Beacon Roofing Misses Q3 Earnings on Lower Gross Margin – Analyst Blog

Beacon Roofing Supply, Inc. ( BECN ) reported earnings per share of 54 cents in the third quarter of fiscal 2014 (ended Jun 30, 2014), a 2% year-over-year decline, on May 9. Earnings also fell short of the Zacks Consensus Estimate of 59 cents. Lower gross margins from reduced selling prices due to weak demand and a continued unfavorable shift in sales mix to lower margin direct shipment and commercial business resulted in the year-over-year decline in earnings. However, this marked a significant turnaround from the loss per share of 25 cents recorded in the second quarter of fiscal 2014.

Beacon Roofing Supply, Inc - Earnings Surprise | FindTheBest

Operational Update

Total revenue increased 6% year over year to a record $663 million but lagged the Zacks Consensus Estimate of $665 million. Non-residential roofing product sales increased 9.7% followed by a 6.4% rise in complementary product sales while residential roofing products sales went up 2.7%.

Cost of goods sold went up 7% year over year to $512 million. Gross profit was $151 million, compared with $147 million in the year-ago quarter. Gross margin contracted 80 basis points (bps) from the prior-year quarter to 22.7% primarily due to continued price pressure along with increased mix of commercial and direct ship business that typically carry lower margins.

Operating expenses for the quarter increased 6% year over year to $105 million. However, as a percentage of sales, operating expenses remained flat at 15.8% due to continued cost controls and sales base growth despite the company investing $5 million in new stores to expand its footprint in the existing as well as new markets. The company posted an operating profit of $46 million, down 4% from $48 million in the prior-year quarter.

Financial Position

As of Jun 30, 2014, Beacon Roofing had cash and cash equivalents of $26 million, flat compared with Jun 30, 2013. Total debt was $227 million as of Jun 30, 2014 against $225 million as of Jun 30, 2013. The debt-to-capitalization ratio was at 27% as of Jun 30, 2014, flat with Jun 30, 2013, figure.

Cash used in operations was $47 million for the nine-month period ended Jun 30, 2014, compared with cash inflow of $49 million in the prior-year comparable period. This was due to seasonal increases in accounts receivable balances driven by increased sales during the third quarter of 2014, as well as increased inventory levels.

2014 Outlook

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Beacon Roofing Misses Q3 Earnings on Lower Gross Margin - Analyst Blog