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NCI Building (NCS) to Post Q4 Earnings: What's in the Cards?

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NCI Building Systems, Inc. (NCS - Free Report) is scheduled to report fourth-quarter fiscal 2018 results on Dec 12.

In the last reported quarter, the company’s earnings surpassed the Zacks Consensus Estimate by 6.3%. Also, NCI Building topped the consensus mark in all the trailing four quarters, with average positive earnings surprise of 29.8%.

How are Estimates Faring?

Let’s take a look at the estimate revision trend in order to get a clear picture of what analysts are thinking about the company prior to the earnings release. For the quarter to be reported, the Zacks Consensus Estimate is currently pegged at 56 cents, remaining unchanged over the past 30 days. Nevertheless, this reflects an increase of 75% from the year-ago earnings of 32 cents per share. Revenues are expected to be $565.6 million, up 15.7% year over year.
 

Let’s see how things are shaping up for this announcement.

Key Factors

The company has been benefiting from its focus on growth strategy surrounding Insulated Metal Panels or IMP, investments in automation and process innovation, as well as the attainment of further cost reductions with Lean and Six Sigma initiatives. All these initiatives are expected to bring about year-over-year growth, both in revenues and earnings, in the quarter to be reported.

Furthermore, the company’s focus on investments in automation and process innovation is likely to slash operating costs, as well as improve margins, quality and service in the quarter to be reported. Importantly, higher pricing is expected to offset the recent inflation in material and labor costs, in turn benefiting its gross margin.

NCI Building expects the impact from these initiatives to generate cost savings between $40 million and $50 million by 2020, improve margin as well as EBITDA, while reducing overall engineering, selling, general and administrative or ESG&A expenses.

For fourth-quarter fiscal 2018, the company expects sales in the range of $550-$570 million compared with $488.7 million reported in the year-ago period. Gross profit margin is expected within 23-25.5% versus 23.8% a year ago. Meanwhile, the company expects EBITDA in the $60-$70 million range, depicting an improvement from $53.9 million reported in the corresponding period a year ago. ESG&A is likely to be within $78-83 million versus $72.7 million reported in the year-ago period.

Ply Gem Buyout

In November 2018, NCI Building completed the proposed merger of Ply Gem Parent, LLC, thereby bolstering scale, as well as expanding product offerings and customer base across all channels of its construction markets, namely residential, repair & remodel, and commercial. NCI Building shareholders retained 53% ownership of the combined entity, with Ply Gem shareholders holding the remaining 47%. It is expected to generate approximately $4.5 billion of revenues on a combined basis in 2018. The combined entity is also expected to generate adjusted EBITDA of $660-$680 million on a pro-forma basis in 2018.

Notably, NCI Building will change its reporting period. Following its fiscal fourth-quarter earnings release, the combined company will move to a calendar year-end fiscal reporting schedule. Consolidated results during the transition period from Oct 29 through Dec 31, 2018 (that will include the results of Ply Gem beginning Nov 16, 2018) will be reported in February 2019.

Here is What Our Quantitative Model Predicts:

Our proven model does not show that NCI Building is likely to beat on earnings in the to-be-reported quarter as it does not possess the key components. 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. This is not the case here as you will see below:

Earnings ESP: NCI Building has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: NCI Building currently carries a Zacks Rank #3. Although this increases the predictive power of ESP, the company’s ESP of 0.00% makes earnings prediction uncertain.

Notably, stocks with a Zacks Rank #4 or 5 (Sell rated) should be avoided 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

Armstrong World Industries, Inc. (AWI - Free Report) reported third-quarter 2018 results, wherein adjusted earnings of $1.11 per share missed the Zacks Consensus Estimate of $1.18 by 5.9%. However, the reported figure increased 23.4% from 90 cents per share in the prior-year quarter.

Masco Corporation (MAS - Free Report) reported third-quarter 2018 results, wherein earnings and revenues missed the Zacks Consensus Estimate. Adjusted earnings of 65 cents per share missed the consensus mark of 70 cents by 7.1%. However, adjusted earnings increased 25% on a year-over-year basis.

Aegion Corporation (AEGN - Free Report) reported third-quarter 2018 results, wherein earnings and revenues missed the Zacks Consensus Estimate. Adjusted earnings of 45 cents missed the consensus estimate of 47 cents by 4.3%. Nevertheless, earnings increased significantly by 43% from the prior-year figure of 32 cents.

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