BECN Q3 2024: Waterproofing sales hit $700M run rate
- 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.
- 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.
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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. -
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. -
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. -
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. -
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. -
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. -
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. -
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. -
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. -
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. -
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. -
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.
Research analysts covering BECN.