Why Is Gibraltar Industries (ROCK) Up 16.1% Since Last Earnings Report?

A month has gone by since the last earnings report for Gibraltar Industries (ROCK). Shares have added about 16.1% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Gibraltar Industries due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Gibraltar Q1 Earnings Top Estimates, Increases Y/Y

Gibraltar Industries, Inc. reported better-than-expected results in first-quarter 2020. The company’s earnings and sales not only topped analysts’ expectations but also improved year over year on continued strength across the business, particularly in the Renewable Energy & Conservation unit.

Owing to persistent economic uncertainty, Gibraltar revoked its previously announced 2020 guidance. However, the company expects to deliver earnings growth and generate cash from operations in the rest of 2020.

Inside the Headlines

Gibraltar reported adjusted earnings of 47 cents per share, which topped the Zacks Consensus Estimate of 37 cents by 27%. The bottom line increased an impressive 67.9% year over year, supported by organic growth in Renewable Energy & Conservation, improved solar tracker field performance, as well as favorable alignment of price to material costs. Also, improvement in Residential Products, lower interest expense and benefits from operational excellence initiatives added to the positives.

Net sales increased 9.7% year over year to $249.4 million, owing to 2.8% organic growth driven by its Renewable Energy & Conservation segment. Acquisitions of Thermo Energy Solutions, Delta Separations and Apeks Supercritical contributed 6.9% to top-line growth.

However, the metric lagged the consensus mark of $251 million by 0.7%.

The company’s backlog was $258 million (at quarter-end), up 39% year over year, owing to increased participation in Renewable Energy and Conservation, as well as Infrastructure end markets.

Segmental Details

Residential Products: Net sales in the segment slipped marginally from the year-ago period to $103.4 million during the quarter. The decline was mainly due to additional product line simplification initiatives undertaken by Gibraltar and low demand for products sold directly to homeowners. However, solid growth in its core roofing-related products and postal businesses supported the top line.

Adjusted operating margins improved 170 basis points (bps) to 13.5%. Strong execution, improved material cost alignment and 80/20 simplification initiatives aided the margins.

Industrial and Infrastructure Products: Sales in the segment decreased 9.8% year over year to $49.5 million. Strong performance of the infrastructure business driven by solid market activity, participation gains, modest price increases and continued backlog growth was more than offset by lower demand for core industrial products due to delay in purchases amid a declining steel price environment.

Adjusted operating margins expanded 60 bps to 8.1%, backed by a more favorable mix of higher-margin products and solid execution of 80/20 profit improvement efforts.

Renewable Energy and Conservation: Quarterly net sales in the segment rose 40.3% year over year (17.5% on an organic basis) to $96.5 million. Apeks Supercritical, Thermo Energy Solutions and Delta Separations acquisitions contributed 22.8% to top-line growth. The uptick can be attributed to core business strength driven by participation gains, volume leverage, productivity improvements and favorable price/material cost alignment. Segment backlog grew 58% year over year owing to healthy market dynamics, participation gains and the recent acquisitions.

Adjusted operating margins of 7% in the segment were up 450 bps. The company remains on track to deliver targeted returns in three years.

Costs and Margins

Selling, general and administrative expenses increased 23.6% year over year to $41.2 million. As a percentage of sales, the metric increased 190 bps year over year. Adjusted operating margin of 7.6% expanded 180 bps year over year.

Balance Sheet & Cash Flow

As of Mar 31, 2020, Gibraltar had cash and cash equivalents worth $86 million compared with $191.4 million at the end of 2019. The company used $43 million cash in operations, up from $37.5 million in the year-ago period.

Coronavirus Impacts

Gibraltar’s core residential building products businesses — including ventilation, building accessories and postal — are experiencing slow demand since first quarter-end. Moreover, home improvement and industrial businesses have been most impacted by coronavirus-led shutdowns. The company experienced continued strength in renewables and conservation, and infrastructure businesses, steady demand in the core Residential Products segment, as well as slow demand in the Industrial unit.

How Have Estimates Been Moving Since Then?

Estimates revision followed a downward path over the past two months. The consensus estimate has shifted -51.83% due to these changes.

VGM Scores

At this time, Gibraltar Industries has a subpar Growth Score of D, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Gibraltar Industries has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.

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