Gibraltar Industries Inc. (ROCK - Free Report) is gaining strength from the four-pillar value creation strategy, strong Renewable Energy & Conservation business, along with an impressive liquidity position. Its shares have gained 12.4% over a year, outperforming the Zacks Building Products – Miscellaneous industry and S&P 500 composite’s 7.3% and 4.5% growth, respectively.
Investors’ sentiments might have got a boost from its historically solid earnings and net sales. Earnings surpassed analysts’ expectation in nine of the trailing 12 quarters. The company’s net sales topped the same in six of the last 10 quarters. Its first-quarter 2020 results were also impressive. In the first quarter, the company’s earnings and sales grew 67.9% and 9.7% year over year, respectively. Solid contribution from the Renewable Energy and Conservation segment boosted the results.
However, acquisition-related costs hurt its performance. Also, the recent market slowdown due to coronavirus impacts has been hurting the company’s performance of late.
Let’s delve deeper into the factors that justify its current Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Three-Pillar Strategy to Drive Growth: Gibraltar’s three-pillar value creation strategy, which includes Business Systems, Portfolio Management and Organizational Development, is one of the major earnings growth drivers.
Notably, its Business Systems combines two of its previous strategic pillars — operational excellence and product innovation. Its second strategic pillar comprises portfolio management and acquisitions. The third pillar of the strategy primarily focuses on talent development, design and structure of organization. These above-mentioned strategies have helped the company to come up with strong financial results, make more efficient use of capital and deliver higher shareholder returns.
Solid Long-Term Renewable/Conservation Market Prospects: Gibraltar is encouraged by long-term market prospects of both renewable energy and conservation businesses.
Per a report from Solar Energy Industries Association and GTM Research, solar energy has become a cost-effective option for most part of the United States, despite increased tariffs on imported PV panels. Robust growth in the cannabis market is also adding to the bliss. This is evident from the current sales trend of its Renewable Energy and Conservation segment.
First-quarter net sales increased 40.3% year over year and 17.5% on an organic basis. Apeks Supercritical, Thermo Energy Solutions and Delta Separations acquisitions contributed 22.8% to top-line growth. The uptick can be attributed to core business strength driven by participation gains, volume leverage, productivity improvements and favorable price/material cost alignment. Segment backlog grew 58% year over year owing to healthy market dynamics, participation gains and the recent acquisitions. Despite coronavirus impacts, it experienced continued strength in renewables and conservation.
Solid Liquidity Position: Gibraltar has been maintaining a strong liquidity position to navigate through the current environment. The company ended the first quarter with $480 million liquidity, including $86 million cash and cash equivalents, along with $394.1 million of available capacity on a 5-year, $400-million revolving credit facility. It can also request lenders for an additional financing up to $700 million within the facility or enter into a term loan of up to $300 million, subject to conditions set forth in the Senior Credit Agreement.
The company — which shares space with Owens Corning (OC - Free Report) , United Rentals, Inc. (URI - Free Report) and Masco Corporation (MAS - Free Report) in the same industry — has no significant debt obligation to be paid in near future.
Coronavirus to Weigh on Results: Owing to persistent economic uncertainty on account of coronavirus-led shutdowns, Gibraltar’s processing market witnessed a prolonged pause when government issued stay-at-home orders. In the Residential business, it saw a modest decrease in demand. The Direct-to-homeowner market, wherein it sells gutter protection and awning systems, also slowed down due to the pandemic.
In the Industrial business, it has been witnessing continued softness in the demand for core products and a pause on shipments to automotive customers. Owing to the uncertainty in market, it revoked its previously announced 2020 guidance.
Higher Costs: Incremental costs associated with the recent acquisitions have been weighing on its bottom line. In the first quarter, selling, general and administrative expenses — as a percentage of sales — increased 190 basis points year over year, largely due to $1.3 million of acquisition-related costs.
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