A month has gone by since the last earnings report for Beacon Roofing Supply (BECN - Free Report) . Shares have added about 5% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Beacon Roofing due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Beacon Roofing Q3 Earnings Miss Estimates, Up Y/Y
Beacon Roofing Supply reported adjusted earnings of $1.18 per share in third-quarter fiscal 2018, missing than the Zacks Consensus Estimate of $1.32 per share. The reported figure, however, increased 21.9% from 97 cents a year ago.
The year-over-year improvement was primarily driven by solid organic sales growth within non-residential roofing and complementary building products categories, improved existing markets gross margins and favorable contributions from acquired operations. However, lower volume in residential roofing and higher operating expenses, increased interest expense along with the impact from preferred dividends related to the acquisition of Allied partly offset the positives.
On a reported basis, the company recorded a loss of 55 cents per share compared with 73 cents a year ago.
This distributor of residential and non-residential roofing materials posted record sales of $1.93 billion, which surged around 59.4% year over year. Sales were positively impacted by strong residential and non-residential roofing product sales, coupled with existing and complementary product sales growth. Organic sales grew 2%, reflecting higher pricing, partly offset by volume headwinds from difficult storm comparisons within its larger traditional hail markets. However, revenues missed the consensus mark of $2.07 billion.
Residential roofing product sales were up around 23.4% year over year. Non-residential roofing product sales registered growth of 42.1% and complementary product sales increased a whopping 204.6% year over year. Existing markets sales, excluding acquisitions, inched up 2% in the fiscal third quarter.
Cost of goods sold (accounting for 74.5% of net sales) climbed 57.3% year over year to $1,441.1 million. Gross profit came in at $493.9 million, significantly up 65.9% from $297.8 million reported in the year-ago quarter. Gross margin expanded 100 basis points (bps) to 25.5%.
Operating expenses in the quarter were up 82.8% year over year to $389.1 million. Beacon Roofing reported operating income of $104.8 million, up from $84.9 million in the prior-year quarter. However, operating margin declined 160 bps year over year to 5.4% in the quarter.
Beacon Roofing reported cash and cash equivalents of $27.6 million at the end of the fiscal third quarter, down from $138.3 million reported at fiscal 2017-end. The company’s cash used in operating activities was $1 million during the nine-month period ended Jun 30, 2018 compared with cash flow provided by operating activities of $74.2 million in the 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 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 have trended downward during the past month. The consensus estimate has shifted -13.69% due to these changes.
At this time, Beacon Roofing has a poor Growth Score of F, a grade with the same score on the momentum front. 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 F. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Beacon Roofing has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.