NCI Building Systems’ (NCS) Q2 2017 Results

posted in: Earnings Call, Notes | 0

Norman Chambers – Chairman and CEO

Some normal hesitation from customers

“While not unusual, there has been some recent hesitation in bookings while our customers digest current workloads. Our quoting activity is good, our backlog is solid and our customer’s outlook is positive anticipating a good year. More encouraging, our internal forward-looking indicators forecast a marked improvement in growth over the next 12 months.”

Mark Johnson – EVP, Treasurer, and CFO

Steel prices higher than expected. 

“In the second half of the year, the steel prices are a little higher than we would have thought at the beginning of the year, anywhere from 4% to 7% higher on a year-over-year basis than in the original guidance.”

The rising steel prices impacting margins

“…our gross margin increased sequentially from the 21.4% reported in the first quarter to be consistent with the prior year second quarter of 24%. In fact, on an adjusted basis, gross margins were approximately 20 basis points higher than the prior year margins…our margins continue to reflect the near-term headwind of rising steel prices.”

Better margins expected in the third quarter

“Historically, the fourth and third quarter are the strongest two quarters of our fiscal year…this year, and our third quarter, we will have progressively better margins than the second quarter….when we get to the fourth quarter, we expect a much more normalized margin that won’t have that impact of the higher steel costs as a headwind that we still expect to see in the third quarter and so the margins will progressively be better in the fourth quarter and will be more illustrative of the margins we now can obtain given our improvement in our cost structure.”

Expectations going forward

“…we continued to expect 3% to 6% in underlying growth in new low rise starts measured in square feet in fiscal 2017. The insulated metal panel business should continue to be a strong driver of order growth and margins through the rest of the fiscal year. Rising steel costs should exhibit less of a downside impact on our margins by the end of 2017…Based on these factors, we believe we will deliver another year of modest growth in underlying volumes with continued year-over-year operating margin expansion and earnings growth.”