Beacon Roofing Supply is No. 2 in its sector and pushing hard to keep growing, but it aims in the future to produce adjusted EBITDA margins that are several percentage points better than recent past performances. Those are among the many insights Beacon offered stock analysts on Dec. 13 during its annual Investor Day. Of the 75 slides in its presentation, we found these six to be particularly illuminating, starting with its summary (above) of the company's progress over the past two years.
Even after doubling its market share and nearly tripling its revenues, Beacon isn't resting. It set out robust long-term targets, including gross margins that are a step above the 24.8% rate it achieved over the fiscal year that ended Sept. 30.
One challenge Beacon faces is that its biggest competitor, ABC Supply, isn't dawdling either. ABC's purchase of L&W Supply in late 2016 was similar to Beacon's purchase of Allied Building Products. Beacon estimates it now has 20% of the market, behind "Competitor A" (almost certainly ABC Supply) at 24% and ahead of "Competitor B" (probably SRS Distribution) at 8%. Note also that while "roofing" is in Beacon's name, interior and non-roofing exterior products make up one-third of its pro-forma sales.
While Beacon has produced much of its growth since 2016 via acquisitions, it expects to open many more greenfield sites in the coming year. This could be an indication that there are fewer independent specialty dealers available that suit Beacon's acquisition tastes.
Beacon likes to measures itself in terms of adjusted EBITDA--earnings before interest, taxes, depreciation, and amortization, as well as before a variety of one-time, non-operating occurrences. By that metric, its annual margins have hovered between 6% and 8%; for the fiscal year ended Sept. 30, it was 7.6%. Thus, it would have to improve its margins by one-fifth to two-fifths if it hopes to achieve its long-term goals.
One way Beacon intends to generate higher profits is to keep its operating expenses under control. It aims to trim its operating expenses by 1.5 to 2.5 percentage points. That would produce the lowest operating margin percentage for any year this decade.