc. (AWI - Free Report) , Patrick Industries, Inc. PATK and Owens Corning OC.
 
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