Beacon Roofing Supply Inc. Reports Operating Results (10-Q)
Beacon Roofing Supply Inc. has a market cap of $904.1 million; its shares were traded at around $19.93 with a P/E ratio of 21.6 and P/S ratio of 0.6. Beacon Roofing Supply Inc. had an annual average earning growth of 13.5% over the past 5 years.BECN is in the portfolios of Jim Simons of Renaissance Technologies LLC, George Soros of Soros Fund Management LLC, Steven Cohen of SAC Capital Advisors.
Highlight of Business Operations:We closed one branch and acquired one branch in this year s second quarter, while we closed two branches in last year s second quarter. We estimate inflation had no material impact on results in this quarter compared to last year s first quarter. We had 63 business days in both 2010 and 2009. Net sales by geographical region grew or (declined) as follows: Northeast (7.0%); Mid-Atlantic 4.9%; Southeast 2.5%; Southwest (39.1%); Midwest (4.1%); West (21.3%); and Canada 42.0%. These variations were primarily caused by short-term factors such as local economic conditions, winter weather conditions, and previous year s storm activity. Included in our 2010 sales was $1.5 million of primarily residential roofing sales from our two newly acquired branches, which represented 47 basis points of growth. Actual organic contraction was therefore 11.1%. Our total product group sales were as follows:
Our gross profit decreased $13.2 million or 17.8% in 2010, while our gross margin also decreased to 21.4% in 2010 from 23.3% in 2009. The margin rate decrease was the result of a more competitive market in a seasonally slower-than-normal quarter, an increase in sales to lumberyards and other similar end-sellers, commonly referred to as two-step sales, and a slightly higher sales mix of non-residential roofing products, which have lower gross margins. These negative factors were partially offset by higher 2010 vendor incentive income, primarily from short-term buying programs.
Direct sales (products shipped by our vendors directly to our customers), which typically have substantially lower gross margins than our warehouse sales, represented 21.9% and 18.9% of our net sales for 2010 and 2009, respectively. The increase in the percentage of direct sales was attributable to the higher mix of non-residential roofing product sales and the increase in our two-step sales mentioned above, especially in our Midwest region. Beyond those changes, there were no other material regional impacts from changes in the direct sales mix of our geographical regions.
In 2010, we expensed a total of $2.4 million for the amortization of intangible assets recorded under purchase accounting compared to $3.0 million in 2009. Our operating expenses as a percentage of net sales increased to 23.5% in 2010 from 22.8% in 2009 as we were unable to reduce costs to the extent of the large drop in sales.
An income tax benefit of $5.0 million was recorded in 2010, an effective tax benefit of 43.8%, compared to $1.7 million in 2009, an effective tax benefit of 40.9%. The increase in the effective benefit rate includes the beneficial impact of a $0.5 million reversal of a discrete tax reserve and a higher percentage of Canadian income in 2010 than in 2009. We currently expect our full fiscal year 2010 effective income tax rate to be approximately 39.4%, excluding any future discrete items.
Consolidated net sales decreased $129.5 million, or 16.6%, to $653.1 million in YTD 2010 from $782.6 million in YTD 2009. We attribute the sales decrease primarily to the same factors mentioned above for the second quarter, although the YTD 2010 non-residential sales decrease was larger due to a more significant decline in the first quarter compared to the second quarter. The impact from inflation on YTD 2010 sales was immaterial. We closed one branch and acquired two in YTD 2010, while we closed six branches in YTD 2009. We had 125 business days in both YTD 2010 and YTD 2009. Included in our YTD 2010 sales was $1.5 million of primarily residential roofing sales from our two newly acquired branches, which represented 19 basis points of growth. Actual organic contraction was therefore 16.8%. Our total product group sales were as follows:
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