Beacon Roofing Supply Inc. (BECN) reported a loss of 13 cents per share in the second quarter of fiscal 2011, compared with a penny more in the year-ago quarter and fell short of the Zacks Consensus Estimate of a loss of 8 cents per share.
The lower loss was mainly due to higher sales and gross margins, along with low interest expense, partially offset by higher operating expenses and a lower income tax benefit.
Net sales in the reported quarter amounted to $296.3 million compared with $285.4 million in the year-earlier quarter, missing the Zacks Consensus Estimate of $305 million. Organic sales contributed 0.2%, while non-residential roofing and complementary product sales contributed 13.7% and 6.9%, respectively, partially offset by residential roofing sales which decreased 11%.
Costs and Margins
Cost of goods sold in the reported quarter was $231.1 million, up from $224.3 million in the prior-year quarter. Gross profit improved to $65.2 million from $61.1 million in the year-earlier quarter. Gross margins also improved 60 basis points year over year to 22% in the quarter.
The company also reported operating expenses of $72.1 million up from $67 million in the prior-year quarter. The company reported a loss from operations of $6.8 million compared with $6 million in the year-ago quarter. Consequently, operating margins improved marginally by 20 basis points year over year to 2.3%.
Financial Position
The company reported cash and cash equivalents of $178.4 million as of March 31, 2011, improving substantially from $89.9 million as of March 31, 2010. Cash from operating activities also improved to $68.8 million during the six months, from $25.3 million in the year-earlier period. The cash flows were positively impacted by a reduction in accounts payable and accrued expenses compared to last year, partially offset by the negative impact of the increase in inventories.
As of March 31, 2011, the debt-to-capitalization ratio improved to 40% from 41% as of December 31, 2010 and 44% as of December 31, 2009.
Our Take
Though the company’s sales have suffered declines across its three major product lines, since the fourth quarter of 2009, the company has started recovering at a slower pace. During the quarter, the company improved its revenues and margins, although at a snail’s pace. The company also worked towards improving its balance sheet position by strengthening its cash balances. We currently have a Zacks #4 Rank (short-term Sell rating) on the stock.
Beacon is one of the three largest roofing materials distributors in the United States and Canada, with more than 90% of sales coming from the U.S. Beacon competes with privately held American Builders & Contractors Supply Co Inc., Guardian Building Products Distribution Inc. and Stock Building Supply Inc.
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