Beacon Roofing Supply, Inc. is a leading distributor of roofing materials and complementary building products operating 177 branches in 35 states in the United States and Eastern Canada. 

PEABODY, Mass., Feb 08, 2008 (BUSINESS WIRE) -- Beacon Roofing Supply, Inc. ("Beacon" or the "Company") (NASDAQ: BECN) announced results today for its fiscal 2008 first quarter (three months) ended December 31, 2007 ("2008"). 

Sales increased 4.8% to $398.4 million in 2008 from $380.2 million in the first quarter of fiscal 2007 ("2007"). This increase was due to $64.7 million in sales from companies acquired since last year's first quarter, including North Coast Commercial Roofing Systems ("North Coast") acquired at the start of last year's third quarter. The positive impact from the acquisitions was mostly offset by a decline of 12.2% in organic ("existing market") sales that was caused by declines of 18.9% and 15.2% in residential roofing and complementary product sales, respectively, with non-residential (commercial) roofing sales in existing markets down only 0.1%. There have been continued lower levels of residential construction activities in most markets this year and December's sales were also negatively impacted by harsher weather, especially in the Company's northern regions. 

Gross profit in the first quarter was $91.7 million, unchanged from last year. The overall gross margin rate decreased to 23.0% from 24.1% last year. The existing market gross margin rate, however, increased to 24.3% in 2008 from 24.1% in 2007. There continues to be pressure on margins as a result of increased competitive conditions in the industry, although the year-over-year decrease in the overall gross margin was less than experienced over the prior few quarters. There was also a higher mix of non-residential roofing sales in the first quarter, which traditionally have lower gross margin rates, primarily from North Coast's product mix that is comprised of over 95% non-residential roofing products. These negative factors on gross margin were more than offset in existing markets by the benefit of higher vendor rebates and other favorable buying programs offered by some vendors. 

Operating expenses increased $5.2 million, or 7.4%, due to the impact of the companies acquired since last year's first quarter, the new branches and a higher provision for bad debts. These factors were partially offset by lower payroll and related costs and other cost-saving steps implemented as a result of the industry slowdown. Operating expenses in the first quarter included $3.9 million for the amortization of intangible assets recorded under purchase accounting, compared to $2.7 million in 2007. As a percentage of net sales, overall operating expenses increased to 19.1% from 18.6%, mostly due to the impact of the lower existing market sales and the relatively fixed nature of the Company's expenses, partially offset by the lower operating costs as a percentage of sales at North Coast and the cost-saving steps. 

Existing market operating expenses dropped $4.3 million but increased as a percentage of sales by 1.3% due to the lower existing market sales. The decline in existing market expenses was primarily due to expense reduction efforts, including reduced headcount, favorable insurance claims experience and allocation of expenses to acquired markets, partially offset by an increased bad debt provision and expenses at the new branches. 

The Company realized operating income of $15.8 million in 2008 compared to $21.1 million in 2007. As a percentage of net sales, operating income was 4.0% compared to the prior-year rate of 5.5%. The existing market operating income was 4.4% of net sales compared to an operating income rate of 5.5% in 2007. 

Interest expense increased $0.7 million, or 10.8%, due primarily to the additional borrowings associated with the acquisitions. 

The Company's net income for the first quarter was $5.2 million compared to net income of $8.8 million in 2007, a decline of 40.5%. Diluted net income per share was $0.12 compared to $0.20 in 2007, a decline of 40.0%. Income tax expense was $3.5 million in the first quarter of 2008 compared to $5.9 million last year, an effective tax rate of 40.2% for both periods. 

Earnings before interest, taxes, depreciation and amortization, and stock-based compensation or "Adjusted EBITDA," which is reconciled to net income in this press release, was $26.0 million in 2008 as compared to $29.2 million in 2007, a drop of 10.8%. 

Cash flow from operations was $2.8 million in 2008 compared to $3.6 million in 2007. This decrease was primarily due to the lower net income, partially offset by higher non-cash charges for depreciation and amortization. Also impacting the decline in cash from operations were larger declines in accounts receivable and accounts payable and accrued expenses, along with larger increases in inventories and in prepaid expenses and other assets this year. 

Robert Buck, the Company's Chairman & Chief Executive Officer, stated: "Our sales have not yet returned to the levels we had planned. The continuing decline of residential construction in most of our markets has had an adverse impact on both demand and profitability for our residential roofing and complementary building products. Harsh weather conditions this December compared to last December's mild weather also hurt sales in certain regions. Our commercial business, however, again performed much better than our residential business and helped to mitigate some of the negative residential impact. We were also encouraged by the achievement of a higher gross margin rate and lower expenses in our existing markets compared to last year's first quarter. We continue to look for expense reduction opportunities in light of the declining sales and have scaled back our capital spending until we see signs of a recovery in traditionally stronger periods of our fiscal year. We will adhere to the business fundamentals that are consistent with our long-term vision of growth for our Company." 

There will be a conference call to discuss our first quarter results this morning at 10am EST. The dial-in number is 877-548-7915 (international dial-in number 719-325-4938). To assure timely access, participants should call in before 10:00 a.m. 

Within two hours after the call, a webcast of the call will be available on the "Events & Presentations" page of the "Investor Relations" section of the Company's web site at http://www.beaconroofingsupply.com. A replay of the conference call will also be available at 888-203-1112 (participant passcode 8634734) (international dial-in number 719-457-0820 with same passcode) for a week following the call.