Beacon Roofing (BECN) Up 10.8% Since Last Earnings Report: Can It Continue?

It has been a month since the last earnings report for Beacon Roofing Supply (BECN). The shares gained around 10.8% during this period, outperforming the S&P 500.

Will the recent positive trend continue until the next earnings release, or is Beacon Roofing about to retreat? Before we dive into the recent reaction from investors and analysts, let’s take a quick look at the latest earnings report to get a better grip on the key catalysts.

Beacon’s (BECN) Q1 earnings top estimates, year-over-year increase

Beacon Roofing Supply, Inc. achieved impressive results in the first quarter of fiscal 2021. The end result exceeded the Zacks consensus estimate, which was mainly supported by a solid residential environment, stronger gross margins, and lower operating costs.

Julian Francis, President and Chief Executive Officer of Beacon, said, “The first quarter results are a stunning example of the underlying potential of our company.”

Quarter in detail

This largest distributor of roofing materials for residential and non-residential buildings reported adjusted earnings of 92 cents per share, beating the consensus mark of 64 cents by 43.8%. In the same period last year the company achieved a profit of 32 cents per share. Aggressive cost-cutting measures contributed to the bottom line. A solid living environment and gross margins supported by pricing, mix and timing are a good sign.

Net sales of $ 1,576.5 million missed the consensus mark of $ 1,751 million by 9.9%, but rose 11.4% year over year. This is due to the heavy roofing of residential buildings, the growth of complementary products, as well as the benefits of recent price increases, which have been partially offset by weaker demand from non-residential categories.

Sales of residential roofing products (53.6% of net sales) rose 21.2% and ancillary product sales (21.1%) rose 8.8%, while the cost of non-residential roofing products (25.3%) increased %) fell by 3.3%.

Company highlights

The gross margin of 25.4% improved 140 basis points (basis points) in the quarter compared to the previous year. The successful implementation of the price increase, the time advantages associated with it and the corresponding increase in the cost of the goods sold contributed to the increase in the margin. Cost-saving efforts and productivity initiatives helped the company lower operating costs and thereby increase margins.

As a percentage of net sales, SG&A costs fell to 16.8% or 250 basis points. Adjusted EBITDA increased 85.8% and Adjusted EBITDA margin increased 370 basis points over the year, driven by strong demand and implementation of cost control strategies.

The story goes on

Financial situation

At the end of the first quarter of 2021, Beacon had cash and cash equivalents of $ 461.4 million, compared to $ 624.6 million at the end of fiscal 2020. Long-term debt, minus the current portion, was $ 2.5 billion. USD, which is the number at the end of fiscal 2020.

Cash flow from operating activities was $ 39.1 million for the first quarter of the fiscal year, compared to $ 125.3 million a year ago.

Fiscal Q2 guidance

For the second fiscal quarter (end of March), the company expects sales growth in the mid to high single-digit range, despite a lower sales day than in the second quarter of fiscal 2020.

Due to the seasonality, the company recorded a margin decline in the second quarter of the fiscal year. Still, the company is confident that the impact will be less than in recent years. Beacon also expects gross margin to grow nearly 200 basis points year over year.

Guidelines for the 2021 financial year

For the 2021 financial year, the company expects sales growth in the continuing operations in the high single-digit range. Adjusted EBITDA for continuing operations is forecast in the range of $ 500 million to $ 525 million. This represents a significant increase in adjusted pro forma EBITDA of $ 399 million for fiscal 2020. This improvement reflects strong revenue growth, gross margin gains, and favorable operational leverage.

How have the estimates moved since then?

It turns out that the last month’s review of estimates has seen an upward trend. The consensus estimate shifted 111.54% due to these changes.

VGM scores

At this point, Beacon Roofing has an excellent growth factor of A, although it lags a bit behind with a B in the momentum score. In a similar way, the share was assigned an A grade on the value side in the top 20% for this investment strategy.

Overall, the stock has an aggregated VGM value of A. Unless your focus is on one strategy, that value is the one you should be interested in.

outlook

Estimates for the stock are generally sloping up, and the extent of these revisions looks encouraging. Beacon Roofing in particular has a Zacks Rank 3 (Hold). We expect the stock to generate inline returns over the next several months.

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