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Why Is Beacon Roofing (BECN) Down 15.2% Since Its Last Earnings Report?

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It has been about a month since the last earnings report for Beacon Roofing Supply, Inc. (BECN - Free Report) . Shares have lost about 15.2% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is BECN due for a breakout? 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 Q2 Loss Wider Than Expected, Sales Top

Beacon Roofing reported adjusted loss of 35 cents per share in second-quarter fiscal 2018, wider than the Zacks Consensus Estimate of 9 cents loss per share. The company posted adjusted earnings of 8 cents per share in the prior-year quarter.

The results were primarily affected by harsh winter weather conditions, higher operating expenses, elevated interest expense, and the impact from preferred dividends. Notably, cold weather, combined with heavier precipitation in February and snowstorms in March, created a difficult environment for the roofing industry.

On a reported basis, the company recorded loss of $1.07 per share compared to a loss of 16 cents reported in the prior-year quarter.

Operational Update

This distributor of residential and non-residential roofing materials posted record sales of $1.43 billion, which surged around 64% year over year. Sales were positively impacted by strong existing and acquired sales growth within the complementary products category and early synergy benefits from the Allied acquisition. Also, revenues beat the Zacks Consensus Estimate of $1.41 billion.

Residential roofing product sales were up around 20% year over year. Non-residential roofing product sales registered growth of 36% and complementary product sales increased a whopping 263%, both on a year- over-year basis. Existing markets sales, excluding acquisitions, edged down 0.1% for the fiscal second quarter.

Cost of goods sold climbed 63% year over year to $1,087 million. Gross profit came in at $338 million, significantly up 65% from $204 million reported in the year-ago quarter. Gross margin expanded 20 basis points (bps) to 23.7%.

Operating expenses for the quarter were up 91% year over year to $396 million. Beacon Roofing reported operating loss of $57 million, wider than the $3-million loss posted in the prior-year quarter.

Cash Position

Beacon Roofing reported cash and cash equivalents of $16 million at the end of the fiscal second quarter, up from $10 million reported at the end of the comparable quarter in the prior fiscal. The company generated cash flow from operations of $40 million during the six-month period ended Mar 31, 2018, compared with $151 million posted in prior year comparable period.

Beacon Roofing is poised to gain from improved pricing actions and continued focus on cost-restructuring activities. Additionally, the company remains committed to invest in e-commerce. It also expects to drive growth organically and through acquisitions while lowering the overall net debt leverage, adding value through technology investments, and executing the Allied integration plan.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month. There have been four revisions higher for the current quarter compared to four lower.

VGM Scores

At this time, BECN has an average Growth Score of C, though it is lagging a bit on the momentum front with a D. The stock was allocated a grade of An on the value side, putting it in the top quintile for this investment strategy.

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

Our style scores indicate that the stock is more suitable for value investors than growth investors.

Outlook

BECN has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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