NCI Building Back on Track, Poised for an Improved 2015

NCI Building Systems Inc.’s (NCS) EVP and CFO Mark Johnson, during its third-quarter conference call, stated that the improved results have put the company back on track to deliver year-over-year growth in earnings after a challenging first half of 2014, impacted by severe winter weather. The results were also impressive as the company reversed its second-quarter loss.

On Sep 8, NCI Building Systems reported a fivefold increase in earnings to 10 cents per share in the third quarter of fiscal 2014 (ended Aug 3, 2014) aided by improved pricing. Sales improved 14% as the company also witnessed double-digit year-over-year revenue growth in each of its three business segments, reflecting both improved tonnage volumes in the components and coater segments and better pricing from commercial discipline across the board.

NCI Building’s ongoing growth initiatives and improved demand for its legacy, commercial and industrial components products, compared with last year, were instrumental in driving volume growth.

At the conference call, Chief Executive Officer, Norm Chambers stated that the oil and gas markets continue to show solid growth and retail has been persistently improving from very low levels. The company’s strategic goal is to generate four or five times 2013 EBITDA of $71 million, by the point of mid-cycle recovery, which equates to 1.3 billion square feet of new construction.

Chambers stated that 55% of the goal should be attained from expected impact growth in volume on the businesses and the balance should be generated by successful execution of the company’s six initiatives – enhancing efficiencies and manufacturing to drive greater improvements to the company’s bottom line, margin expansion through value pricing, sales and service initiatives, focus on distribution channel differentiation, growth in Coating Group in both construction and non-construction markets leveraging the new plant in Middletown, OH and metal depot retail expansion.

He also added that leading indicators continue to point toward moderate economic recovery that is picking up steam. The Federal Reserve senior loan officer survey continues to report easing of lending standards and increased commercial real estate loans. The ABI mixed used index has indicated growth for the last four months and in July, was at its highest level since Apr 2005.

Bookings were up 14.3% year over year with a very strong July. August bookings were up 8.1%—8.8% on a year-over-year basis. This comparison reflects benefits of price increases realized in August last year when the company first stated its intention to increase prices. Backlog is at 5.6% and the margins remain healthy because of sustained commercial discipline and greater demand for more complex projects in the Buildings Group.
The increase in open order levels along with level of bookings continuing for the remainder of the fourth quarter indicates stronger year-end momentum and could provide an upstart to fiscal 2015.

Coming to the segments, Johnson added that the Engineered Building Systems segment’s revenues grew 10% in the third quarter due to improved project mix and focus on commercial discipline and value oriented pricing. Operating income grew 87% over the prior year aided by improved gross margins on product shipped. This was a marked improvement from the breakeven results in the preceding quarter due to compressed margins, which has now reversed.

Segment bookings grew 14% year over year and backlog at $298 million was 6% higher than the year-ago period. These, along with persistently improving year-over-year incoming order margin signal continued the favorable earnings trends for this division, as per Johnson.

The Metal components segment’s revenues grew 16% to $184.3 million and operating income grew 30%. Total shipments increased 13.2% over third quarter of the prior year. The company noted year-over-year volume increases in the mid-teens in its legacy, commercial and industrial components product volume. Johnson stated this is as an important indication of a broader based nonresidential construction recovery.

Metal Coil Coating segment’s revenues climbed 35% year over year driven by increased volumes as well as benefits from shift to package sales, while profit rose 21%. The significant development in the segment was the acquisition and refurbishment of the Middletown, OH facility, which the company had brought online in Jan 2013. This facility achieved operating profits of $0.4 million compared with a loss of $1.1 million as the facility was initially developing in the same period last year. The company expects continuing incremental earnings contribution as the facility’s utilization rate continues to expand over the next four to eight quarters.

Following the results, shares of NCI Building attained a 52-week high of $21.68 on Sep 9. NCI Building Systems has amassed an impressive one year return of 59.8%. Earnings estimates for NCI Building have gone up in the past 30 days due to the upbeat earnings and outlook.

Headquartered in Texas, NCI Building Systems is a leading integrated manufacturer of metal products in the North American non-residential construction industry. The company along with Gibraltar Industries, Inc. (ROCK), UCP, Inc. (UCP) and United Rentals, Inc. (URI) belongs to the Building and Construction-Misc industry.

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