NCI Building Systems, Inc. or NCI has inked a deal to acquire 100% of the outstanding limited liability company interests of Environmental Materials, LLC ("Environmental Stoneworks") and its affiliates. The acquisition will boost the company’s geographical footprint in manufactured stone products.
The Unit Purchase Agreement, which is expected to close in the first quarter of 2019, is valued at $186 million in cash and borrowings under its existing revolving credit facilities.
Manufactured stone products are now one of the fastest growing categories of exterior cladding materials.
Environmental Stoneworks, being the only manufacturer and installer of stone veneer for the residential and commercial markets, offers a broad range of products. Also, it has five manufacturing facilities, 21 installation centers and nearly 660 employees in the United States. Environmental Stoneworks generated revenues of $160 million in fiscal 2017.
The transaction will likely support NCI's strong residential, repair & remodel, and commercial platform. Also, it will allow NCI to better serve residential customers and will create substantial cross-selling opportunities with its commercial customers.
Long-Term Strategic Plan on Track
NCI is well poised for long-term growth on the back of rising demand for key products and strategic actions. Its focus on investments in automation and process innovation will reduce operating costs, as well as improve margins, quality and service. Also, the initiative will enhance NCI’s long-term operational flexibility.
Moreover, it focuses on continued improvement in manufacturing, and attaining cost reduction with Lean and Six Sigma initiatives across the entire business. This will reduce additional back-office costs and simplify the business.
Notably, in fiscal 2018, its Engineering, Selling, General and Administrative or ESG&A expenses, as a percentage of sales, decreased 120 basis points (bps) to 15.4%. Adjusted operating margin grew 200 bps on a year-over-year basis. Moreover, the impact of these actions will be in the range of $40-$50 million by 2020, resulting in margin and EBITDA expansion, and reduction in overall expenses.
Share Price Performance
Shares of NCI have declined 57% in the past six months, underperforming its industry’s fall of 21.8%. Restructuring charges, raw-material cost inflation and strong competition are pressing concerns for the company. Also, it is facing continuous freight and labor cost pressure. In fact, freight has been hurting its performance over the past 24 months.
Zacks Rank & Stocks to Consider
Currently, NCI carries a Zacks Rank #5 (Strong Sell). Some better-ranked stocks in the construction sector are Gibraltar Industries, Inc. (ROCK - Free Report) , Gates Industrial Corporation plc (GTES - Free Report) and Great Lakes Dredge & Dock Corporation (GLDD - Free Report) . While Gibraltar sports a Zacks Rank #1 (Strong Buy), Gates Industrial and Great Lakes both carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Gibraltar’s earnings surpassed the Zacks Consensus Estimate in three of the trailing four quarters, with average positive surprise of 11.9%.
Gates Industrial’s 2018 earnings are expected to increase 44.6%.
Great Lakes surpassed earnings estimates in each of the last four quarters, resulting in average positive surprise of 157.5%.
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