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Beacon Acquires Atlas, Expands Sealants & Coatings Business

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Beacon Roofing Supply, Inc. (BECN - Free Report) has acquired Atlas Supply Inc., a major distributor of sealants, coatings, adhesives and related waterproofing products in the Pacific Northwest. The financial terms of the deal are not yet disclosed.

Focus on Sealants & Coatings Business

Operating since 1917, Seattle-based Atlas has expanded its footprint to six locations, with stores in Seattle, Tacoma, Spokane, and Mountlake Terrace in Washington, as well as Portland, Oregon and Boise, Idaho.

Based in Herndon, VA, Beacon roofing operates 551 branches in all 50 states and in 6 provinces in Canada. The addition of Atlas to Beacon’s portfolio enabled it to serve customers along the entire west coast as well as a portion of the Southwest. The deal is in sync with the company’s strategy to grow its strong margin complementary products business.

Beacon’s Expansion Strategy

In January 2018, Beacon acquired CRH plc's (CRH - Free Report) U.S. distribution business, Allied Building Products Corp. for $2.6 billion. The buyout not only expands its product offerings, but also increases geographical reach in both existing and new markets, while ensuring significant cost synergies.

Notably, Dublin, Ireland-based CRH is the largest building materials company in North America and second largest worldwide. Its subsidiary, Allied Building Products is one of the country’s largest exterior and interior building products distributors. It distributes exterior products such as roofing, siding, windows and doors, as well as interior products such as wallboard and suspended ceiling systems, across 208 locations in 31 states.

In addition to growing roofing supplies business, Allied Building added a wallboard and acoustical ceiling tile wholesale business to Beacon, making it the fourth largest distributor of such products in the United States, with more than $1 billion of revenues in the interior market category.

Robust construction activity, given strong economic fundamentals and solid job market, bodes well for Beacon. The company remains optimistic of a strong macroeconomic backdrop for new construction and home improvement, as well as its growth initiatives. In the last reported quarter, residential roofing product sales were up around 20% year over year. Non-residential roofing product sales registered 36% growth and complementary product sales increased a whopping 263%, both on a year-over-year basis.

Share Price Performance

Shares of Beacon have underperformed its industry year to date. While Beacon plunged 37.7%, its industry registered 3.6% growth in the said period. Moreover, earnings estimates have trended downward by 1.2% for the current fiscal and 1.1% for the next, over the past 30 days. Moreover, the negative impact of price/cost timing on gross margins during the first half of fiscal 2018 is a significant hurdle.

In the fiscal second-quarter earnings call, this Zacks Rank #4 (Sell) company lowered its adjusted EBITDA view for fiscal 2018. Consistent with adjusted EBITDA reduction, the company also reduced its adjusted EPS view. It lowered the guided range from $3.40-$3.70 to $3.35-$3.55 for the fiscal.

That said, the latest Atlas addition as well as higher contribution from the Allied Building Products acquisition, and successful price increases associated with a solid demand environment are expected to support Beacon's growth.



 

Stocks to Consider

Some better-ranked stocks in the same sector include Builders FirstSource, Inc. (BLDR - Free Report) and Fastenal Company (FAST - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Builders FirstSource has an estimated earnings growth of 47.2% for the current year.

Fastenal’s 2018 earnings are expected to grow 32.6%.

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