NCI Building Suffers Loss in 2010 - Analyst Blog

NCI Building Systems Inc. (NCS) reported an adjusted loss of 72 cents per share in the fourth quarter fiscal 2010, a stark decline from earnings of $1.86 per share in the year-ago quarter. The loss per share was, however, a tad lower than the Zacks Consensus Estimate of a loss 77 cents.

For the third consecutive year, industry-wide demand was affected by weak economic conditions, and NCI Building's strongest markets – commercial and industrial – bore the brunt.

The adjusted loss per diluted share, however, excluded a non-cash beneficial conversion charge and other special charges. Including these charges, reported net loss per share was $1.01 versus a net loss per share of $17.66 in the year-ago quarter.

Total Revenue

NCI Building reported total revenues of $241.5 million in the fourth quarter 2010 versus $243.3 million in the year-ago quarter, reflecting a decline of 0.8%. The results of the company were in line with the Zacks Consensus Estimate of $241 million. Decline in Metal Components more than offset increases in Metal Coil Coating and Engineered Building Systems.

Operational Update

Cost of goods sold during the quarter increased 7% to $194.9 million and, as a percentage of revenue, increased 560 basis points year over year to 80.7%. Consequently, adjusted gross profit decreased 23% to $46.6 million from the year-ago level with adjusted gross margin plunging 560 basis points to 19.3%.

Selling, general and administrative (SG&A) expenses dipped 5% to $48.5 million and, as a percentage of total revenue, decreased 100 basis points over the year-ago quarter. Adjusted operating loss in the quarter was $1.7 million compared with an operating profit of $10.5 million.

Including asset impairments, restructuring charges and pre-acquisition contingency adjustments, NCI Building reported an operating loss of $3.8 million compared with an operating loss of $3.7 million in the prior-year quarter.

Segment Performance

The Engineered Building segment's revenue increased 4% year over year to $133.9 million. The segment reported an operating loss of $3.8 million in the quarter compared with an operating profit of $0.5 million a year ago. Segment results failed to reach break-even due to rescheduling of certain projects to the first and second quarters of 2011.

The Metal Component segment posted an increase of 49% year over year to clock revenues of $118.5 million in the quarter. Segment operating profit dipped 35% to $8.8 million in the quarter.

Revenues at the Metal Coil Coating segment upped 5% to $46.9 million in the quarter. However, segment profit declined 38% to $3.7 million in the quarter.

Fiscal 2010 Performance: A Snapshot

NCI Building reported adjusted loss per share of $3.21, beating the Zacks Consensus Estimate of a loss of $16.86. The loss per share in fiscal 2010, however, deteriorated from a loss per share of 68 cents in the previous year.

Including special charges, the company reported a loss per share of $17.07 in fiscal 2010, a substantial improvement from a loss per share of $171.18 in the previous year.

Revenues of $870.5 million were in line with the Zacks Consensus Estimate but dropped 10% from $965.3 million recorded in fiscal 2009. For fiscal 2010, Metal Coil Coating posted a year-over-year growth of 7%, but was offset by a 9% drop in both Metal Components and Engineered Building Systems segments.

Financial Update

As of October 31, 2010, NCI Buildings had cash and cash equivalents of $77.4 million, down from $90.4 million as of November 1, 2009. The company generated cash flow from operating activities of $6.3 million in fiscal 2010 compared with $95.3 million in the previous year.

NCI Building invested $14 million in capital expenditure during fiscal 2010, which included $4.9 million for the recently acquired Middletown coating facility.

Guidance

NCI Building did not provide any specific earnings guidance for fiscal 2011. The company, however, stated that it witnessed a pick-up in quoting activity from the commercial/industrial sector of the market, which prior to the economic downturn had accounted for 70% of its business.

The commercial/industrial sector of AIA's (American Institute of Architects) Architectural Billing Index has been in positive territory for the sixth consecutive month, in October, thus suggesting an increase in construction activity in the next nine to twelve months on a year-over-year basis.

In fiscal 2011, the company intends to implement a number of measures that include the launch of new sales initiatives targeting specific markets, the rollout of new products and services, a system upgrade to further reduce order processing time, and implementation of logistics systems to reduce transportation costs and improve scheduling.

Our Take

The company's results have been affected by weak non-residential construction activity and rising steel prices. Added to these are extremely competitive market conditions in its Engineered Building Systems and Metal Components businesses that have intensified pricing pressure.

We do not expect any significant improvement in NCI Building Systems in the coming quarters, given the slowdown in bookings and the economic uncertainty. However, we believe the company's aggressive restructuring actions will help its return to profitability when industry conditions improve. The company currently has a Zacks #3 Rank (short-term Hold rating) on its stock.

Based in Houston, Texas, NCI Building manufactures and markets metal products primarily for the non-residential construction industry in North America. It competes with privately held American Buildings Company, Butler Manufacturing Company and Varco Pruden Buildings.

 
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