Beacon Roofing (BECN) To Post Q4 Earnings: What's In Store?

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Let’s See How Things are Shaping Up for This Announcement

Rising material costs have been impacting the company’s overall performance. As a distributor of residential roofing supplies, it is sensitive to asphalt prices, which are highly volatile and often linked to oil prices. This is because oil is a significant input in asphalt production. Shingle prices have been volatile in the recent years, partly due to volatility in asphalt prices.

Also, its commercial roofing market has been experiencing highly competitive pricing pressures. The maintenance, repair & operations (“MRO”) supply market is highly fragmented, with many smaller local players competing directly on pricing issues.

The impact of these headwinds was seen in the operating results of the first nine months of fiscal 2018. During the period, the company recorded operating margins of 2.2%, down 200 basis points (bps) from a year ago. Also, its existing markets gross margin declined 40 bps due to raw material cost increase of approximately 3% in the same time frame.

Considering the above-mentioned headwinds, Beacon Roofing has lowered its adjusted EBITDA view from $555-$585 million to $510-$520 million for fiscal 2018. Adjusted EPS is now expected in the $3.00-$3.10 range compared with $3.35-$3.55 projected earlier. Its full-year revenues are anticipated within $6.45-$6.55 billion compared with $6.6-$6.9 billion guided earlier.

Meanwhile, shares of Beacon Roofing have lost 50.2% over the past year against its industry’s growth of 9.3%. Earnings estimates for the to-be-reported quarter have also declined 0.7% over the past 60 days.

However, the company is poised to benefit from its ongoing integration with Allied Building Products. During the first nine months of 2018, Allied Building Products added $1.32 billion to the total revenues and $15.8 million to Beacon Roofing’s earnings. Additionally, on May 1, 2018, the company acquired Tri-State Builder’s Supply, a wholesaler of roofing, siding, windows, doors and related building products.

Consequently, it has raised its overall synergy expectation to $120 million from $110 million targeted earlier. Also, for full-year fiscal 2018, the company raised its synergy guidance from around $35 million to $40 million. With these acquisition strategies in place, Beacon Roofing is expanding its geographic footprint, scale and market position, diversified product offerings, thereby helping to boost the top line.

Earnings & Revenue Expectation

Let’s take a look at the estimate revision trend in order to get a clear picture of what analysts are thinking about the company prior to the earnings release.

The Zacks Consensus Estimate for Beacon Roofing’s fiscal fourth-quarter revenues is pegged at $2.01 billion, reflecting an increase of 56.1% the year-ago quarter. The consensus estimate for earnings is pegged at $1.37 per share, implying growth of 47.3% on a year-over-year basis.

What Does the Zacks Model Say?

Our proven model shows that Beacon Roofing is unlikely to beat estimates in the to-be-reported quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to beat the Zacks Consensus Estimate.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is -5.59%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Beacon Roofing currently carries a Zacks Rank #4 (Sell).

We caution against stocks with a Zacks Rank #4 and 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions. You can see the complete list of today’s Zacks #1 Rank stocks here.

Stock Worth a Look

Here is a construction sector that you may want to consider, as our model shows that it has the right combination of elements to post an earnings beat in the upcoming release:

Toll Brothers Inc. (NYSE:TOL) has an Earnings ESP of +3.68% and a Zacks Rank #3. The company is slated to report quarterly results on Dec 5.

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