Beacon Roofing Supply, Inc. BECN benefits from continued focus on digital platform improvement, disciplined cost management efforts and strategic initiatives. In addition, a resilient residential environment is expected to drive growth.
However, inflationary pressures, coronavirus-related issues and fierce competition remain worrying. In addition, weather-related challenges can put profitability at risk. Let’s dive deeper.
Continuous focus on increasing productivity and digital space: Beacon Roofing continues to focus on its people with additional tools and training to improve overall productivity, including the TRI-BUILT private label offering. The company is also targeting a new customer base that includes building ties with national accounts, large retailers and 2-tier customers.
The company gains strength in particular through the successful implementation of the technology in the evolving e-commerce platform. The company’s digital platform generated 10% of sales in fiscal 2020. She is on the right track with a long-term goal of generating $ 1 billion in annual digital sales. In the third quarter of fiscal year 2021, the company saw increasing adoption rates on its digital platforms. The company had almost 50% more active users of its online platform in the third quarter of fiscal year 2021 than in the previous year. Digital distribution contributed 14% of the company’s net sales in the third quarter of fiscal 2021.
Cost reduction efforts: Beacon Roofing is making progress in integrating its acquisition of Allied Building Products. The company is taking a variety of initiatives to ensure the best supplier supply agreement from market to market. The company is also in a transition phase of employees and this process has just begun to make a positive contribution to reducing operating costs. In the third quarter of fiscal 2021, the company’s gross margin improved 380 basis points (bps) from 27.6% year over year, and the Adjusted EBITDA margin improved 390 bps year over year. This upward trend is mainly due to the successful implementation of price increases, strong demand and strategies to control costs. In the same period, selling, general and administrative expenses as a percentage of net sales fell to 15.8% or 20 basis points compared to the previous year. For fiscal 2021, the company expects adjusted EBITDA in the range of $ 635 million to $ 650 million from continuing operations, a significant increase from FY2020’s pro forma adjusted EBITDA of $ 399 million. Tireless cost-cutting and productivity initiatives helped the company lower operating costs and optimize margins.
Focus on core business: In order to increase the financial flexibility and to sharpen the focus on the core business outdoors, Beacon Roofing sold the business with interior products. This will help the company to return to its old position as a focused market leader in the distribution of exterior products. Notably, 80-85% of the company’s continuing operations will be in the residential and commercial roofing space. Last year the company made a strategic review decision. Among them, the company integrated 40 brands in the United States and Canada that sell outdoor products under Beacon Building Products. The company’s strategic decisions continue to gain momentum and deliver measurable results. The company’s primary growth plan includes improved sales growth, operational efficiency and profitability. In line with its plan, the company continues to focus on four key strategic initiatives – organic growth, digital growth, on-time and complete (OTC) and branch operational performance – that will drive revenue and improve operational profitability. In addition, the company is prioritizing improving sales and operational performance both outdoors and indoors, and intends to improve the overall customer experience through a larger scale and scope of business. It improves outdoor and indoor sales and operational performance, and intends to enhance the overall customer experience through a larger scale and scope of business.
Robust R&R activity: Recently, Beacon Roofing has been seeing increased demand for housing, as well as repair and remodeling activities amid COVID-related restrictions. Housing markets have been resilient lately, given the low mortgage rates. As the economy opens up, demand for home and building material products is improving amid the increasing trend among consumers to invest more in housing amid the pandemic. The momentum is expected to continue, which in turn will drive demand for Beacon Roofing’s products. The revival in housing demand has been a boon for Beacon Roofing and other industry players like Builders FirstSource, Inc. BLDR, Fastenal company Fast and Lowe’s Companies, Inc. LOW.
The story goes on
Beacon Roofing’s work is done outdoors and is based on repair and remodeling activities. It is prone to COVID-induced economic disruption. Approximately 70-75% of total sales and more than 80% of the roofing business are research and development and are largely non-discretionary. Although the company has regained its financial strength and operational flexibility, COVID-related restrictions can continue to weigh on its results. In the third quarter of fiscal 2021, Beacon Roofing incurred $ 0.4 million in administrative and administrative expenses related to the pandemic.
The company recently observed higher input costs. Despite various cost-saving initiatives, the company continues to see inflationary pressures in most product categories. In the third quarter of fiscal 2021, the company’s costs for several product categories will increase.
Would you like the latest recommendations from Zacks Investment Research? Today you can download the 7 best stocks for the next 30 days. Click here to get this free report
Fastenal Company (FAST): Free Stock Research Report
Lowe’s Companies, Inc. (LOW): Free Stock Research Report
Beacon Roofing Supply, Inc. (BECN): Free Inventory Analysis Report
Builders FirstSource, Inc. (BLDR): Free Stock Research Report
To read this article on Zacks.com, click here.