Beacon Roofing Supply Inc. (BECN) delivered earnings per share (EPS) of 22 cents in its first quarter ended December 31, 2010, outperforming the Zacks Consensus Estimate of 15 cents and 17 cents reported in the year-ago quarter.
Enhanced sales coupled with lower interest expense were partially offset by the impact from a lower gross margin rate, compared to last year’s first quarter, as well as higher expenses and income taxes.
Total revenue went up 10% year over year to $404.8 million and outperformed the Zacks Consensus Estimate of $386 million. Organic revenue growth was 6.6%.
Non-residential roofing products recorded sharp growth of 13.6% to reach $158.1 million and complementary building products, at $61.6 million of sales, posted a growth of 12.1%. Revenues from residential roofing products were a dampener, declining 0.8% to $172 million, affected by less re-roofing activity in post storm-affected regions.
Cost & Margin Performance
Cost of sales increased 11% to $310 million in the quarter. Based on revenues, the same increased 60 basis points to 76.6%. Gross profit increased 7% to $94.8 million but gross margin dipped 60 basis points to 23.4%.
Operating expenses went up 7.4% to $75 million in the quarter and, based on revenues, dipped 50 basis points to 18.5%. Operating income upped 7% to $19.8 million whereas operating margin contracted a marginal 10 basis points to 4.9%.
Financial Position
As of December 31, 2010, Beacon had cash and cash equivalents of $175.7 million, up from $110.2 million as of December 31, 2009. During the quarter, cash flows from operations were $57.5 million, higher than $29.5 million in the prior-year quarter. the quarter’s cash flows were influenced mostly by a lower reduction in accounts payable and accrued expenses compared to last year, partially offset by an unfavorable impact from lower decreases in accounts receivable and inventories this year.
As of December 31, 2010, the debt-to-capitalization ratio improved to 41% from 44% as of December 31, 2009.
Our Take
Since the fourth quarter of 2009, Beacon’s revenues across its three major product lines have suffered declines due to a lackluster economy and lower levels of new construction and remodeling. However, during the latter half of fiscal 2010, the company delivered a turnaround in non-residential roofing sales and complementary products sales.
Residential roofing products sales, however, remain sluggish. The last increase seen in sales was in the third quarter of fiscal 2009, which benefited from re-roofing activity in markets that were affected by Hurricane Ike. We believe, with a recovery in the U.S. economy, roofing activity will eventually improve. We currently have a Zacks #3 Rank (short-term Hold 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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