Beacon Roofing (BECN) Surpasses Q3 Earnings, Ups Outlook

Beacon Roofing Supply, Inc. (NASDAQ:BECN) reported adjusted earnings (excluding the impact of non-recurring RSG acquisition-related cost) of 77 cents per share for third-quarter fiscal 2016, beating the Zacks Consensus Estimate by a penny. Earnings also jumped around 37.5% year over year.

Including acquisition-related items, the company reported a profit of 68 cents per share in the quarter compared to 56 cents in the prior-year quarter.

Operational Update

This distributor of residential and non-residential roofing materials posted record sales of $1.15 billion, indicating a robust 60.5% year-over-year surge. However revenues missed the Zacks Consensus Estimate of $1.16 billion.

Growth from acquisitions, led by RSG and the other seven buyouts, boosted revenues on a year-over-year basis. Organic sales grew 8.7% in the quarter, escalated by greenfield investments over the last four years and the increased storm activity in the Dallas metropolitan area.

Year-over-year sales growth was led by contributions from all product lines of the company. Residential roofing product sales surged 73%, while non-residential roofing product sales soared 43.9%. Complementary product sales were up 57.8%. Existing market sales (excluding acquisitions) were up 8.7%.

Cost of goods sold increased 58.7% to $870.7 million. Gross profit was $282 million, up 66.5% from $169.4 million in the year-ago quarter. Gross margin expanded 90 basis points (bps) to 24.5%.

Operating expenses for the quarter improved 67.7% year over year to $203.7 million. Operating income in the quarter was $78.4 million, compared to $48 million in the prior-year quarter.

Financials

Beacon Roofing reported cash and cash equivalents of $36.5 million as of Jun 30, 2016, compared with $45.7 million as of Sep 30, 2015. The company generated $74.4 million in cash from operating activities for the nine-month period ending Jun 30, 2016 compared with $11.2 million in the comparable year-ago period.

Outlook

Based on the healthy performance in the first three quarters, Beacon Roofing elevated its revenue guidance to the range of $4.2–$4.3 billion from $4.1–$4.2 for fiscal 2016. It also raised adjusted EPS guidance to a new range of $2.05–$2.15 from the prior-projected range of $2.00–$2.10. The company expects full–year gross margin to be roughly 24%, aided by the benefits from product cost and mix.

Further, Beacon Roofing remains optimistic about fourth-quarter fiscal 2016 performance which will gain from sustained focus on executing the fundamentals of customer service, gross margin discipline, cash generation, cost control and continued synergy attainment with RSG.

The company also focused on minimizing cost while modestly reinvesting as needed. In addition, storm activity bodes well for the fourth quarter. The operating expense leverage should increase in the fourth quarter as the synergies continue to ramp to full run rate and sales increase.

Zacks Rank

Beacon Roofing currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the same industry include Lowe's Companies, Inc. (NYSE:LOW) , Masco Corp. (NYSE:MAS) and PGT, Inc. (NASDAQ:PGTI) . All three stocks hold a Zacks Rank #2 (Buy).