Beacon Roofing (BECN) Q2 Loss Wider Than Expected, Sales Top

Beacon Roofing Supply, Inc. (NASDAQ:BECN) reported adjusted loss of 35 cents per share in second-quarter fiscal 2018, wider than the Zacks Consensus Estimate of 9 cents loss per share. The company posted adjusted earnings of 8 cents per share in the prior-year quarter.

The results were primarily affected by harsh winter weather conditions, higher operating expenses, elevated interest expense, and the impact from preferred dividends. Notably, cold weather, combined with heavier precipitation in February and snowstorms in March, created a difficult environment for the roofing industry.

On a reported basis, the company recorded loss of $1.07 per share compared to a loss of 16 cents reported in the prior-year quarter.

Operational Update

This distributor of residential and non-residential roofing materials posted record sales of $1.43 billion, which surged around 64% year over year. Sales were positively impacted by strong existing and acquired sales growth within the complementary products category and early synergy benefits from the Allied acquisition. Also, revenues beat the Zacks Consensus Estimate of $1.41 billion.

Residential roofing product sales were up around 20% year over year. Non-residential roofing product sales registered growth of 36% and complementary product sales increased a whopping 263%, both on a year- over-year basis. Existing markets sales, excluding acquisitions, edged down 0.1% for the fiscal second quarter.

Cost of goods sold climbed 63% year over year to $1,087 million. Gross profit came in at $338 million, significantly up 65% from $204 million reported in the year-ago quarter. Gross margin expanded 20 basis points (bps) to 23.7%.

Operating expenses for the quarter were up 91% year over year to $396 million. Beacon Roofing reported operating loss of $57 million, wider than the $3-million loss posted in the prior-year quarter.

Cash Position

Beacon Roofing reported cash and cash equivalents of $16 million at the end of the fiscal second quarter, up from $10 million reported at the end of the comparable quarter in the prior fiscal. The company generated cash flow from operations of $40 million during the six-month period ended Mar 31, 2018, compared with $151 million posted in prior year comparable period.

Beacon Roofing is poised to gain from improved pricing actions and continued focus on cost-restructuring activities. Additionally, the company remains committed to invest in e-commerce. It also expects to drive growth organically and through acquisitions while lowering the overall net debt leverage, adding value through technology investments, and executing the Allied integration plan.

Share Price Performance

Beacon Roofing has underperformed the industry in a year’s time. The stock has gained 3.5% compared with 9.5% growth recorded by the industry.

Zacks Rank and Key Picks

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

Better-ranked stocks in the same sector include Boise Cascade, L.L.C. (NYSE:BCC) , At Home Group Inc. (NYSE:HOME) and Armstrong World Industries, Inc. (NYSE:AWI) . While Boise Cascade sports a Zacks Rank #1 (Strong Buy), Home Group and Armstrong World carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Boise Cascade has a long-term earnings growth rate of 6.7%. The stock has appreciated 48% in a year’s time.

Home Group has a long-term earnings growth rate of 24.7%. The company’s shares have been up 91% during the past year.

Armstrong World has a long-term earnings growth rate of 17.3%. Its shares have rallied 28% over the past year.

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