Q3 2024 Beacon Roofing Supply Inc Earnings Call
Good morning ladies and gentlemen and welcome to the Beacon Third Court's or 2024 earnings school. My name is Ezra and I will be your coordinator for today. At this time, all participants are in listen only mode. We will be conducting a question and answer session towards the end of the school. At that time, I will give you instructions and how to ask a question. If at any time during the cold you require assistance, please press star for by zero and a code coordinator will be happy to assist you. As I remind you, this conference call is being recorded for replay purposes. I would now like to turn the call over to Mr. Binit Sanghvi.
Speaker Change: Vice President Capital Markets and Treasurer. Please proceed Mr. Sanghvi.
Binit Sanghvi: Thank you, Ezra, good morning everybody and as always we thank you for taking the time to join our call.
Binit Sanghvi: Today I'm joined by Julian Francis, our chief executive officer in Prith Gandhi, he can chief financial officer.
Binit Sanghvi: and Frith will begin today's call with prepared remarks that will follow the slide that posted to the investor relations section of the begins website. After that, we'll open the call for questions.
Binit Sanghvi: Before we begin, please reference slide two for a couple of brief reminders. First, this call will contain forward-looking statements about the company's plans and objectives and future performance. Forward-looking statements can be identified because they do not.
Binit Sanghvi: Related strictly to historic or current facts and use words such as anticipate, estimate, expect, believe, and other words similar meaning.
Binit Sanghvi: Actual results made different materially from those indicated by such forwarding statements, as a result of very important factors, including the unlimited two, those set forth in the risk factor section of the company's 2023 Form 10K.
Binit Sanghvi: Second, the Ford Looking Statements contained in this call are based on information as of today, October 31, 2024, and except as required by law, the company underseek no obligation to update or revise any of these Ford Looking Statements.
Binit Sanghvi: And finally this call will contain references to certain non-gap measures. The reconciliation of the non-gap measures to the most comparable gap measures is set forth in today's press release and the appendix to the presentation of accompanying this call.
Speaker Change: Well, the Fresh Release and the presentation are available on our website at becn.com. Now let's begin with opening your marks from Julian.
Julian Francis: Thanks for that and good morning everyone. Let's begin on slide four.
Julian Francis: The Econcerst Quarter Results continue to demonstrate the resilience of our industry and this team's execution on our ambition 2025 plan. We have multiple paths to top line growth and margin expansion and continue to deliver record numbers for the company.
Julian Francis: Our end markets are end up aimed by the repair and replacement cycle at exterior weatherproofing products on residential housing and commercial buildings. The majority of this demand is non-discrashingery.
Julian Francis: and while court demand remains good, the overall level of activity came in lower than the anticipated in the third quarter. Nevertheless, the B-containment delivered by continuing to focus on our strategic plan and areas within our control.
Julian Francis: In the third quarter, we grew daily sales by nearly 6% year over year, driven primarily by our acquisitions. Our growth margin came in 26.3% above our prior guidance through our team's disciplined margin management.
Julian Francis: Notably, we were Prithkast positive across all three lines of business.
Julian Francis: We state focus on cost management and continuous improvement. During the quarter we took action to lower operating expenses and the line cost with market conditions.
Julian Francis: As a result, we achieve record, top line and strong bottom line performance, including a record for quarterly adjusted EBITDA. We continue to use our cash flow and balance sheet capacity to reinvest in organic growth, conduct M&A, and return capital to shareholders.
Julian Francis: We have acquired seven companies since the end of the second quarter, but like to highlight the addition of the SAIC, Madeleine Building Supplies. Headquartered in Clip the New Jersey, the SAIC adds strength to our commercial solutions footprint with eight branches in New Jersey and one in New York.
Julian Francis: For more than 100 years, the Goodman family has built a reputation for providing commercial contractors in the region, the most professional service and technical support. This acquisition significantly strengthens opposition and commercial roofing and related businesses in the state.
Julian Francis: Our ambition is 2025 plan is entirely about unlocking the potential of beacon. I can confidently say today we are well in our way to achieving that goal.
Julian Francis: and now please turn to page 5.
Julian Francis: As most of you know, we laid over targets at that investedee to drive a both market growth deliver consistent double, adjusted EBITDA margins, build great organisation and generate superior shareholder returns.
Julian Francis: A relentless focus on our customers is central to how we operate and we're achieving those goals. A team looks everyday to deliver a great customer experience.
Julian Francis: Let me provide you with an update in our strategic initiatives, starting in a few ways that we are building a winning culture.
Julian Francis: One of our community support pillars is empowering people to build skills and achieve their goals. In the past few quarters we have been able to fund and expertise to the Roofing Industry Centre at Princeton University. The Centre's top goals in attracting and training professionals in the industry.
Julian Francis: and please to say that online courses are already available to anyone considering a career in roofing and a number of our own employees and advanced desk skills by completing the eight week course.
Julian Francis: Further in September, a team announced that Beacon has officially partnered with the US Army's partnership for your success or pays program.
Julian Francis: This exciting new collaboration highlights our own Weaver and Committments, supporting veterans, by providing them with rewarding career opportunities across Power Nationwide footprint.
Julian Francis: The PAGE Program Connect Soldiers with Top Employers ensuring that they have a clear path to civilian careers after their military service. As a PAGE partner, we can guarantee soldiers and interview them and allow them to showcase their skills, discipline and leadership in addition to learning about career opportunities.
Speaker Change: And for those of you who have listened to our calls in the past, you remain recalled that we established beaconcares for years ago. beaconcares is an employee crisis relief support fund that provides grants to employees coping with unexpected financial hardships, resulting from natural disasters or other personal situations.
Speaker Change: Hundreds of our team members live in work in the path of the recent storms and during the quarter, the beacon team made donations totaling $100,000 to the fund. I'm thankful that all of our employees are safe and that we have a programming of beaconcares to ease some of our hardship.
Speaker Change: A second pillar is driving above market growth and enhancing margins through a set of target hidden initiatives.
Speaker Change: Since the start of ambition 2025, we have deployed more than one $5 billion to share buybacks, reducing the as converted share count by approximately 23%.
Speaker Change: In summary, we have a differentiated service model and has built the tools to enable multiple paths to growth margin expansion and value creation through the cycle. Our ambition 2025 plan that seamlessly stitch that all together into an operating model to amplify the resiliency of our business model and unlock potential.
Speaker Change: Now I'll pass the call over the press to provide a deeper focus on our third quarter results.
Speaker Change: Thanks, Julian and good morning, everyone.
Speaker Change: Turning to slide seven we achieved nearly $2 8 billion in total net sales in the third quarter up more than 7%, primarily driven by the impact of acquisitions adjusting for the one additional day in the third quarter of this year net sales increased by almost 6% higher average selling prices also contributed to the.
Speaker Change: Annual growth in sales organic volumes, including those from Greenfields decreased approximately 1% to 2% per day, while the overall price contributed 1% to 2% acquisitions completed within the last 12 months are performing well and contributed a little more than five 5% in total sales year over year.
Speaker Change: Annual industry shipments keep in mind that these volumes will be spread over the next six quarters.
Speaker Change: In October we believe we will set a record for monthly sales of more than $1 billion.
Speaker Change: Up 6% year over year on a daily basis for.
Speaker Change: For the fourth quarter, we expect total sales per day growth to be up mid single digits percentage year over year. Please remember that we will be lapping a record fourth quarter in which we saw significant volumes across all three lines of business.
Speaker Change: We expect gross margin to be in the 20 mid 25% range.
Speaker Change: For the full year, assuming a normal seasonal slowdown we now expect adjusted EBITDA in the lower half of our previously communicated guidance and importantly, as Chris mentioned, we expect to finish the year with significant cash flow.
Speaker Change: Our focus remains on the areas within our control, including safety customer experience operational excellence and pricing execution.
Speaker Change: We will continue to deploy capital on initiatives that we expect will result in accelerated growth, including executing on acquisitions and delivering on our greenfield locations, which we expect to be around 20 branches in 2024.
Speaker Change: So we would expect to see some benefit from that.
Speaker Change: Okay. Thank you for all the great color.
Speaker Change: Our next question is from Kathryn Thompson with Thompson Research Group Catherine Your line is now open. Please go ahead.
Speaker Change: Hey, Good morning. This is actually Brian Biros on for Catherine. Thank you for taking my questions today.
Speaker Change: On the on the non res market can you maybe just touch on how maybe specific verticals are performing in kind of that.
Speaker Change: From new to R&R I think you mentioned in the prepared remarks.
Speaker Change: Youre seeing commercial carrier demand.
Speaker Change: Celebrating maybe if there's some pent up demand or is that still.
Speaker Change: So it's only in certain verticals and I guess, just how would you characterize the non res market heading into 2025.
Speaker Change: Yeah, absolutely thanks for the question.
Speaker Change: We've touched on this a little bit before but I'll tell you rewind a little bit.
Speaker Change: Give me hopefully some of the color you need.
Jewelry when.
Speaker Change: When Covid hit and you had all the supply chain disruptions and the product availability was very challenging new construction was prioritized over repair and replace because obviously I mean, there's so much more money tied up in getting that finished into completion.
Speaker Change: Yes.
Speaker Change: With the disruptions in the supply chain, there and the product availability the new construction side of things Scott prioritize so that got done so.
Speaker Change: Little bit poorly understood that this is not something that is just related to.
Speaker Change: The coast in the SaaS.
Speaker Change: This goes all across the country, we operate pretty much everywhere now and it's been.
Speaker Change: We're excited about where that's taken us we've gone from roughly.
Speaker Change:
Speaker Change: Give or take mid $100 million of sales.
Speaker Change: Towards the end of 2022 to a run rate of.
Speaker Change: $700 million plus so we've really grown that business, we've acquired multiple businesses to build out the only nationwide specialty waterproofing distribution platform.
Speaker Change: And that's been that's been really exciting in terms of the margin profile, it's more like residential than it is commercial and we're very pleased with that we expect to see that be enhanced over time.
Speaker Change: Leadership team there has got a plan and they want to make sure that they are operating above.
Speaker Change: Our average gross margins and EBITDA margins for the company in the long run we got some work to do to get there I mean, the acquisitions that we brought in this year, particularly.
Speaker Change: We need some work to get there, but we're excited about that platform and.
Speaker Change: Like I said, it's we think it's a fundamentally.
Speaker Change: <unk> growing segment of the construction market it ties in very nicely with our commercial roofing business as well so.
Speaker Change: Q1, and we thought it would come in Q2 and inevitable.
Speaker Change: In Florida, which we've talked about all year.
Speaker Change: Being particularly weak the southeast more broadly was weak, but Florida was particularly we've been taking actions in Florida almost from the start of the year in order to maintain our.
Opex ratio from a headcount standpoint, so part of this is you need to make sure <unk> got the people to deliver the product.
Speaker Change: And in the end as we went through the year and particularly as we went into the third quarter, we realized that even on a what we thought was sort of a regular day the demand levels were below what we had anticipated so we.
Speaker Change: We took we took action in the fourth quarter.
Speaker Change: Just sorry in.
Speaker Change: Third the third quarter to adjust down what we needed to so we just and this was a little bit of a reset making sure we see it I want to emphasize.
Speaker Change: Outside of Florida, our volumes grew.
So if you strip, Florida out of numbers volumes grew and the rest of the country. I mean, Florida was just a really really tough market. This year, but we feel really good about what we were seeing elsewhere and like I said, our volumes were growing elsewhere. So you would expect in order to do that and deliver more volume we've got to have more people.
Speaker Change: It was difficult to get Florida, where we needed to and then as we slow down during the third quarter, we just decided that we needed to take action.
And just sort of have a reset.
As we grow.
Speaker Change: We're going to need more people to service the business to make sure we're maintaining our.
Where we've seen favorable price cost even in a declining price environment. So it's really kudos to the team in terms of.
Managing the mix.
And on the operations there.
And then I think the second part of the question about the go forward.
Speaker Change: You know obviously were.
Speaker Change: The storms are going to have an impact on product availability going forward we.
We would expect that to be.
I have a meaningful impact in terms of pricing dynamics going forward and looking into into next year.
Speaker Change: You know the the new construction market.
There's been there's certainly been pressure there because that's been a little bit weaker.
Speaker Change: Then than we've seen over the last.
Speaker Change: 12 24 months.
And we'd like to see some more progress in that space.
Speaker Change: And then we're going to have a different dynamic going into 2025 one.
Films in the southeast now is going to firm up that part of the country, but you've got some.
Some storm areas in the western food.
Country that are coming down so we're going to be managing and again, but.
We also see this is what we do and I think that.
In a difficult environment I think are in a choppy environment that we've seen this year with a lot of a lot of different moving parts.
Speaker Change: We've executed really well in that area.
That was not a given coming into the year given all the dynamics we saw it so I'm actually very very pleased with how we've managed.
The price cost dynamic this year.
Speaker Change:
We will continue to emphasize that as a key element of our strategy going forward.
Great. Thank you.
Speaker Change: Yeah.
Our next question comes from David Gregor with Longbow Research David Your line is now open. Please go ahead.
David Gregor: Yes, thank you very much and good morning, everyone.
I wanted to ask about the private label business, where 12% sales growth obviously very impressive.
Speaker Change: I'm not going to comment on what the manufacturers strategies are going to be in this space, we have not seen any announced increases from the manufacturers.
David Gregor: We have seen.
Increases from so I think manufacturers.
David Gregor: On the single side of things.
So we would expect to see some but it's a supply and demand dynamic.
David Gregor: So I wouldn't expect to see.
Anything from the manufacturers this year.
David Gregor: Normally there's at least a 30 to 60 day lag between the <unk> and.
David Gregor: An increase so we're getting to a point, where there's not going to be anything this year I don't think.
David Gregor: I think going into next year I think the supply demand dynamics are going to determine whether the manufacturers there.
David Gregor: Sure.
David Gregor: There should be another price increase.
David Gregor: Okay.
Speaker Change: Thank you very much everyone is that concludes the question is no I would like to turn the call back over.
To Mr. Francis for his closing comments.
Thanks, Ryan and thanks to everyone for joining us today I know many of you have expressed an interest in.
Hearing more about our future plans and.
Julian Francis: What are the things that we've been thinking about it is we've really locked down most of the ambition 2025 goals is updating.
Speaker Change: Mid range plans and I'm happy to say that we are planning to have.
Speaker Change: An investor day.
In the first half of 2025 to update our longer term range goals and so stay tuned for that traditional details.
So ultimately thanks again for joining us today I do want to express my gratitude to our 8000 associates and team members, particularly those impacted most recently by by the storms.
Other than that I wish you all.
Very happy Halloween and the best for the remainder of the year and happy holidays.
Thank you very much everyone that concludes today's call you may now disconnect your lines.
Speaker Change: Yeah.
Speaker Change: Okay.