GMS' Q2 Earnings & Revenues Miss Estimates, Increase Y/Y

GMS Inc. (NYSE:GMS) reported fiscal second-quarter 2019 results, wherein earnings and revenues missed the Zacks Consensus Estimate. Adjusted earnings of 89 cents per share missed the consensus mark of 95 cents by 6.3%. However, the figure increased 40.4% on a year-over-year basis.

Net sales of $833.8 million missed the consensus mark of $843 million by 1.1%. However, the reported figure increased 28.7% from $648 million in the prior-year quarter. The improved result stemmed from greater commercial activity, pricing improvement and acquisitions synergy. Moreover, GMS achieved 8.7% organic growth on a year-over-year basis, owing to broad-based sales growth across product groups.

GMS Inc. Price, Consensus and EPS Surprise

Product Lines Details

Wallboard (accounting for 40.1% of total net sales) sales rose 16% year over year to $334.7 million.

Ceilings (14.2%) sales were up 16.5% to $118.4 million on a year-over-year basis.

Steel framing (16.3%) sales recorded a year-over-year increase of 31.5% to $135.8 million.

Sales of Other products (29.4%) surged 58.4% from the prior-year period to $245.0 million.

Operating Highlights

GMS’ gross profit of $268.2 million grew 26.3% in the said quarter, mainly due to higher sales from the acquisition of Titan. However, gross margin contracted 60 basis points (bps) to 32.2% year over year, owing to higher material cost and unfavorable product mix.

Adjusted selling, general and administrative expense, as a percentage of net sales, improved 270 bps to 21.8% in the quarter. The reduction primarily resulted from cost-reduction initiatives undertaken during fiscal 2019 along with contribution from acquisitions.

Adjusted EBITDA increased 60.7% year over year to $87.1 million. Adjusted EBITDA margin grew 210 bps to 10.5% in the quarter. This improvement was attributable to contribution of Titan results, benefits from restructuring actions, pricing improvement and favorable lease accounting changes.

Liquidity & Cash Flow

As of Oct 31, 2018, GMS’ cash and cash equivalents totaled $52.9 million compared with $36.4 million on Apr 30, 2018.

As of Oct 31, 2018, total debt came in at $1.24 billion compared with $610.5 million on Oct 31, 2017. The company generated strong free cash flow of $88.1 million in the reported quarter.

Strategic Actions

On Aug 7, 2018, GMS acquired Charles G. Hardy, Inc., in order to enter into the Los Angeles market, which is the second largest metropolitan area nationwide. Charles G. Hardy is one of the leading distributors of interior building products to residential and non-residential customers in the Los Angeles.

Zacks Rank & Key Picks

Currently, GMS carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the Construction sector are Great Lakes Dredge & Dock Corporation (NASDAQ:GLDD) , Altair Engineering Inc. (NASDAQ:ALTR) and EMCOR Group, Inc. (NYSE:EME) . While Great Lakes currently sports a Zacks Rank #1 (Strong Buy), Altair Engineering and EMCOR carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Great Lakes, Altair Engineering and EMCOR’s 2018 earnings are expected to increase 111%, 23.1% and 20%, respectively.

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