A month has gone by since the last earnings report for TopBuild (BLD). Shares have added about 4% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is TopBuild 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.
TopBuild Q3 Earnings Beat, Sales Lag Estimates
TopBuild Corp reported mixed results for the third-quarter 2024, wherein its earnings topped the Zacks Consensus Estimate and sales missed the same.
Nonetheless, both earnings and sales increased year over year on the back of pricing and increased volumes. TopBuild also benefited from acquisitions despite the challenges. The company achieved record quarterly sales and profit. The company’s focus on growth and profitability drove strong performance in both its installation and specialty distribution segments.
However, the company has trimmed its sales and adjusted EBITDA views for 2024 due to the ongoing challenges in the housing market and delays in commercial and industrial projects. Despite this, the company remains optimistic, supported by growing demand for energy efficiency, the U.S. housing supply shortage, increasing household formations and the potential for lower interest rates to drive growth.
Inside TopBuild Corp ’s Q3 Results
TopBuild reported adjusted earnings per share (EPS) of $5.68 per share, which surpassed the Zacks Consensus Estimate of $5.62 by 1.1%. The metric grew 4.6% year over year.
Net sales of $1,373.3 million (the highest quarter in the company’s history) lagged the consensus mark of $1,397 million by 1.7% but increased 3.6% year over year. Mergers and acquisitions (M&A), after accounting for a disposition, led to a 2.3% increase, with prices and volume rising by 1% and 0.4%, respectively.
Segmental Performance
Installation (which accounted for 62.3% of total net sales): The segment’s net revenues came in at $856.4 million, up 4.2% year over year. Residential sales for the segment improved slightly from the second quarter and grew 3.7% compared to the prior year, driven by M&A and single-family growth. However, the growth was partially offset by slower multi-family sales. Commercial sales also showed a slight improvement from the second quarter, growing 6.8% year over year, driven by M&A and the timing of projects. M&A contributed 2.7% to the sales increase, pricing added 1.1%, and volume rose 0.5%. The segment’s adjusted operating margin contracted 150 basis points (bps) year over year to 20.1%.
Specialty Distribution (43.4%): The segment’s net sales rose 5.1% year over year to $600.4 million. Volume improved 3.0%, while pricing and acquisitions contributed 0.8% and 1.4%, respectively, to sales. The segment’s residential sales improved slightly sequentially and grew 8.5% compared to the prior year. Sales to the commercial and industrial end markets slowed slightly sequentially but grew 2.9% on a year-over-year basis. The segment’s adjusted operating margin improved 30 bps year over year to 15.8%.
Operating Highlights
Adjusted gross margin contracted 100 bps year over year to 30.7%. Adjusted SG&A expenses, as a percentage of sales, decreased 40 bps to 12.8% from a year ago. Adjusted operating margin declined 60 bps to 17.9% from a year ago.
Adjusted EBITDA improved 0.4% year over year to $285.1 million. However, adjusted EBITDA margin contracted 60 bps to 20.8% from the year-ago figure.
TopBuild's Financials
As of Sept. 30, 2024, TopBuild had cash and cash equivalents of $257.3 million compared with $848.6 million at 2023-end. Long-term debt at the third quarter of 2024-end was $1.34 billion, down from $1.37 billion at 2023-end.
Net cash provided by operations was $509.8 million in the first nine months of 2024, down from $588.5 million a year ago.
As of Sept. 30, 2024, TopBuild repurchased around 2.3 million shares for a total of $919.2 million.
TopBuild's Acquisitions So Far in 2024
Year to date, TopBuild has acquired seven companies, which are projected to generate approximately $118 million in annual revenues. The acquisitions include Brabble Insulation, with annual revenues of $5.2 million, closed in February and included in the Installation segment; Morris Black & Sons, generating $3.8 million in annual revenues, closed in March and part of the Installation segment and Pest Control Insulation, with $25.4 million in annual revenues, closed in March and included in the Distribution segment.
The other buyouts were that of Green Space Insulation, with $6 million in annual revenues, closed in April and part of the Installation segment; Insulation Works, generating $28 million in annual revenues, closed in May and included in the Installation segment; Texas Insulation, with annual revenues of $38.9 million, closed in May and part of the Installation segment; and Shannon Global Energy Services, with $10.8 million in annual revenues, which is expected to close in the fourth quarter and be included in the Distribution segment.
TopBuild's 2024 Guidance Narrowed
TopBuild now expects net sales between $5.30 and $5.35 billion versus $5.30 billion-$5.50 billion of earlier expectations. The estimated figure indicates an increase from $5.19 billion reported in 2023.
Adjusted EBITDA is now projected to be between $1.055 billion and $1.085 billion versus $1.055 billion-$1.125 billion of the prior projection. This suggests growth (considering the midpoint of the guided range) from $1.05 billion reported in 2023.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
VGM Scores
At this time, TopBuild has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, TopBuild has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
TopBuild is part of the Zacks Building Products - Miscellaneous industry. Over the past month, Armstrong World Industries (AWI), a stock from the same industry, has gained 4.1%. The company reported its results for the quarter ended September 2024 more than a month ago.
Armstrong World Industries reported revenues of $386.6 million in the last reported quarter, representing a year-over-year change of +11.3%. EPS of $1.81 for the same period compares with $1.60 a year ago.
For the current quarter, Armstrong World Industries is expected to post earnings of $1.37 per share, indicating a change of +12.3% from the year-ago quarter. The Zacks Consensus Estimate has changed +1.1% over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #2 (Buy) for Armstrong World Industries. Also, the stock has a VGM Score of C.
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