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Loss Narrows at NCI Buildings

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NCI Building Systems Inc. (NCS - Free Report) reported loss per share of 19 cents in the first quarter of 2013, ending Jan 27, 2013, missing the Zacks Consensus Estimate of break-even results and narrower than the adjusted loss of 31 cents a share incurred in the year-ago quarter. Including acquisition related costs, loss in the year-ago quarter was 54 cents per share. 

Operational Update
Sales increased 22% year over year to $297.6 million in the quarter, in line with the Zacks Consensus Estimate. The year-over-year growth was driven mainly by the Metal Components segment, followed by the Engineered Building systems segment.
Cost of sales during the quarter increased 25% to $237 million. Gross profit increased 14% to $60.9 million. However, gross margin contracted 150 basis points to 20.5% in the quarter. This was due to higher shipment of lower-margin structural products in the engineered buildings segment, additional costs associated with the ramp-up of the new Middletown, Ohio plant; and increase in expenses to retain and train skilled manufacturing workers in order to capture additional efficiencies.
Engineering, selling, general and administrative expenses increased 24% to $60 million, mainly due to the Metl-Span acquisition. Adjusted operating income was $0.4 million, a 91% decline from the year-ago quarter’s operating income of $4.7 million. Operating margin plunged 180 basis points to 0.1% in the quarter.
Segment Performance
Revenue at Engineered Building Systems increased 5% year over year to $148 million in the quarter. The segment reported operating income of $4 million in the quarter, down 47 % from the year-ago quarter’s adjusted income of $7.6 million, due to the combination of less favorable project mix and higher labor costs incurred in anticipation of higher volumes in the seasonally stronger second half of the year.
Revenue from the Metal Coil Coating segment remained flat year over year at $49 million. Operating profit was $5.5 million in the quarter, up 5% from the prior-year quarter.
The Metal Component segment generated revenues of $154 million, up 46% year over year. The segment benefited from the contribution from the company's recent Metl-Span acquisition well as modest organic growth.
Operating profit for the segment increased 10% to $6.1 million in the quarter as higher margin insulated metal panel products offset some of the impact of pricing pressure in the core commercial and industrial components business and higher operating expense to support growth in the second half of 2013. 
Financial Update
As of Jan 27, 2013, NCI Building Systems had cash and cash equivalents of $25.8 million, down from $55 million as of Oct 28, 2012. Long-term debt decreased to $226 million as of Jan 27, 2013 from $234 million as of Oct 28, 2012. Cash used in operating activities was $13.1 million in the quarter compared with $4.2 million in the prior-year quarter.
Management did not provide any specific guidance for fiscal 2013. However, the company expects the second half of 2013 to benefit from improving market conditions and strong operating leverage, which has been further enhanced by first quarter investments to expand gross margin.
Our Take
NCI Building Systems has acquired Metl-Span LLC for $145 million. Metl-Span is a leader in the advancement of insulated panel technology and serves the architectural, commercial, industrial and cold Storage industries (non-residential building products market) with energy efficient and cost effective insulated metal wall and roof panels.
The acquisition will position NCI Building as a leader in the insulated metal panel business by diversifying and expanding its existing product range. In addition, NCI Building will also be benefited by a growing customer base as well as distribution network in North America.
In the first quarter, low-rise non-residential construction activity, measured in square feet, increased 4.4% from the comparable period in fiscal 2012. The American Institute of Architect's Architectural Billing Index published for January 2013 was 54.2 and the commercial and industrial component of the Index remained above 50 for the fourth consecutive month.
According to the current forecast of McGraw-Hill ,  nonresidential construction activity measured in square feet will be 8% higher in calendar 2013 compared to calendar 2012. The non-residential construction is showing signs of a turnaround, which will benefit NCI Building Systems.
Based in Texas, NCI Building Systems is one of the largest integrated manufacturers of metal products for the North American non-residential construction industry. Currently, the shares of NCI Building Systems retain a short-term Zacks #3 Rank (Hold).
Other stocks to consider in the same industry with a favorable Zacks Rank are Drew Industries Inc. , Headwaters Incorporated and James Hardie Industries plc , which carry a Zacks Rank#2 (Buy). 

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