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    BECN Q3 2024: Waterproofing sales hit $700M run rate

    Reported on May 16, 2025 (After Market Close)
    Pre-Earnings Price$92.07Last close (Oct 31, 2024)
    Post-Earnings Price$91.71Open (Nov 1, 2024)
    Price Change
    $-0.36(-0.39%)

    What went well

    • Acquisition and Private Label Growth: The Q&A highlighted that recent acquisitions are expected to add an incremental 3–4% of total revenue going into next year, and the TRI-BUILT private label line grew 12% YoY (around $280 million in sales), indicating strong top‐line expansion.
    • Waterproofing Business Expansion: Discussion on the waterproofing segment revealed robust growth—from roughly mid‑$100 million in sales to a run rate exceeding $700 million—with a margin profile that is superior to the company average, suggesting significant future growth potential.
    • Solid Pricing Execution and Cost Management: Executives emphasized effective price increases, achieving approximately 50 basis points of additional margin improvement through disciplined price/cost management, which supports margin stability even amid challenging market conditions.

    What went wrong

    • Hurricane and weather-related disruptions in key regions: Persistent weakness in the Florida market—with hurricanes like Milton and Helene causing disruptions—could continue to suppress demand and delay recovery in affected areas.
    • Margin pressure from acquisitions and greenfield investments: Several acquisitions and rapid branch expansions have introduced lower-margin businesses that may continue to drag overall profitability until full synergies are realized.
    • Operating expense challenges: The need for headcount adjustments and cost realignments—especially in weak market conditions—suggests ongoing pressure to manage expenses effectively, which could negatively impact margins if demand does not rebound.

    Q&A Summary

    1. Margin Outlook
      Q: Why are Q4 gross margins lower?
      A: Management explained that Q4 margins are expected in the mid-25% range due to seasonal shifts in geography and product mix, with a greater mix of lower-margin new construction coming into play, despite stable overall performance.

    2. Margin Expansion
      Q: Will margin expansion resume in 2025?
      A: They anticipate improvement as acquisitions mature and synergies are realized, expecting full‑year adjusted EBITDA in the lower end of guidance and margin pressure to ease moving into 2025.

    3. Acquisition Impact
      Q: What’s the deal impact on revenue and costs?
      A: Incremental acquisitions are estimated to contribute about 3%–4% of total revenue, with TRI‑BUILT sales around $280 million and interest expense rising to roughly $184 million due to higher debt levels, underscoring active investment for growth.

    4. OpEx Management
      Q: How will operating expense targets be met?
      A: They are adjusting headcount and improving sales productivity, especially in weak regions like Florida, to drive the OpEx-to-sales ratio closer to the 17% target, while balancing necessary resources for service.

    5. Hurricane Impact
      Q: How will hurricanes affect demand and inventory?
      A: Hurricanes have disrupted logistics in affected regions, particularly in Florida, with delayed demand pickup expected until December or next year, as rebuilding takes time and careful product allocation is maintained.

    6. Private Label
      Q: What drove the 12% private label growth?
      A: The 12% growth in the private label segment was fueled by both expanding existing product lines and adding new categories, enhancing customer differentiation and offering competitive margins.

    7. Greenfield Expansion
      Q: How many new branches are expected next year?
      A: Management plans to continue its aggressive expansion, expecting to add 20+ greenfield branches next year, with M&A complementing these additions to further boost capacity and service.

    8. Nonresidential Strength
      Q: How is the nonresidential vertical performing?
      A: The nonresidential segment, driven by repair and replace activity in commercial markets like warehouses and schools, has shown robust performance despite softer new construction volumes.

    9. Waterproofing Benefit
      Q: Will waterproofing benefit from recovery work?
      A: Management expects the waterproofing division to gain from recovery efforts, especially in commercial and infrastructure sectors, aided by the strategic acquisition of Coastal.

    10. Waterproofing Trends
      Q: What are the underlying waterproofing trends?
      A: Excluding hurricane effects, waterproofing is growing rapidly—from about $100 million in sales to a run rate of over $700 million—driven by increased regulatory focus and market recognition of its importance.

    11. Price Execution
      Q: What explains the 50bp price cost improvement?
      A: The improvement resulted from skillful execution of recent price increases, particularly in residential markets, with careful management of commercial pricing dynamics, even amid inventory effects.

    12. Pricing Outlook
      Q: Are more manufacturer price hikes expected soon?
      A: Management does not anticipate further manufacturer price increases this year, noting that any adjustments would likely be delayed into next year based on evolving supply‐demand dynamics.

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