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GMS to Report Q2 Earnings: What's in Store for the Stock?

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GMS Inc. (GMS - Free Report) is slated to report fiscal second-quarter 2019 results on Dec 4. In the last reported quarter, the company’s top and bottom lines increased 21.2% and 32.3%, respectively, on a year-over-year basis. The improved results stemmed from greater commercial activity, pricing improvement and the positive impact of acquisitions.

However, its earnings and revenues missed the Zacks Consensus Estimate by 6.5% and 0.9%, respectively, in the quarter. In fact, GMS missed the consensus mark in three of the trailing four quarters, with the average being 18.1%.

GMS Inc. Price and EPS Surprise

Let’s See How Things are Shaping Up for This Announcement

The company, a leading North American distributor of wallboard and suspended ceilings systems, has been consistently reporting solid top-line numbers across its product categories. The trend is expected to continue in the second quarter as well, owing to its ongoing pricing improvements, cost savings, cross-selling opportunities, healthy end-market results, along with strategic acquisitions.

The company, which shares space with Lowe's Companies, Inc. (LOW - Free Report) in the Building Products - Retail industry, is highly focused on expanding in existing and new markets by opening new branches and acquiring competitors. On Aug 7, 2018, the company acquired Charles G. Hardy, based in Paramount, in order to expand its presence in Southern California. It opened two new branches in Philadelphia, PA and Frederick, MD during the fiscal first quarter.

On Jun 1, 2018, GMS acquired all the outstanding equity interests of WSB Titan or Titan, a distributer of drywall, lumber, commercial and residential building materials. With this acquisition, the company intends to uplift its leadership position in North America, given expanded scale and footprint. Also, the company sees an opportunity for further expansion of the business in Canada. In the last reported quarter, the Titan acquisition added $87.4 million to its net sales.

Moreover, the company has been successfully realizing its pricing improvement and the benefits from cost-reduction initiatives over the past few quarters. In the previously reported quarter, its gross profit increased 19.4% year over year, backed by additional sales. Also, the company was successful in reducing its selling, general and administrative expenses, as a percentage of net sales, by 50 basis points (bps), supported by the initiatives.

However, material cost inflations are threatening margins of late. Metal products were specially impacted by the tariffs in the last reported quarter. Gross margins in the first quarter of fiscal 2019 were impacted as a result of these headwinds. During the quarter, the company recorded gross margins of 31.5%, down 40 bps from the year-ago quarter.

How are Estimates Faring?

Let’s take a look at the earnings estimate revision trend in order to get a clear picture of what analysts are thinking about the company prior to the release. For the quarter to be reported, the Zacks Consensus Estimate is pegged at 96 cents, remaining stable over the past 60 days. This reflects a gain of 88.3% from 51 cents recorded in the year-ago quarter. Revenues are expected to be $843.03 million, up 30.1% year over year.

Here is What Our Quantitative Model Predicts:

Our proven model does not conclusively show that GMS is likely to beat on earnings in the to-be-reported quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: GMS currently has a Zacks Rank #2, which increases the predictive power of ESP. However, we also need to have a positive ESP to be confident of an earnings surprise.

Meanwhile, we caution against stocks with a Zacks Rank #4 and 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions. You can see the complete list of today’s Zacks #1 Rank stocks here.

Peer Releases

Fastenal Company (FAST - Free Report) reported impressive third-quarter 2018 results, wherein earnings and revenues surpassed the consensus estimate.

Beacon Roofing Supply, Inc. (BECN - Free Report) missed earnings and revenue expectations in fourth-quarter fiscal 2018.

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