NCI Building (NCS) Down 7.7% Since Earnings Report: Can It Rebound?

It has been more than a month since the last earnings report for NCI Building Systems, Inc. NCS. Shares have lost about 7.7% in that time frame.

Will the recent negative trend continue leading up to the stock’s next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

NCI Building Q3 Earnings & Sales Lag, FY17 View Cut

NCI Building posted adjusted earnings of 27 cents per share for third-quarter fiscal 2017 (ended Jul 30, 2017), down 18.2% from 33 cents recorded in the prior-year quarter. Earnings also missed the Zacks Consensus Estimate of 31 cents.

Including one-time items, the company reported earnings per share of 25 cents compared with 32 cents a share recorded in the prior-year quarter.

Operational Update

Sales inched up 1.5% year over year to $469.4 million in the quarter. The figure, however, fell short of the Zacks Consensus Estimate of $492 million. Revenues came within the company’s guided range of $480-$505 million. The year-over-year growth was due to continued commercial discipline in the pass-through of higher costs in a rising steel price environment.

Cost of sales increased 6% year over year to $354 million from $334 million in the year-ago quarter. Gross profit decreased 10% year over year to $115 million. Consequently, gross margin contracted 320 basis points (bps) to 24.5% in the quarter, due to lower plant utilization levels and a less favorable material cost environment.

Engineering, selling, general and administrative expenses were down 5% to $76.3 million. The company reported adjusted operating income of $36.5 million, which declined around 19% from $45.1 million recorded in the year-ago quarter. Operating margin came in at 7.8%, contracting 200 bps year over year.

Segment Performance

Revenues at the Building Systems segment climbed 3.8% to $182 million from $175.5 million generated in the year-earlier quarter. The segment reported adjusted operating income of $15.9 million, down18.9% from $19.6 million in the year-ago quarter.

The Coatings division reported revenues of $28.7 million, down 6.5% year over year. Operating profit plunged 24% year over year to $6.6 million.

The Metal Component segment’s revenues inched up 0.9% year over year to $258.5 million. On an adjusted basis, operating profit dropped 6.3% year over year to $35.4 million.

Financial Update

NCI Building ended the reported quarter with cash and cash equivalents of $45.9 million as of Jul 30, 2017, compared with $65.4 million at the end of Oct 30, 2016. Cash used in operations were $0.9 million for the nine-month period ended Jul 30, 2017, versus cash inflow of $40.6 million recorded in the prior-year period.

Long-term debt was $387 million as of Jul 30, 2017, compared with $396 million as of Oct 30, 2016.

NCI Building’s consolidated backlog advanced 4.2% year over year to $580.7 million at the end of the reported quarter.

Outlook

For fiscal 2017, NCI Building trimmed its revenue guidance range to $1.75-$1.78 billion from the previous range of $1.80-$1.86 billion. The company also slashed the adjusted EBITDA guidance range from $180-$200 million to $162-$176 million for the fiscal. The downward revisions reflect the dismal market activity, which is expected to continue into the fiscal fourth quarter, particularly in the legacy Components segment and the impact of Hurricane Harvey.

NCI Building's two ongoing cost-saving initiatives in manufacturing consolidation and ESG&A are expected to generate $30-$40 million savings by the end of 2018, of which $12 million was realized in fiscal 2016.  During fiscal 2017, these two initiatives will generate an incremental $10 million of cost savings.

For the fiscal fourth quarter, NCI Building estimates revenues to be in the range of $470-$500 million and adjusted EBITDA to be in the range of $48-$62 million. The fiscal fourth-quarter EBITDA range includes an estimated impact of $3-$8 million related to potential temporary disruptions from Hurricane Harvey.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There has been one revision lower for the current quarter.

NCI Building Systems, Inc. Price and Consensus

 

NCI Building Systems, Inc. Price and Consensus | NCI Building Systems, Inc. Quote

VGM Scores

At this time, the stock has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

The company's stock is suitable solely for value based on our styles scores.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of this revision also indicates a downward shift. It's no surprise that the stock has a Zacks Rank #5 (Strong Sell). We are expecting a below average return from the stock in the next few months.

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