GMS' Q2 Earnings To Benefit From Cost Synergies, High Demand

GMS Inc. (NYSE:GMS) is scheduled to report second-quarter fiscal 2020 results on Dec 5, before market open.

In the last reported quarter, the company’s top and bottom lines surpassed the Zacks Consensus Estimate by 1.2% and 6%, respectively. The metrics increased 8.5% and 8.9%, respectively, on a year-over-year basis. The improved results stemmed from increase in demand for its products as a result of improvement in new housing starts, R&R activity and commercial construction.

GMS — which shares space in the Zacks Building Products - Retail industry with Fastenal Company (NASDAQ:FAST) , Builders FirstSource, Inc. (NASDAQ:BLDR) and Beacon Roofing Supply, Inc. (NASDAQ:BECN) — missed the consensus mark in six of the trailing eight quarters.

Earnings & Revenue Expectation

The Zacks Consensus Estimate for GMS’ fiscal second-quarter earnings is pegged at 98 cents per share, implying growth of 10.1% on a year-over-year basis. The consensus estimate for revenues is pegged at $857.81 million, indicating an increase of 2.9% from the year-ago reported figure.

Factors to Note

The company, a leading North American distributor of wallboard and suspended ceilings systems, has been consistently reporting solid top-line numbers across its product categories. The trend is likely to have continued in the to-be-reported quarter as well, owing to ongoing pricing improvements, cross-selling opportunities, healthy end-market results and strategic acquisitions.

The company is highly focused on expanding in existing and new markets by opening new branches and acquiring competitors. Notably, the acquisition of WSB Titan or Titan, a distributer of drywall, lumber, commercial and residential building materials, is likely to have aided its top-line growth. Again, it acquired Hart Acoustical and Drywall Supply in July to boost offerings and cost synergies.

Moreover, the company has been successfully carrying out initiatives to improve realized prices of commodities. The company believes that its diversified exposure across commercial and residential new, and repair and remodel construction markets, along with solid cost synergies will reflect on fiscal second-quarter results. Also, improving U.S. housing fundamentals and healthy residential and commercial end-market demand are expected to have bolstered the to-be-reported quarter’s earnings.

However, material cost inflations have been threatening margins.

What the Zacks Model Says

Our proven model does not conclusively predict an earnings beat for GMS this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that's not the case here.

GMS has a Zacks Rank #2 and an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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