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GMS Stock Up 6.8% as Q4 Earnings Beat Estimates, Margin Down

Zacks

GMS Inc. GMS reported impressive results for fourth-quarter fiscal 2020 (ended Apr 30, 2020). Both the top and bottom lines surpassed the Zacks Consensus Estimate but declined on a year-over-year basis. Shares of the company rose nearly 7% on Jun 25, post the earnings release. Investors’ sentiments might have got a boost owing to better-than-expected earnings and revenues.

John C. Turner, Jr., president and chief executive officer of GMS said, “To date in the first quarter of fiscal 2021, we have experienced sequential improvement in net sales levels compared to the latter half of the fourth quarter as the majority of the mandated shutdowns have been eased or lifted and as businesses have begun to reopen. On a year-over-year basis, comparable daily sales thus far in the first quarter of fiscal 2021 are down low single digits, compared to the double-digit year-over-year decline experienced in April.”

Inside the Headlines

During the reported quarter, the company’s adjusted earnings of 56 cents per share topped the consensus mark of 53 cents by 5.7%. The reported figure, however, decreased 17.6% from the year-ago figure of 68 cents per share.

GMS Inc. Price, Consensus and EPS Surprise

Net sales totaled $770.9 million, beating the consensus estimate of $748.9 million by 2.9%. However, the said figure fell 1.2% year over year. Sales increased approximately 7% in February and March on a combined basis, offset by a 16% decline in April due to COVID-19 disruptions. Organic sales declined 1.8% year over year.

During the reported quarter, GMS completed the acquisition of Trowel Trades Supply, Inc. — a single-location distributor based in Colchester, VT — and opened a greenfield location in Panama City Beach, FL.

Product Line Discussion

Wallboard’s sales inched up 0.3% year over year to $323.2 million. This was driven by strong sales in February and March, partially offset by lower price/mix. Organic sales slipped 0.3% year over year.

In the Ceilings segment, sales declined 1% on a year-over-year basis to $111.1 million, given lower volumes in April resulting from the COVID-19 pandemic. Organic sales also fell 2.6% from the year-ago period.

Sales in the Steel Framing unit totaled $115.3 million, down 7.4% from the prior-year period. Also, on an organic basis, sales fell 7.8% from the year-ago quarter due to lower April volumes.

Other Products’ sales were nearly flat year over year to $221.2 million but fell 0.3% on an organic basis.

Operating Highlights

Gross margin contracted 30 basis points (bps) year over year to 32.6% owing to lower sales. Adjusted selling, general and administrative expenses — as a percentage of net sales — increased 90 bps to 24.5%. The increase was mainly due to deflationary market pricing of certain products, lower sales, and operating inefficiencies related to business interruptions, continued inflationary cost pressures along with the timing of certain expenses.

Adjusted EBITDA margin came in at 8.2%, which fell 120 bps in the quarter.

Liquidity & Cash Flow

As of Apr 30, GMS had cash and cash equivalents of $210.9 million compared with $47.3 million at fiscal 2019-end. Availability under the revolving credit facility was $368.3 million. Total long-term debt — less current portion — at fiscal 2020-end amounted to $1.05 billion compared with $1.1 billion on Apr 30, 2019.

At the end of fiscal 2020, cash provided by operations was $303.1 million compared with $193.6 million reported in the comparable year-ago period.

Net debt leverage was 2.9X, improved from 3.3X in the fiscal third quarter.

Fiscal 2020 Highlights

The company’s adjusted earnings of $2.97 per share increased 6.1% year over year. Net sales of $3.2 billion also grew 4% from a year ago. Organically, net sales increased 2% year over year. Adjusted EBITDA margin, however, contracted 30 bps from the prior year.

It completed three acquisitions and six greenfield openings in fiscal 2020.

Zacks Rank

GMS — which shares space with BMC Stock Holdings, Inc. BMCH, Builders FirstSource, Inc. BLDR and Fastenal Company FAST in the Zacks Building Products – Retail industry — currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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