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NCI Building (NCS) Up 2.6% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for NCI Building Systems . Shares have added about 2.6% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is NCI Building due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

NCI Building Q4 Earnings Miss, Revenues Beat Estimates

NCI Building Systems reported adjusted earnings of 55 cents per share in the quarter, 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 a share 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 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. 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, mainly in support of increased sales volumes and due to wage inflation. As a percentage of sales, ESG&A expenses decreased 110 basis points to 13.8% in the quarter. This improvement was mainly due to the company’s ongoing cost reduction initiatives. The company 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, showing an improvement of 22.1% year over year. Adjusted EBITDA margin rose 50 bps year over year to 11.5% in the quarter.

Segment Performance

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

The Metal Component segment revenues moved 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 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% to $462.7 million. However, gross margin declined 40 bps to 23.1%. Adjusted operating income was $150.5 million, up 32.2% 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%.

Meanwhile, the combined company will now move to a calendar year-end fiscal reporting schedule and will start with the fiscal year ending Dec 31, 2019. 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.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 21.43% due to these changes.

VGM Scores

Currently, NCI Building has a great Growth Score of A, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, NCI Building has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.

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