Beacon (NASDAQ: BECN) released its fourth quarter and full year 2023 results yesterday after the close of trading, and you may have heard a champagne cork or two pop: the company reported better-than-expected results for the fourth quarter 2023. 

In a Feb. 28 news release recapping Tuesday’s earnings call, Beacon reported net sales growth for the trailing 12 quarters, reporting adjusted earnings per share of $1.72, topping Wall Street’s consensus mark of $1.69 by 1.8% and increased 41% from the year-ago adjusted level of $1.22 per share.

Zacks Equity Research said in its analysis that the record earnings highlight “the resiliency of its business model” and surpassed the Zacks Consensus Estimate; the top and bottom lines increased year-over-year. 

“Our 2023 results demonstrate that our Ambition 2025 strategy has multiple paths to growth and can deliver results in a variety of conditions,” said Julian Francis, Beacon’s president and CEO. “We delivered record fourth quarter and full-year sales, strong net income, and our highest Adjusted EBITDA in history.

Fourth Quarter

Net sales increased 16.8 percent compared to the prior year to $2.30 billion, a company record for fourth-quarter net sales. The company said the increase in net sales was “driven by organic volume growth, including greenfields over the last four quarters.” Acquired branches, which totaled 21 for 2023, contributed more than 4 percent to the increase in fourth-quarter net sales.

Beacon Q4 year over year financial chartResidential roofing product sales increased 20.2 percent, non-residential roofing product sales increased 11.4 percent, and complementary product sales increased 16.0 percent compared to the prior year. Beacon attributed the increase in residential roofing product sales to higher volumes; the increase in non-residential roofing product sales was primarily due to underlying solid market demand. 

The increase in complementary product sales was primarily due to growth in its waterproofing business, citing its November 2022 acquisition of Coastal Construction Products. 

The gross margin decreased to 25.7%, or 50 basis points year over year, due to higher product costs despite higher selling prices. Operating expenses increased due to higher payroll and benefits costs. However, both expenses as a percent of sales were lower in Q4 2023 due to higher sales and cost management.

Adjusted EBITDA increased more than 21 percent year over year to $216.7 million, driven by higher net sales compared to $178.5 million for the previous year. Net income (loss) per common share on a diluted basis was $1.47, compared to $0.88 in the prior year. 

Last February, Beacon announced an increase in its share repurchase program, permitting it to buy back up to $500 million of its common stock (including the $112 million remaining under a similar program announced in February 2022). 

In the fourth quarter, it repurchased and retired $11.0 million of its common stock through open market repurchases, resulting in 63.3 million shares of outstanding common stock at the end of the calendar year.  

2023 Highlights and Financial Details

Net sales increased 8.2% to $9.12 billion, a company record driven mainly by acquired branches and greenfields over the last four quarters. Additionally, increased pricing and volume increased by approximately 2-3% and 1-2%, respectively. Acquired branches contributed more than 4% to the year-over-year increase in net sales.

  • Residential roofing product sales increased 10.3%, non-residential roofing product sales decreased 2.7%, and complementary product sales increased 18.6% compared to 2022. 
  • The increase in residential roofing product sales was primarily due to higher volumes. 
  • The increase in complementary product sales was attributed principally to growth in its waterproofing business after acquiring Coastal Construction Products in November 2022. 

The gross margin decreased 80 basis points to 25.7%, with higher product costs offsetting increased average selling prices for its products. Adjusted EBITDA was $929.6 million compared with $910 million reported in the prior-year quarter. Adjusted EBITDA margin contracted 60 bps year over year to 10.2%.

The company reported cash on hand and cash equivalents of $84 million compared with $67.7 million at 2022-end. Long-term debt, net was $2.19 billion, up from the 2022-end value of $1.61 billion. Net cash provided by operating activities was $787.8 million in 2023 compared with $401.1 million the year prior.

Future Outlook

For the first quarter of 2024, the company said it anticipates net sales to be up in the high single digits from last year's quarter with a 1 percent drop in gross margin versus 25.5% a year ago. In January 2024, net sales per day were down nearly 4% year over year.

For 2024, net sales growth is anticipated to be in the mid-single digit year over year. Gross margin is expected to be in the mid-25% range. Adjusted EBITDA is expected to be in the range of $920-$980 million.

Beacon warned residential shipments will likely be down in 2024 on lower expected storm demand but partially offset by higher non-storm repair and re-reroofing. Single-family starts and new construction activity are expected to improve this year, and existing home sales are anticipated to recover from a low point. Non-residential market demand is expected to remain soft in 2024.

Greenfield investment will continue and is expected to yield 25 new locations this year. Shares of Beacon fell in after-hours trading, dropping 3.3 percent. At the morning bell, shares opened at $86.24 and had lost further ground at press time, down 5 points from Tuesday’s close.