GMS Stock Rises 5.2% Despite Q4 Earnings And Sales Miss

GMS Inc. (NYSE:GMS) reported fourth-quarter fiscal 2019 results, wherein earnings and sales lagged the respective Zacks Consensus Estimate. The company reported adjusted earnings of 68 cents per share, missing the consensus mark of 71 cents by 4.2%. Also, net sales of $780.15 million missed the consensus estimate of $785 million by 0.7%.

Nonetheless, the top and bottom lines increased 22.7% and 21.4%, respectively, on a year-over-year basis. The upside was mainly attributable to greater commercial activity, pricing improvement and acquisition synergies. Consequently, shares of the leading interior building products distributor gained more than 5% post the earnings release.

During the reported quarter, GMS achieved 7% organic sales growth, owing to higher volumes and pricing improvement across the board.

GMS Inc. Price, Consensus and EPS Surprise

Product Line Discussion

Sales in Wallboard (accounting for 41.3% of total net sales) increased 15.1% year over year to $322.3 million. Organically, sales grew 3.8% from the prior-year quarter. The positive trend was driven by acquisitions, higher organic volumes and pricing.

Ceilings’ (14.4%) sales improved 17.4% on a year-over-year basis to $112.2 million, driven by increased commercial business, efficient pricing system and benefits derived from acquisitions. Organic sales also grew 13.7% from the year-ago period.

Sales in Steel Framing (16%) totaled $124.5 million, up 16.3% from the prior-year period. Moreover, sales grew 8.3% from the year-ago quarter on an organic basis, backed by the above-mentioned tailwinds.

Sales of Other Products (28.3%) increased 44.4% year over year to $221.1 million and 7.8% on an organic basis.

Operating Highlights

Gross profit of $256.9 million improved 24.8% year over year, mainly as a result of higher sales. Gross margin also grew 50 basis points (bps) year over year to 32.4%, owing to positive contributions from the Titan acquisition, and favorable price-cost dynamics and mix. Notably, the metric surged 50 bps sequentially.

Adjusted selling, general and administrative expenses, as a percentage of net sales, improved 100 bps to 23.6% in the quarter. Of this improvement, 20 bps was attributed to cost-reduction initiatives undertaken by the company and 80 bps was contributed by the shift of certain equipment operating leases to capital leases.

Adjusted EBITDA margin grew 150 bps to 9.4% in the quarter.

Liquidity & Cash Flow

As of Apr 30, 2019, GMS had cash and cash equivalents of $47.3 million compared with $74.3 million on Jan 31, 2019. Total debt at the end of fiscal fourth quarter amounted to $1.14 billion compared with $1.23 billion on Jan 31, 2019.

During the reported quarter, the company repurchased 287,000 shares of its common stock for nearly $5 million. As of Apr 30, 2019, it had approximately $58.5 million shares left under the previously announced $75-million share repurchase program.

Fiscal 2019 Highlights

The company reported fiscal 2019 adjusted earnings per share of $2.80, up 39.3% from the year-ago level of $2.01. Net sales also increased 24.1% year over year to $2.51 billion. Moreover, organic sales grew 7.1% year over year.

Adjusted EBITDA margins also grew 160 bps from a year ago to 9.5%.

Strategic Actions

During the fiscal fourth quarter, GMS opened four greenfield locations in Carrollton, TX, Fredericksburg, VA, Harrisburg, PA and Portland, ME. Notably, it completed three acquisitions and opened eight greenfield locations in fiscal 2019.

Zacks Rank & Key Picks

Currently, GMS carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the Retail-Wholesale sector are BMC Stock Holdings, Inc. (NASDAQ:BMCH) , Builders FirstSource, Inc. (NASDAQ:BLDR) and RH (NYSE:RH) . While BMC currently sports a Zacks Rank #1 (Strong Buy), both Builders FirstSource and Quanta Services (NYSE:PWR) carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

BMC surpassed the Zacks Consensus Estimate in each of the trailing four quarters, with the average being 39.5%.

Builders FirstSource topped the consensus mark in three of the trailing four quarters, with the average positive surprise being 7.9%.

RH outpaced the consensus estimate in the preceding four quarters, with the average being 20.1%.

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