Investment research report for BECN

Table of Contents

Executive Summary
Valuation Analysis
Industry and Competitors Analysis
Financial Analysis
Earnings Call Multi-Year Analysis
Financial Statements Multi Year
Insider Trading Analysis
Management Compensation Benchmark Analysis
Proxy Statement Analysis
News Analysis
Technical Indicators Analysis
Financial Statements Annual
Financial Statements Quarterly
Earnings Call Analysis

Executive Summary

Company Description

Beacon Roofing Supply, Inc. is a leading distributor of residential and non-residential roofing materials, as well as complementary building products in the United States and Canada. The company operates through a network of over 450 branches, serving contractors, home builders, building owners, lumberyards, and retailers.

Strategic Initiatives and Growth Drivers

  • Executing on the “Ambition 2025” strategic plan, focused on driving above-market growth, margin expansion, and operational excellence.
  • Expanding geographic footprint through greenfield openings and strategic acquisitions, adding new product lines and enhancing digital capabilities.
  • Benefiting from favorable demand trends in residential repair and remodeling, as well as gradual recovery in non-residential construction activity.
  • Leveraging pricing power and cost management initiatives to offset inflationary pressures and drive profitability.

Financial Performance and Outlook

  • Delivered strong revenue growth in recent years, driven by acquisitions, pricing actions, and robust demand in key end markets.
  • Faced gross margin pressures due to rising product costs, partially offset by operating expense discipline and productivity improvements.
  • Maintained a solid financial position with ample liquidity from operating cash flows and available credit facilities to fund growth initiatives.
  • Focused on disciplined capital allocation, including strategic investments, share repurchases, and optimizing the capital structure.

Competitive Landscape and Positioning

  • Operates in a competitive industry with other specialized distributors and manufacturers of construction materials and building products.
  • Differentiates itself through a nationwide distribution network, broad product offerings, and strategic initiatives to enhance customer experience and operational efficiency.
  • Faces competition from players like Quanex Building Products, Gibraltar Industries, Armstrong World Industries, and Apogee Enterprises, among others.
  • Well-positioned to capitalize on long-term growth opportunities in the construction industry through its strategic initiatives and financial strength.

Back to Table of Contents

Valuation Analysis

PE Ratio

The PE ratio for company BECN is as follows:
– Low: -120.62331089189985
– Base: -13.62429819343324
– High: 93.37471450503335

PB Ratio

The PB ratio for company BECN is as follows:
– Low: 0.9662293945424965
– Base: 1.479632160912308
– High: 1.9930349272821195

Due to the highly unstable financials of this company, we are unable to provide reliable price targets. We recommend not holding this stock in your portfolio.

Back to Table of Contents

Industry and Competitors Analysis

Based on the information provided, BECN (Beacon Roofing Supply, Inc.) operates in the construction industry, specifically in the distribution of residential and non-residential roofing materials, as well as complementary building products. The company serves contractors, home builders, building owners, lumberyards, and retailers.

Key Competitors

Some of BECN’s key competitors in the construction materials distribution space include:

  1. NX (Quanex Building Products Corporation): A manufacturer and distributor of components for the fenestration industry, including insulating glass spacers, vinyl profiles, window and door screens, and metal and wood products.

  2. ROCK (Gibraltar Industries, Inc.): A manufacturer and distributor of building products for the renewable energy, residential, agtech, and infrastructure markets, including solar racking systems, ventilation products, mail and package solutions, and greenhouse systems.

  3. AWI (Armstrong World Industries, Inc.): A manufacturer and seller of ceiling systems, wall systems, and acoustical solutions for commercial and residential buildings.

  4. JBI (Janus International Group, Inc.): A manufacturer and supplier of self-storage, commercial, and industrial building solutions, including roll-up doors, hallway systems, and facility automation technologies.

  5. APOG (Apogee Enterprises, Inc.): A designer and developer of glass and metal products and services for commercial, institutional, and multi-family residential buildings, including curtain walls, window systems, and architectural glass.

  6. AZEK (The AZEK Company Inc.): A manufacturer of engineered outdoor living products, such as decking, railing, trim, and accessories, as well as engineered polymer materials for various industries.

  7. PGTI (PGT Innovations, Inc.): A manufacturer and supplier of impact-resistant aluminum frame windows and doors, as well as non-impact-resistant vinyl windows and doors for various climate zones.

  8. TREX (Trex Company, Inc.): A manufacturer and distributor of decking, railing, and outdoor living products and accessories for residential and commercial markets.

Competitive Positioning

In terms of competitive positioning, BECN appears to be a significant player in the roofing materials distribution market, with a strong presence across the United States and Canada. However, it faces competition from other specialized distributors and manufacturers in the broader construction materials and building products industry.

Back to Table of Contents

Chart of Competitors

"Chart of Competitors"

Back to Table of Contents

Financial Analysis

Financial Strength

The company has a moderate debt level with debt/equity ratios around 1.0-1.5 in recent years. Interest coverage ratios are low, indicating potential challenges in servicing debt obligations from operating profits. Current ratios are generally healthy, around 2.0, suggesting adequate liquidity. Return on equity and assets has been volatile but mostly in the low single-digit range, indicating modest profitability.

Potential for Growth

Revenue growth has been uneven, with some years of decline followed by rebounds. The 3-year revenue growth per share is modest. Analyst estimates project mid-to-high single digit revenue growth over the next few years. The company operates in the building materials distribution industry, which has cyclical exposure to construction activity levels.

Competitive Advantage

With over 450 branches across the U.S. and Canada, the company likely benefits from a strong distribution network. However, the industry is competitive, and the company’s profitability metrics do not suggest a significant durable advantage.

Quality of Management

Profitability ratios like operating margins and returns have been volatile, which could indicate inconsistent execution by management. The company has made acquisitions over time to fuel growth, a strategy that requires strong integration capabilities.

Shareholder Friendliness

The company pays a very modest dividend with a low yield. Share buybacks do not appear to be a consistent use of capital.

Valuation

P/E ratios have varied widely based on earnings volatility but are currently in the mid-teens range. Price/book ratios are generally below 2.0, suggesting the market values the company closer to its book/accounting value.

In summary, Beacon Roofing has a moderate financial position, growth prospects tied to construction cycles, an extensive distribution network but competitive industry dynamics, and a valuation that does not appear particularly demanding or cheap versus peers. Consistent profitable growth and prudent capital allocation will be important for creating shareholder value going forward.

Back to Table of Contents

Chart of Key Per Share Metrics

"Chart of Key Per Share Metrics"

Back to Table of Contents

Chart of Absolute Metrics

"Chart of Absolute Metrics"

Back to Table of Contents

Earnings Call Multi-Year Analysis

Resilient business model focused on non-discretionary repair and replacement demand, providing stability across economic cycles.

Beacon Roofing Supply’s business model is focused on the non-discretionary repair and replacement demand for roofing materials, which provides stability across economic cycles. This resilient approach helps the company navigate various market conditions and maintain a consistent performance.

Successful execution of the “Ambition 2025” strategic plan, driving above-market growth, margin expansion, and operational excellence through initiatives like greenfield expansions, acquisitions, digital capabilities, pricing discipline, and productivity improvements.

Beacon Roofing Supply has demonstrated a successful execution of its “Ambition 2025” strategic plan. This has resulted in the company achieving above-market growth, margin expansion, and operational excellence. The company has implemented various initiatives, such as greenfield expansions, strategic acquisitions, digital capabilities, pricing discipline, and productivity improvements, to drive these positive outcomes.

Diversified growth opportunities across residential, non-residential, and complementary product segments, as well as through strategic acquisitions that expand the company’s footprint and product offerings.

Beacon Roofing Supply has a diversified growth strategy that spans across residential, non-residential, and complementary product segments. The company has also pursued strategic acquisitions to expand its geographical footprint and product offerings, further enhancing its growth opportunities.

Strong pricing power and ability to offset inflationary pressures through effective pricing execution, leading to consistent gross margin expansion.

Beacon Roofing Supply has demonstrated strong pricing power and the ability to effectively offset inflationary pressures through its pricing execution. This has resulted in consistent gross margin expansion, showcasing the company’s resilience and adaptability in the face of market challenges.

Disciplined capital allocation, balancing investments in growth initiatives (greenfields, acquisitions, technology) with shareholder returns through share repurchases and maintaining a strong balance sheet.

Beacon Roofing Supply has a disciplined approach to capital allocation, striking a balance between investing in growth initiatives, such as greenfield expansions, acquisitions, and technology, and returning capital to shareholders through share repurchases. The company also maintains a strong balance sheet, providing financial flexibility and stability.

Continuous focus on operational excellence, including initiatives to improve underperforming branches, optimize distribution networks, and drive productivity gains.

Beacon Roofing Supply has a relentless focus on operational excellence, which includes initiatives to improve the performance of underperforming branches, optimize its distribution networks, and drive productivity gains across the organization. This focus on operational excellence is a key driver of the company’s overall performance.

Commitment to building a winning culture, emphasizing values, and focusing on environmental, social, and governance (ESG) efforts as a source of differentiation.

Beacon Roofing Supply is committed to building a winning culture, emphasizing its core values, and focusing on environmental, social, and governance (ESG) initiatives. These efforts not only contribute to the company’s long-term sustainability but also serve as a source of differentiation in the industry.

Transparent and critical management team, acknowledging challenges and uncertainties while highlighting the company’s strengths and ability to navigate headwinds.

Beacon Roofing Supply’s management team is known for its transparency and critical approach. They acknowledge the challenges and uncertainties the company faces, while also highlighting its strengths and the organization’s ability to navigate through various headwinds.

Overall, Beacon Roofing Supply appears to be a well-managed company with a resilient business model, multiple growth avenues, and a strong focus on operational excellence and shareholder value creation, making it an attractive long-term investment opportunity. However, investors should closely monitor the company’s ability to sustain its performance, navigate potential macroeconomic headwinds, and successfully execute its strategic initiatives.

Back to Table of Contents

Financial Statements Multi Year

Revenue Growth

Beacon Roofing Supply has demonstrated consistent revenue growth over the years, driven by acquisitions, new branch openings, and pricing actions. The company’s focus on residential roofing and complementary building products has paid off.

Margin Pressures

While revenue has grown, Beacon has faced gross margin pressures due to rising product costs outpacing selling price increases, especially in inflationary environments. The company has worked to offset this through operating expense discipline.

Strategic Initiatives

Beacon is executing well on its “Ambition 2025” growth strategy through acquisitions, new branch openings, and product expansions. This positions the company for continued growth.

Capital Allocation

The company has taken proactive steps to optimize its capital structure, including refinancing debt, repurchasing preferred shares, and returning capital to shareholders via share buybacks when possible.

Financial Strength

Beacon maintains a solid financial position with ample liquidity from operating cash flows and available credit facilities to fund operations and growth initiatives.

Cyclicality

As expected, Beacon’s performance is impacted by seasonality, with weaker results in certain quarters. However, long-term demand drivers for its products remain favorable.

Overall, Beacon has demonstrated resilience and an ability to navigate challenges while continuing to invest for long-term growth through strategic initiatives and acquisitions, supported by a strong financial foundation. While margin pressures persist, the company’s growth trajectory and capital allocation priorities are positives for patient investors.

Back to Table of Contents

Insider Trading Analysis

The CEO (Lonegro Frank A), CFO (Reddy Christine Stroh), and other top executives have consistently received large grants of restricted stock units (RSUs) and stock options over the past several years. This indicates a focus on long-term incentive compensation aligned with shareholder interests.

Insider purchases have been relatively limited, with a few exceptions like the CEO and CFO making some open market purchases. This suggests insiders are generally confident in the company’s long-term prospects.

There have been some insider sales, particularly by the CEO and other top executives, but these appear to be for diversification and liquidity purposes rather than a lack of confidence.

The company’s largest shareholder, CD&R Investment Associates IX, Ltd., has steadily increased its stake over time through multiple open market purchases.

Short-Term Implications

The recent flurry of RSU and stock option grants to executives and directors indicates the company is focused on retaining and incentivizing key talent, which is positive for the company’s long-term outlook.

The limited number of insider purchases, aside from the large shareholder, suggests insiders may not see significant near-term upside, though they remain confident in the company’s long-term potential.

The insider sales, while not excessive, do indicate some insiders are taking some chips off the table, which could be a mild short-term bearish signal.

Overall, the insider trading patterns suggest a management team and large shareholder that are focused on the company’s long-term success through equity-based compensation, with limited near-term concerns reflected in the insider buying and selling activity. Long-term investors may find the company’s approach to executive incentives and the large shareholder’s commitment to be positive signs.

Back to Table of Contents

Management Compensation Benchmark Analysis

Alignment with Shareholder Value Creation

The average percentage of base salary out of total compensation for BECN executives over the years is 41.70%. This suggests that a significant portion of their total compensation is tied to variable, performance-based elements like stock awards and incentive plan compensation. This aligns the executives’ interests with creating long-term shareholder value.

Consistency in Compensation Structure

The compensation structure for BECN executives has remained relatively consistent over the years, with a similar mix of salary, stock awards, and incentive plan compensation. This consistency in the compensation approach indicates a well-established and thoughtful executive compensation policy that is likely to continue in the future.

Benchmarking against Peers

Comparing BECN’s executive compensation to that of other companies, such as NX, ROCK, AWI, JBI, APOG, and AZEK, provides useful context. The average percentage of base salary out of total compensation for these other companies ranges from 0% to 430.12%, with BECN’s 41.70% falling within this broad range. This suggests that BECN’s executive compensation practices are generally in line with industry norms, neither excessively high nor low.

Potential Areas for Improvement

While the overall compensation structure appears to be aligned with shareholder interests, a long-term investor may want to monitor the specific performance metrics and targets used in the incentive plans to ensure they continue to drive the desired long-term outcomes. Additionally, the investor may want to assess the reasonableness of the total compensation levels for the top executives, especially in comparison to the company’s financial performance and shareholder returns.

In summary, the executive compensation details for BECN indicate that the company’s practices are generally aligned with creating long-term shareholder value, with a consistent approach that is in line with industry peers. However, a long-term investor should continue to monitor the specific details of the compensation structure and the overall reasonableness of the compensation levels.

Back to Table of Contents

Proxy Statement Analysis

Compensation Structure

Evaluate the mix of base salary, annual incentives (bonuses), and long-term equity incentives. A higher emphasis on long-term equity-based compensation can better align executives with shareholder interests.

Performance Metrics

Assess the specific financial and operational metrics used for determining incentive payouts. Metrics focused on long-term growth, profitability, and return on capital are preferable for driving sustainable value creation.

Equity Awards

Review the details of equity-based compensation, such as stock options, restricted stock units (RSUs), and performance shares. Longer vesting periods and performance-based equity can better incentivize long-term value creation.

Clawback Policies

Check if the company has robust clawback policies that allow for recouping incentive compensation in cases of financial restatements or misconduct, promoting accountability.

Peer Group Benchmarking

Evaluate the peer group used for benchmarking executive compensation to ensure it is appropriate and competitive.

Shareholder Engagement

Look for information on the company’s efforts to engage with shareholders on executive compensation matters and the historical results of say-on-pay votes, which can indicate alignment with shareholder interests.

Compensation Committee

Review the composition and independence of the compensation committee overseeing executive pay decisions.

By carefully analyzing these factors, a long-term investor can assess whether the executive compensation program is structured to incentivize and reward sustainable long-term value creation for shareholders.

Back to Table of Contents

News Analysis

Positive

Based on the news releases, here are the key points that could impact a long-term investor in Beacon Roofing Supply (BECN):

  • Consistent acquisition strategy to expand geographic footprint and product offerings (e.g. recent acquisitions of Crossroads Roofing Supply, Garvin Construction Products, S&H Building Materials)
  • Focus on growth initiatives like the “Ambition 2025” value creation strategy with financial targets
  • New branch openings and expansion into new markets
  • Share repurchase programs (e.g. $500 million authorization in 2022, additional $225 million in 2024)
  • Divestment of non-core interior products business in 2020 to focus on core roofing business
  • Recognition from homebuilders like David Weekley Homes as a preferred partner
  • Launch of digital integration and e-commerce initiatives

Potential Concerns

  • Impact of unfavorable weather conditions on sales in certain quarters
  • Margin pressures from rising costs/inflation
  • Debt levels, though some deleveraging efforts through divestitures
  • Economic sensitivity – housing market conditions impact demand

Overall, the consistent acquisition strategy, growth initiatives, and efforts to enhance digital capabilities point to Beacon positioning itself for long-term growth in the roofing distribution market. However, investors need to watch for execution on the growth plans, managing costs/inflation, and the housing market’s performance. The general sentiment seems cautiously optimistic if Beacon can navigate the near-term challenges effectively.

Back to Table of Contents

Technical Indicators Analysis

Short-term Investor

The 10-day RSI has been fluctuating between 30 and 70, indicating the stock is in a neutral range and not overbought or oversold in the short-term. The 14-day ADX is above 25, suggesting a strong trend is present, which could provide trading opportunities. The 20-day TEMA is above the current price, indicating a potential bullish signal in the short-term.

Long-term Investor

The 50-day and 200-day SMAs are both trending upwards, indicating a bullish long-term trend. The 200-day SMA is well below the current price, suggesting the stock is in a strong uptrend from a long-term perspective. The long-term technical indicators paint a positive picture, and a long-term investor may consider this stock for a buy-and-hold strategy.

Next Week Trader

The recent price action has been volatile, with the stock trading in a range between support around $95 and resistance around $98. The 20-day TEMA is currently above the current price, indicating a potential short-term bullish signal. The 14-day ADX is above 25, suggesting a strong trend is present, which could provide trading opportunities in the next week. A next week trader may look to take advantage of the current price range and volatility through short-term trading strategies.

In summary, the technical indicators suggest a bullish long-term trend for BECN, with potential short-term trading opportunities for a next week trader. A long-term investor may consider this stock for a buy-and-hold strategy, while a short-term investor may look to capitalize on the current volatility and trend strength.

Back to Table of Contents

Chart of Valuation History

"Chart of Valuation History"

Back to Table of Contents

Financial Statements Annual

Financial Statements Annual 2024 Q2

Strong Revenue Growth

Beacon’s net sales increased 8.2% to $912 billion in 2023, driven by increases of 10.3% in residential roofing products and 18.6% in complementary building products, partially offset by a 2.7% decrease in non-residential roofing products.

Margin Pressure

Gross margin declined 0.8 percentage points to 25.7% in 2023, primarily due to a 3.4% increase in weighted-average product costs, partially offset by a 2.3% increase in weighted-average selling prices.

Operational Efficiency Improvements

Selling, general and administrative (SG&A) expenses as a percentage of net sales improved to 15.9% in 2023 compared to 16.3% in 2022, driven by positive operating leverage from the sales growth.

Debt Refinancing and Preferred Stock Repurchase

Beacon completed a $6 billion senior secured notes offering in 2023 and used the proceeds, along with cash on hand and borrowings, to repurchase all $400 million of its outstanding preferred stock. This transaction reduced the company’s financing costs and simplified its capital structure.

Disciplined Capital Allocation

Beacon continued to execute on its Ambition 2025 strategy, opening 45 new greenfield locations and completing 14 acquisitions in 2023 to expand its geographic footprint. The company also returned $1.1 billion to shareholders through its share repurchase program.

Strong Cash Flow Generation

Beacon generated $787.8 million in operating cash flow in 2023, up from $401.1 million in 2022, driven by improvements in working capital management.

Overall, Beacon demonstrated solid financial performance in 2023, with revenue growth, operational efficiency improvements, and disciplined capital allocation supporting its strategic initiatives. However, the company faced some margin pressure due to inflationary cost headwinds.

Financial Statements Annual 2023 Q2

Strong Revenue Growth

Net sales increased 26.9% to $8.43 billion in 2022 compared to $6.64 billion in fiscal 2021, driven by a weighted-average selling price increase of approximately 23-24% as well as an estimated volume increase of approximately 2-3%.

Consistent Gross Margin

Gross margin was 26.5% in both 2022 and fiscal 2021, as the weighted-average selling price increase of approximately 23-24% offset a similar increase in weighted-average product costs.

Improved Operating Efficiency

Operating expense as a percentage of net sales improved to 18.2% in 2022 compared to 19.6% in fiscal 2021, driven by the positive impact of net sales growth.

Strong Profitability

Net income from continuing operations increased 107.2% to $458.4 million in 2022 compared to $221.2 million in fiscal 2021, reflecting the higher sales and improved operating efficiency.

Robust Cash Flow

Net cash provided by operating activities was $401.1 million in 2022 compared to $780.0 million in fiscal 2021, with the increase driven by higher net income and favorable changes in working capital.

Disciplined Capital Allocation

The company repurchased $388.1 million of its common stock in 2022 as part of its $500 million share repurchase program announced in February 2022.

Successful Acquisitions

The company completed several strategic acquisitions in 2022, adding 22 total branches and expanding its geographic footprint and product offerings.

Continued Supply Chain Challenges

The company experienced constrained supply chain dynamics in 2021 and 2022, resulting in significant cost increases and at times limited product availability, though the situation has improved in the second half of 2022.

Overall, the financial statements demonstrate Beacon’s ability to navigate a challenging operating environment, drive strong revenue and profitability growth, and execute on its strategic initiatives, including acquisitions and share repurchases.

Financial Statements Annual 2022 Q2

Revenue Growth

Beacon’s net sales increased 12.3% to $6.64 billion in fiscal year 2021 compared to $5.92 billion in 2020, driven by strong demand for residential and complementary products across all regions and successful pricing execution.

Profitability Improvement

Gross margin improved to 26.5% in 2021 from 24.0% in 2020, primarily due to a weighted-average selling price increase of approximately 8.9% partially offset by a 6.7% increase in weighted-average product costs. Operating expenses decreased 6.1% to $13.01 billion in 2021 from $13.86 billion in 2020, mainly due to a $158.6 million decrease in amortization expense.

Debt Refinancing

In May 2021, Beacon completed a debt refinancing to take advantage of lower market interest rates, issuing $3.5 billion of 4.125% senior notes due 2029 and entering into a new $1.0 billion term loan and $1.3 billion asset-based revolving credit facility. This reduced Beacon’s weighted-average interest rate on outstanding debt to 3.11% as of September 30, 2021 from 4.21% as of March 31, 2021.

Discontinued Operations

Beacon completed the $850 million sale of its interior products and insulation businesses (Interior Products) in February 2021, using the proceeds to reduce net debt leverage and strengthen its balance sheet. The divestiture resulted in a $360.6 million loss on sale.

Liquidity and Cash Flow

Beacon generated $780 million in operating cash flow in 2021, down from $479.3 million in 2020 due to increased working capital needs. The company had $260 million in cash and $1.28 billion in available borrowing capacity under its revolving credit facilities as of September 30, 2021.

Overall, the financial results demonstrate Beacon’s ability to drive revenue growth, improve profitability, and strengthen its balance sheet through strategic actions like the Interior Products divestiture and debt refinancing, positioning the company for continued success.

Back to Table of Contents

Financial Statements Quarterly

Financial Statements Quarterly 2024 Q2

Revenue Growth

Beacon’s total net sales increased 10.4% year-over-year to $1.91 billion, driven by strong growth across all three of its major product lines – residential roofing (up 9.1%), non-residential roofing (up 17.6%), and complementary building products (up 5.4%).

Profitability Pressure

Gross margin declined 80 basis points to 24.7%, primarily due to a modest increase in weighted average product costs and a higher mix of non-residential products, which have lower margins. This led to a decline in operating income margin from 3.6% to 2.3%.

Acquisition-Driven Expansion

Beacon continued to execute on its Ambition 2025 growth strategy, opening 3 new greenfield locations and acquiring 7 branches during the quarter. These acquired and greenfield branches contributed $549 million and $404 million in net sales, respectively.

Debt Refinancing

Beacon refinanced its $975 million 2028 Term Loan, increasing the principal balance to $1.275 billion and reducing the interest rate. This resulted in a $24 million loss on debt extinguishment.

Share Repurchases

Beacon did not repurchase any shares during Q1 2024, but had $389 million remaining under its $500 million share repurchase program as of March 31, 2024.

Seasonality

As expected, Beacon’s financial performance was weaker in Q1 due to seasonality, with net income of $5.6 million compared to a net loss of $248 million in the prior year period.

Overall, Beacon continues to execute on its strategic growth initiatives, though near-term profitability is being pressured by inflationary cost headwinds. The company’s strong liquidity position and ongoing acquisition and greenfield expansion provide a solid foundation for future growth.

Financial Statements Quarterly 2024 Q1

Net Sales Growth

Net sales increased 7.0% to $25.8 billion in Q3 2023, driven by a 13.6% increase in residential roofing products and a 12.7% increase in complementary building products, partially offset by a 7.6% decrease in non-residential roofing products. For the nine months, net sales increased 5.6% to $68.2 billion, driven by an 8.3% increase in residential roofing products and a 14.9% increase in complementary building products, partially offset by a 5.5% decrease in non-residential roofing products.

Gross Margin

Gross margin was 26.0% in Q3 2023, down 0.1 percentage points from 26.1% in Q3 2022, as a weighted-average product cost increase of approximately 12% was largely offset by a weighted-average selling price increase of approximately 1%. For the nine months, gross margin was 25.7%, down 0.9 percentage points from 26.6% in the prior year period, due to a weighted-average product cost increase of approximately 4.5% partially offset by a weighted-average selling price increase of approximately 3.4%.

Operating Expense Management

Operating expense increased 5.0% to $4.19 billion in Q3 2023, but decreased by approximately 3.3% or $132 million from existing branches, driven by lower payroll, bad debt, and general and administrative expenses. For the nine months, operating expense increased 5.2% to $12.0 billion, but decreased by approximately 2.3% or $266 million from existing branches, driven by similar factors as in Q3.

Preferred Stock Repurchase

On July 31, 2023, the company repurchased all 400,000 outstanding shares of its Series A Convertible Preferred Stock held by CDR Holdings for $8.054 billion, including $0.9 million of accrued dividends. The difference between the repurchase price and the carrying value of the preferred stock resulted in a $4.146 billion repurchase premium, which was recorded as a reduction to retained earnings.

Share Repurchases

The company repurchased 0.3 million shares of common stock for $251 million in Q3 2023 and 1.5 million shares for $999 million in the nine months ended September 30, 2023 under its $5.0 billion share repurchase program. As of September 30, 2023, the company had approximately $4.0 billion remaining under the share repurchase program.

Liquidity and Capital Resources

The company had $697 million in cash and cash equivalents and $10.6 billion in available borrowing capacity under its revolving credit facilities as of September 30, 2023. On July 31, 2023, the company issued $6.0 billion of 6.5% Senior Secured Notes due 2030, which were used to fund the preferred stock repurchase.

Overall, Beacon Roofing Supply delivered solid sales growth, particularly in residential roofing and complementary building products, while managing operating expenses. The preferred stock repurchase and ongoing share repurchases demonstrate the company’s focus on optimizing its capital structure and returning capital to shareholders.

Financial Statements Quarterly 2023 Q4

Strong Revenue Growth

Net sales increased 6.2% to $25.04 billion in Q2 2023, driven by higher prices and contributions from acquired branches and new greenfield locations.

Margin Pressure

Gross margin declined 220 basis points to 25.4% in Q2 2023, due to a 45% increase in weighted-average product costs, only partially offset by a 23% increase in weighted-average selling prices.

Disciplined Cost Management

Operating expenses increased only 1.5% year-over-year, as the company was able to reduce payroll, general/administrative, and selling costs at existing branches, offsetting the impact of acquired and new branches.

Higher Interest Expense

Interest expense and financing costs increased 37.6% to $260 million, reflecting higher weighted-average interest rates on the company’s outstanding debt.

Declining Net Income

Net income declined 11.9% to $153.8 million, primarily due to the margin compression and higher interest costs, partially offset by the company’s cost management efforts.

Continued Share Repurchases

The company repurchased $516 million of its common stock in Q2 2023 under its $5 billion share repurchase program, which was recently increased by an additional $3.9 billion.

Liquidity Remains Strong

The company had $658 million in cash and cash equivalents and $1.21 billion in available borrowing capacity under its revolving credit facilities as of June 30, 2023, providing ample liquidity to fund operations and strategic initiatives.

Overall, Beacon Roofing navigated a challenging inflationary environment well, leveraging its scale and cost discipline to partially offset margin pressures, while continuing to invest in growth through acquisitions and share repurchases. The company’s strong liquidity position should enable it to weather any near-term market volatility.

Financial Statements Quarterly 2023 Q3

Revenue Growth

Net sales increased 2.7% to $17.32 billion in Q1 2023, driven by higher prices and net sales from acquired branches, partially offset by an estimated organic volume decrease of around 11-12%.

Gross Margin Decline

Gross margin decreased by 0.6 percentage points to 25.5% in Q1 2023, due to a weighted-average product cost increase of approximately 10-11%, partially offset by a weighted average selling price increase of around 9-10%.

Operating Expense Increase

Operating expenses increased 9.5% to $381.3 million, mainly due to higher payroll, warehouse, and general & administrative costs, including the impact of acquired and newly opened branches.

Profitability

Net income decreased to $123.6 million in Q1 2023 from $155.8 million in Q1 2022, primarily due to higher operating expenses and interest costs, partially offset by higher revenue.

Liquidity and Capital Resources

The company had $742 million in cash and cash equivalents and $110 billion in available borrowings under its asset-based revolving lines of credit as of March 31, 2023. The company continues to generate strong operating cash flows and has ample liquidity to fund operations, acquisitions, and share repurchases.

Share Repurchases

The company repurchased 0.4 million shares for $23.1 million during Q1 2023 under its $5 billion share repurchase program, which was recently increased by an additional $3.88 billion.

Acquisitions

The company completed 8 acquisitions since January 1, 2022, adding 29 total branches and contributing $75.8 million in net sales in Q1 2023, primarily in the complementary building products segment.

Overall, Beacon Roofing Supply continues to execute on its growth strategy through acquisitions and organic initiatives, though profitability was impacted by higher costs. The company maintains a strong financial position to support its strategic priorities.

Back to Table of Contents

Earnings Call Analysis

Earnings Call Analysis 2024 Q2

Beacon Roofing Supply Earnings Call Insights

Beacon is executing well on its Ambition 2025 strategic plan, delivering record first quarter sales and demonstrating its ability to grow in any demand environment. The company has recorded 15 consecutive quarters of year-over-year sales growth.

Beacon is focused on building a winning culture, driving above-market growth, delivering consistent double-digit EBITDA margins, and generating superior shareholder returns. Key initiatives include expanding customer reach through greenfield openings and acquisitions, growing digital sales, accelerating commercial roofing, and improving operational efficiency through pricing and fleet management.

The company’s acquisition portfolio is performing above expectations, and Beacon is becoming an “acquirer of choice” in the industry. The company has deployed $640 million in capital towards 18 acquisitions since 2022, adding over $750 million in base year revenue.

Beacon is raising its full-year adjusted EBITDA guidance to $930-$990 million, despite expecting some near-term headwinds from greenfield and acquisition integration costs. The company believes it can drive EBITDA growth above revenue growth in the long run as these investments mature.

The analyst questions suggest some skepticism around Beacon’s ability to fully offset the margin impact of greenfield and acquisition integration, as well as potential market disruption from a major competitor’s acquisition. However, Beacon’s management appears confident in its ability to execute on its strategic initiatives and drive shareholder value.

Overall, Beacon seems to be executing well on its strategic plan, though the long-term investor should watch for the company’s ability to fully realize the benefits of its growth investments and maintain its competitive position.

Earnings Call Analysis 2024 Q1

Beacon’s Strong Execution and Growth Opportunities

Beacon has demonstrated strong execution on its strategic plan “Ambition 2025”, delivering record financial results in Q4 2023 and exceeding several of its 2025 targets ahead of schedule.

The company has multiple avenues for growth, including organic initiatives like greenfield expansions and acquisitions, which have been accretive and performing well. This diversifies its revenue streams.

Beacon is focused on operational excellence and productivity improvements, particularly in its bottom quintile branches, which contributed significantly to EBITDA growth.

The company’s digital capabilities and investments are a competitive advantage, driving higher margins compared to offline channels.

Beacon is committed to shareholder returns, having deployed over $1.3 billion towards share repurchases and preferred stock redemption since the start of Ambition 2025.

While the company faces some near-term market headwinds, it expects to outperform the market through the cycle, demonstrating the resilience of its business model.

The analyst questions suggest close attention to the company’s ability to manage costs, integrate acquisitions, and execute on its new pricing model – these will be important factors to monitor going forward.

Overall, Beacon appears to be executing well on its strategic initiatives and positioning itself for long-term growth and value creation, though the analyst questions highlight the need for continued vigilance on operational and integration challenges.

Earnings Call Analysis 2023 Q4

Resilient Business Model

Beacon has a resilient business model focused on non-discretionary repair and replacement of roofing and building products. This helps the company navigate various macroeconomic conditions.

Execution on Strategic Plan

The company is executing well on its Ambition 2025 strategic plan, which includes initiatives to drive above-market growth, improve margins, build a strong organization, and generate superior shareholder returns. These initiatives are showing tangible results.

Growth Levers

Beacon is leveraging multiple growth levers, including greenfield expansions, strategic acquisitions, digital capabilities, and operational improvements. The company is on track to exceed its Ambition 2025 targets ahead of schedule.

While the macroeconomic environment has presented some headwinds, such as higher interest rates and channel destocking, Beacon has been able to offset these with strong execution, storm-related demand, and growth in its residential and complementary product segments.

Capital Allocation Discipline

The company is maintaining a disciplined approach to capital allocation, balancing investments in growth initiatives, shareholder returns through share repurchases, and maintaining a strong balance sheet with leverage within its target range.

Management Transparency

Beacon’s management team appears to be transparent and critical in its assessment of the business, acknowledging areas of weakness (e.g., non-residential performance) while highlighting the company’s strengths and ability to navigate challenges.

Overall, the key insights suggest that Beacon is a well-managed company with a resilient business model and multiple avenues for growth, margin expansion, and shareholder value creation, making it an attractive long-term investment opportunity.

Earnings Call Analysis 2023 Q3

Beacon is executing well on its strategic initiatives

Beacon is executing well on its strategic initiatives, including digital capabilities, customer experience improvements, greenfield expansions, and acquisitions. These initiatives are driving above-market growth and margin enhancement.

Strong cash flow generation

The company has strong cash flow generation, with over 100% conversion of adjusted EBITDA to operating cash flow in the trailing 12 months. This provides flexibility for investments, M&A, and shareholder returns.

Proactive inventory management

Beacon is proactively managing inventory levels to adapt to changing market conditions, unlocking substantial cash flow. This demonstrates the resilience of the business model.

Focus on operational excellence

The company is focused on operational excellence through initiatives like the OTC network, routing software, and branch optimization. These are driving productivity gains and cost efficiencies.

Disciplined capital allocation

Beacon has been disciplined in its capital allocation, deploying $1.3 billion to repurchase approximately 21% of shares outstanding while maintaining a strong balance sheet. The recent redemption of preferred shares further enhances financial flexibility.

Potential concerns

The analyst questions suggest some concerns around the pace of inventory destocking in the non-residential market and the ability to fully realize the recent price increase. Investors should monitor these areas closely.

Overall positioning

Overall, Beacon appears to be well-positioned to navigate the dynamic demand environment, with a focus on executing its strategic initiatives to drive above-market growth and margin expansion over the long term.

Earnings Call Analysis 2023 Q2

Demand Environment

The residential market is expected to be down mid-to-high single digits, led by weaker new residential construction. The non-residential market is expected to be flat, but volumes are impacted by contracted destocking in the first half. Storm demand is expected to return to the 10-year average, providing a tailwind. Pricing has remained relatively stable despite weaker demand.

Operational Execution

Beacon has executed well in the uncertain environment, delivering record first quarter sales and cash flow. The company is focused on productivity improvements, operational excellence, and disciplined pricing to drive results. Beacon is also investing in initiatives to enhance the customer experience, expand customer reach, and improve margins.

Capital Allocation

Beacon is taking a balanced approach to capital deployment, investing in organic growth (greenfields) and inorganic growth (acquisitions). The company is committed to returning capital to shareholders through share repurchases. Beacon is maintaining a strong balance sheet with low leverage, providing flexibility to adapt to changing market conditions.

Outlook

Beacon expects total sales growth of 2-4% for the full year 2023, including contributions from acquisitions. Gross margins are expected to be in the mid-to-high 25% range, with inventory profit roll-off partially offset by improvement initiatives. The company has reiterated its full-year adjusted EBITDA guidance of $810-$870 million.

Overall, Beacon appears well-positioned to navigate the current market environment, leveraging its operational initiatives, disciplined capital allocation, and strong balance sheet to drive long-term value creation.

Earnings Call Analysis 2023 Q1

Beacon Roofing Supply Earnings Call Insights

Beacon is executing well on its Ambition 2025 strategic plan, with initiatives driving above-market growth and margin expansion. This includes expanding its footprint through greenfield investments and acquisitions, enhancing its digital capabilities, and driving operational excellence.

The company expects market demand to be lower in 2023, especially in new residential construction, but believes the overall market will remain above pre-pandemic levels supported by repair/replacement activity and storm-related demand.

Beacon is focused on balancing investments for future growth (greenfields, acquisitions, technology) with shareholder returns through its increased $500 million share repurchase program.

The company is closely monitoring inventory levels and working to rightsize them as supply chains normalize, while also ensuring product availability for customers.

Analysts seem focused on understanding Beacon’s pricing discipline and ability to maintain margins in a potentially more competitive environment, which the management team believes the current market conditions can support.

Beacon’s diversified business model across residential, non-residential, and complementary products, as well as its national accounts and digital initiatives, appear to be key competitive advantages that should help it navigate the changing market environment.

Overall, Beacon seems well-positioned to execute on its strategic plan and deliver value for shareholders, though the analysts are rightly scrutinizing the company’s ability to maintain margins and market share in a potentially more challenging demand environment.

Earnings Call Analysis 2022 Q4

Resilient business model

Beacon’s business is predominantly focused on non-discretionary repair and replacement (R&R) demand, which makes it more resilient to economic cycles compared to new construction.

Margin expansion initiatives

Beacon is focused on several initiatives to drive margin expansion, including expanding its footprint through greenfield investments and acquisitions, growing its higher-margin private label sales, and improving productivity and capacity through operational excellence.

Acquisition strategy

The acquisition of Coastal Construction Products expands Beacon’s presence in the growing and fragmented $5 billion specialty waterproofing market. Beacon is looking for more acquisition opportunities that fit its criteria of being accretive and trading at a multiple below its own.

Capital allocation

Beacon is balancing growth investments, such as greenfields and acquisitions, with shareholder returns through a $500 million share repurchase program. Its strong balance sheet provides financial flexibility to pursue these initiatives.

Market outlook

Beacon expects the overall market to decline marginally in 2023, with new residential construction likely to be impacted by higher interest rates, while the commercial and repair/remodel segments remain relatively stable. Beacon believes its strategic initiatives can still drive growth in this environment.

Analyst questions

Analysts probed for more details on margin drivers, customer backlogs, inventory management, and Beacon’s ability to navigate a potential softening in demand. Beacon’s responses highlighted its focus on operational execution, pricing discipline, and strategic investments to drive continued outperformance.

Earnings Call Analysis 2022 Q3

Beacon’s Strong Financial Performance

Beacon has delivered strong financial performance with record top-line and bottom-line results, driven by solid end-market demand and effective pricing execution. The company has maintained positive price-cost dynamics for 10 consecutive quarters.

Healthy Demand Fundamentals

The fundamentals of both residential and commercial roofing demand remain healthy, and Beacon has not yet been significantly impacted by rising interest rates. The replacement cycle underpinning 80% of Beacon’s business is expected to have a multi-year growth trajectory.

Ambition 2025 Strategic Plan

Beacon is making good progress on its Ambition 2025 strategic plan, focusing on building a winning culture, driving above-market growth, improving operational performance, and creating shareholder value. Key initiatives include greenfield expansion, national account growth, digital capabilities, and private label products.

Outlook and Uncertainty

The company expects continued strong demand in Q3 2022, with total sales growth in the 23-25% range. However, there is greater uncertainty going forward, and Beacon is preparing for potential softness in the residential new construction market.

Inventory Management and Capital Allocation

Beacon is actively managing its inventory levels, expecting to reduce inventory in the second half of 2022 as it follows a more normal seasonal pattern. The company is also focused on disciplined capital allocation, including accelerated share repurchases and a healthy pipeline of acquisition targets.

Analyst Considerations

Analysts are closely watching Beacon’s ability to navigate potential macroeconomic headwinds, such as rising interest rates, inflation, and supply chain disruptions. The company’s performance in the commercial roofing segment and its ability to pass through price increases will be critical going forward.

Earnings Call Analysis 2022 Q2

Strong Demand Fundamentals

The company is benefiting from a multi-year residential reroofing cycle, driven by a surge in new construction over 20 years ago. This non-discretionary demand provides a solid tailwind for the business.

Pricing Power and Margin Expansion

The company has been able to successfully implement price increases to offset inflationary pressures, leading to gross margin expansion. Their focus on pricing execution is a key strength.

Operational Initiatives Driving Efficiency

The company’s One-Touch-Coordination (OTC) network, focus on bottom-quintile branches, and productivity initiatives are generating meaningful cost savings and operational improvements.

Diversified Growth Opportunities

Beyond the core reroofing cycle, the company sees growth opportunities through greenfield expansions, acquisitions, national account focus, and expansion of their private label brand.

Financial Flexibility

The company has significantly strengthened its balance sheet, providing ample liquidity and the ability to invest in growth initiatives, including M&A.

Cautious on Analyst Questions

The company provides detailed responses, but is also cautious about making forward-looking statements, especially around the pace of supply chain improvements and the potential for a “sales hangover” in 2023 due to pull-forward demand.

Overall, the company appears well-positioned for long-term growth, with a focus on operational excellence, pricing discipline, and strategic investments to drive shareholder value. However, the management team remains vigilant about potential economic and market headwinds.

Earnings Call Analysis 2022 Q1

Beacon Roofing Supply Earnings Call Insights

Beacon has executed well in a challenging environment, delivering record sales and adjusted EBITDA in fiscal 2021. This demonstrates the strength of their platform and focus on operational execution.

The company has made significant progress on strategic initiatives like improving bottom quintile branch performance, expanding their OTC network, and enhancing digital capabilities – all of which are contributing to topline growth and margin expansion.

Beacon has restored financial flexibility through debt paydown and refinancing, providing ample liquidity to invest in growth opportunities going forward, including tuck-in acquisitions like the recent Midway Wholesale deal.

The company sees continued strong demand trends in both residential and non-residential roofing, though supply chain challenges remain an issue, especially on the commercial side. Beacon is focused on pricing execution to offset inflationary pressures.

Beacon is emphasizing its values and ESG efforts as a source of differentiation, including initiatives to support veterans, employee families, and reduce its carbon footprint.

The analyst questions suggest some caution around the sustainability of margin improvements from bottom quintile branch performance and inventory profits. Investors should watch for how Beacon navigates supply chain constraints and whether they can continue to effectively pass through price increases.

Earnings Call Analysis 2021 Q4

Strong Execution and Financial Performance

Beacon has demonstrated strong execution and financial performance, with record quarterly sales, net income, and adjusted EBITDA. This suggests the company is well-positioned to capitalize on favorable market trends.

Pricing Execution and Cost Management

The company has focused on pricing execution and cost management, which has led to significant gross margin expansion. This indicates Beacon has pricing power and can offset inflationary pressures.

Balance Sheet Strengthening and Financial Flexibility

Beacon has strengthened its balance sheet and financial flexibility through debt reduction and refinancing, providing ample capacity to invest in growth opportunities, both organically and through acquisitions.

Continued Strong Fundamentals

The company sees continued strong fundamentals in both residential new construction and repair/replacement markets, as well as gradual improvement in the non-residential segment. This points to a multi-year growth runway.

Strategic Initiatives Delivering Results

Beacon’s strategic initiatives around organic growth, digital platform, logistics optimization, and branch performance improvement appear to be delivering tangible results and creating value.

Analyst Probing on Key Factors

The analysts probed for more details on inventory levels, pricing dynamics across segments, and the sustainability of the margin expansion – suggesting these are important factors to monitor going forward.

Outlook and Potential Volatility

The company’s confidence in its growth outlook and ability to execute is evident, but the analysts also highlighted the potential for some near-term demand volatility and tougher year-over-year comparisons.

Overall, Beacon appears to be in a strong competitive position, with a focus on operational excellence, financial discipline, and strategic growth initiatives that could drive long-term value creation for shareholders.

Earnings Call Analysis 2021 Q3

Beacon’s Sharpened Focus and Improved Financials

Beacon is focused on its core exterior building products distribution business after divesting the Interior Products business. This sharpened focus should benefit growth and profitability. The company has significantly improved its financial flexibility by paying down debt and refinancing, reducing leverage to 2.9x from 6x a year ago. This provides ample capacity to invest in growth opportunities.

Successful Strategic Initiatives and Operational Efficiency

Beacon’s strategic initiatives around organic growth, digital platform, optimized distribution network, and improving underperforming branches are delivering measurable results and driving operational efficiency. The company has demonstrated strong pricing power, successfully implementing multiple price increases across residential, commercial, and complementary products to offset cost inflation. This has led to significant gross margin expansion.

Favorable Market Conditions and Outlook

Beacon is benefiting from strong residential demand, with residential roofing sales up 21% in Q2. The company is cautiously optimistic about the recovery in the commercial segment as well. Management is focused on continuous improvement and productivity initiatives, which have resulted in significant operating leverage despite the sales growth.

Digital Platform as a Key Differentiator

The company’s digital platform is a key differentiator, now accounting for over 15% of sales, up from 11% previously. This provides a growth avenue and enhances customer experience.

Improved Outlook and Uncertainties

While uncertainties remain, Beacon’s outlook for fiscal 2021 has improved significantly, with the company now targeting adjusted EBITDA between $560-$585 million, up from the previous guidance.

Overall, Beacon appears to be executing well on its strategic priorities, improving its financial position, and benefiting from favorable market conditions. The long-term investor should closely monitor the company’s ability to sustain the operational improvements and growth momentum.

Back to Table of Contents

The information provided on this blog is for informational purposes only and should not be considered as financial advice. You should consult with a qualified financial professional before making any investment decisions. Past performance is not indicative of future results. Investing involves risk, including the potential loss of principal.