A huge tax benefit and hurricane-related sales boosts caused Beacon Roofing Supply’s net income to soar to $67.6 million in its fiscal first quarter ended Dec. 31 from $20.4 million year before, the company reported today.
Sales, in contrast, rose 12.0% to $1.12 billion while operating income grew 4.5% to $49.1 million. Gross margin slipped to 24.0% of sales from 25.1%.
It’s always important to check both the operating and net income lines of Beacon’s earnings statement because the company’s interest expenses are so big. For example, in this report, interest and financing expenses shot up by two-thirds, to $26.5 million. But an even bigger difference-maker this time was the $41.1 million in income tax benefits the Herndon, Va.-based company booked. That compares with a $13 million provision for taxes taken in the October-to-December 2016 quarter.
Beacon said the Tax Cuts and Jobs Act enacted on Dec. 22 helped Beacon principally throug the re-evaluation of deferred tax assets and liabilities. There also were minimal gains from the repatriation of foreign earnings (Beacon has operations in Canada) and benefits from a lower federal corporate income tax rate.
The company’s adjusted net income–calculated by deducting from net income all acquisition costs and the effects of tax reform–totaled $46.7 million, up from a year-earlier $34.4 million.
President and CEO Paul Isabella noted that organic sales (i.e. sales from branches in operation in 1Q2016) rose 8.3%, in part because of post-hurricane rebuilding efforts in Florida and Texas.
Sales of residential roofing products rose 9.6% year-over-year, while complementary products sales grew 11.7%. Residential roofing products accounted for 52.5% of all sales in the quarter, non-residential roofing products 29.3%, and complementary building products 18.2%. Those slices of the total revenue pie are expected to shift dramatically in Beacon’s next quarterly report, when it begins to incorporate several billion dollars of sales revenue from Allied Building Products. Beacon closed on the acquisition of that company on Jan. 2. Beacon ranked third on the 2017 ProSales 100, while Allied was seventh.
As a result of the merger, Beacon now claims $7 billion in annual revenue and 589 branches throughout all 50 states and 6 provinces in Canada.
The company’s balance sheet as of Dec. 31 showed $1.25 billion worth of goodwill; that’s 27.4% of Beacon’s $4.57 million in assets. Meanwhile, long-term debt totals $2 billion.
Adjusted EBITDA–that’s earnings before interest, taxes, depreciation, and amortization as well as acquisition costs and stock-based compensation–rose to $86 million from $80 million.
