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NCI Building's (NCS) Shares Decline 14% on Q4 Earnings Miss

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NCI Building Systems, Inc.’s shares tumbled 14.3% in yesterday’s trading session, after the company reported lower-than-expected earnings in the fourth quarter of fiscal 2018 (ended Oct 28, 2018). It reported adjusted earnings of 55 cents per share in the quarter, marginally missing the Zacks Consensus Estimate of 56 cents. The reported figure, however, surged 71.9% from 32 cents recorded in the prior-year quarter.

Including one-time items, the company posted earnings of 41 cents per share compared with 25 cents reported in the year-ago quarter.

Operational Highlights

Sales rose 17.4% year over year to $573.6 million in the quarter. The top line also surpassed the Zacks Consensus Estimate of $566 million. This year-over-year improvement was driven by ongoing strategic discipline, combined with volume growth in both Engineered Metal Building and Insulated Metal Panels segments.

Cost of sales rose 18.2% year over year to $440.4 million in the quarter. Also, gross profit grew 14.6% year over year to $133.3 million. However, gross margin contracted 60 basis points (bps) to 23.2% in the quarter due to lower manufacturing utilization owing to bad weather, primarily in the Metal Components segment, and product mix in the IMP segment.

Engineering, selling, general and administrative or ESG&A expenses grew 8.5% year over year to $78.9 million, primarily to support higher sales volumes and due to wage inflation. As a percentage of sales, ESG&A expenses decreased 110 bps to 13.8% in the quarter. This improvement was mainly due to the company’s ongoing cost-reduction initiatives. It reported adjusted operating income of $52 million, reflecting an increase of 26% from the year-ago quarter. Adjusted operating margin came in at 9.1%, expanding 70 bps year over year.

Adjusted EBITDA came in at $65.8 million, reflecting an 22.1% year-over-year improvement. Adjusted EBITDA margin also rose 50 bps year over year to 11.5% in the quarter.

NCI Building Systems, Inc. Price, Consensus and EPS Surprise


NCI Building Systems, Inc. Price, Consensus and EPS Surprise | NCI Building Systems, Inc. Quote

Segmental Performance

Revenues in the Engineered Building Systems segment rose 29.7% from a year ago to $244 million. The segment reported adjusted operating income of $25.3 million, up 83.8% year over year.

The Metal Component segment revenues were up 3.5% year over year to $187.6 million. On an adjusted basis, operating profit declined 14.9% year over year to $19.7 million.

The Insulated Metal Panels or IMP segment reported revenues of $146.5 million, up 18.6% year over year. Adjusted operating profit also improved 36.2% year over year to $21.4 million.

The Metal Coil Coating segment reported revenues of $117.3 million, which improved 19% year over year. However, adjusted operating profit declined 6.2% year over year to $9.1 million.

Financial Update

NCI Building ended fiscal 2018 with cash and cash equivalents of $54.3 million compared with $65.7 million recorded in the year-ago period. Cash flow from operations came in at $82.5 million in fiscal 2018 compared with $63.9 million reported in fiscal 2017. Its long-term debt was $403.1 million as of Oct 28, 2018 compared with $387.3 million on Oct 29, 2017.

NCI Building’s consolidated backlog advanced 12.1% year over year to $557 million at the end of the reported quarter.

Fiscal 2018 Highlights

Adjusted earnings came in at $1.45 per share, reflecting an increase of 81.3% from 80 cents in fiscal 2017. Net sales were $2,000.6 million, up 13% from a year ago. Gross profit improved 11.2% from a year ago to $462.7 million. However, gross margin declined 40 bps to 23.1%. Adjusted operating income was $150.5 million, up 32.2% from a year ago, and adjusted operating margin improved 110 bps in the fiscal year.

Ply Gem Acquisition

On Nov 16, 2018, the company announced that it has completed the 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.

Under the terms of the transaction, Ply Gem shareholders received approximately 58.7 million shares of NCI common stock. Meanwhile, NCI Building shareholders retained 53% ownership of the combined entity, with Ply Gem shareholders holding the remaining 47%.

In the meantime, the combined company will move to a calendar year-end fiscal reporting schedule and start with the fiscal year ending Dec 31, 2019. Consolidated results during the transition period from Oct 29 through Dec 31, 2018 (including the results of Ply Gem from Nov 16, 2018) will be reported in February 2019.

Zacks Rank & Key Picks

NCI Building currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks from the same industry include EMCOR Group, Inc. (EME - Free Report) , PGT, Inc. (PGTI - Free Report) and RPM International Inc. (RPM - 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.

EMCOR, PGT and RPM’s earnings per share for the current year are expected to increase 20%, 93.4% and 18.4%, respectively.

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