Beacon Roofing Supply Inc. Reports Operating Results (10-Q)
Beacon Roofing Supply Inc. is one of the largest distributors of residential and non-residential roofing materials in the United States and Canada. It also distributes other complementary exterior building products. It operate in several states and three Canadian provinces and is a leading distributor of roofing materials in key metropolitan markets in the Northeast Mid-Atlantic Southeast and Southwest regions of the United States and in Eastern Canada. Beacon Roofing Supply Inc. has a market cap of $735.6 million; its shares were traded at around $16.32 with a P/E ratio of 12.4 and P/S ratio of 0.4. Highlight of Business Operations:We did not open or close any branches in this year s or last year s third quarter. We estimate inflation increased this year s sales by 11-13% over last year s third quarter, indicating a drop in volume of 21-23%, mostly in non-residential roofing and complementary product sales. We had 64 business days in both 2009 and 2008. Net sales by geographical region grew or (declined) as follows: Northeast (20.8%); Mid-Atlantic (11.7%); Southeast 4.9%; Southwest 19.7%; Midwest (22.8%); West (30.1%); and Canada (8.4%). These variations were primarily caused by short-term factors such as local economic conditions and storm activity. Our product group sales were as follows:
Our gross profit decreased $12.4 million or 10.3% in 2009, while our gross margin also decreased to 23.3% in 2009 from 23.4% in 2008. The slight margin rate decrease was the result of increased competition for fewer orders, partially offset by a product mix shift to more residential roofing products, which have substantially higher gross margins than the more competitive non-residential market. Gross margins in residential roofing, excluding vendor incentives, which represent our invoiced gross margin, decreased in 2009 compared to 2008, while invoiced gross margins in non-residential roofing and complementary margins were virtually flat to last year. The drop in invoiced gross margins in residential roofing products was partially offset by increased short-term vendor incentive rebates.
Direct sales (products shipped by our vendors directly to our customers), which typically have substantially lower gross margins than our warehouse sales, represented 19.3% and 22.4% of our net sales for 2009 and 2008, respectively. The decrease in the percentage of direct sales was attributable to the lower mix of non-residential roofing product sales. There were no material changes in the direct sales mix of our geographical regions.
In 2009, we expensed a total of $3.0 million for the amortization of intangible assets recorded under purchase accounting compared to $3.7 million in 2008. Our operating expenses as a percentage of net sales decreased to 16.0% in 2009 from 16.2% in 2008 as we were able to control our variable costs in relationship to the lower sales volume.
An income tax expense of $10.8 million was recorded in 2009, an effective tax rate of 38.7%, compared to $12.7 million in 2008, an effective tax rate of 41.0%. The decrease in the effective rate reflects changes in allocations of taxable income and losses among the states in which we are located and other changes in our year-to-date estimates for fiscal 2009, as well as certain discrete items recognized in the third quarter upon t
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