Beacon Roofing Supply (BECN)

Roofing materials distributor Beacon Roofing Supply (NASDAQ:BECN) missed Wall Street’s revenue expectations in Q4 CY2024 as sales rose 4.5% year on year to $2.40 billion. Its non-GAAP profit of $1.65 per share was in line with analysts’ consensus estimates.

Company Overview

Established in 1928, Beacon Roofing Supply (NASDAQ:BECN) distributes residential and commercial roofing materials and complementary building products.

Supply chain and inventory management are themes that grew in focus after COVID wreaked havoc on the global movement of raw materials and components. Building materials distributors that boast reliable selection and quickly deliver products to customers can benefit from this theme. While e-commerce hasn’t disrupted industrial distribution as much as consumer retail, it is forcing investment in digital capabilities to communicate with and serve customers everywhere. Additionally, building materials distributors are at the whim of economic cycles that impact the capital spending and construction projects that can juice demand.

Competitors in the building materials industry include Builders FirstSource (NASDAQ:BLDR), Owens Corning (NYSE:OC), and Boise Cascade Company (NYSE:BCC).

Examining a company’s long-term performance can provide clues about its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Luckily, Beacon Roofing Supply’s sales grew at a decent 7.5% compounded annual growth rate over the last five years. Its growth was slightly above the average industrials company and shows its offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Beacon Roofing Supply’s annualized revenue growth of 7.6% over the last two years aligns with its five-year trend, suggesting its demand was stable.

We can dig further into the company’s sales dynamics by analyzing its organic revenue, which strips out one-time events like acquisitions and currency fluctuations that don’t accurately reflect its fundamentals. Over the last two years, Beacon Roofing Supply’s organic revenue averaged 3.4% year-on-year growth. Because this number is lower than its normal revenue growth, we can see that some mixture of acquisitions and foreign exchange rates boosted its headline results.

This quarter, Beacon Roofing Supply’s revenue grew by 4.5% year on year to $2.40 billion, falling short of Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 3.8% over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and suggests its products and services will see some demand headwinds.

Beacon Roofing Supply has bad unit economics for an industrials company, giving it less room to reinvest and develop new offerings. As you can see below, it averaged a 25.4% gross margin over the last five years. Said differently, Beacon Roofing Supply had to pay a chunky $74.61 to its suppliers for every $100 in revenue.

This quarter, Beacon Roofing Supply’s gross profit margin was 25.7%, in line with the same quarter last year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Beacon Roofing Supply was profitable over the last five years but held back by its large cost base. Its average operating margin of 6.6% was weak for an industrials business. This result isn’t too surprising given its low gross margin as a starting point.

On the plus side, Beacon Roofing Supply’s operating margin rose by 5 percentage points over the last five years, as its sales growth gave it operating leverage.

In Q4, Beacon Roofing Supply generated an operating profit margin of 6.6%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Beacon Roofing Supply’s EPS grew at an astounding 39.7% compounded annual growth rate over the last five years, higher than its 7.5% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into Beacon Roofing Supply’s earnings to better understand the drivers of its performance. As we mentioned earlier, Beacon Roofing Supply’s operating margin was flat this quarter but expanded by 5 percentage points over the last five years. On top of that, its share count shrank by 8%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Beacon Roofing Supply, its two-year annual EPS declines of 4.6% mark a reversal from its (seemingly) healthy five-year trend. We hope Beacon Roofing Supply can return to earnings growth in the future.

In Q4, Beacon Roofing Supply reported EPS at $1.65, down from $1.72 in the same quarter last year. This print was close to analysts’ estimates. Over the next 12 months, Wall Street expects Beacon Roofing Supply’s full-year EPS of $7.19 to grow 10.8%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Beacon Roofing Supply has shown weak cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 4.5%, subpar for an industrials business.

Taking a step back, we can see that Beacon Roofing Supply’s margin dropped by 2.1 percentage points during that time. This along with its unexciting margin put the company in a tough spot, and shareholders are likely hoping it can reverse course. If the trend continues, it could signal it’s becoming a more capital-intensive business.

Beacon Roofing Supply’s free cash flow clocked in at $320.8 million in Q4, equivalent to a 13.3% margin. This result was good as its margin was 3.6 percentage points higher than in the same quarter last year, but we wouldn’t put too much weight on the short term because investment needs can be seasonal, causing temporary swings. Long-term trends are more important.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Beacon Roofing Supply historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 9.6%, somewhat low compared to the best industrials companies that consistently pump out 20%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Fortunately, Beacon Roofing Supply’s has increased over the last few years. This is a good sign, and we hope the company can continue improving.

Beacon Roofing Supply reported $74.3 million of cash and $3.33 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $930.2 million of EBITDA over the last 12 months, we view Beacon Roofing Supply’s 3.5× net-debt-to-EBITDA ratio as safe. We also see its $8.4 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We struggled to find many positives in these results. Its adjusted operating income missed significantly and its revenue fell slightly short of Wall Street’s estimates. Overall, this quarter could have been better. The stock remained flat at $123.81 immediately following the results.

Updated: June 23, 2025 at 10:58 PM EDT

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

Beacon Roofing Supply isn’t a terrible business, but it isn’t one of our picks. Although its revenue growth was decent over the last five years, it’s expected to deteriorate over the next 12 months and its cash profitability fell over the last five years. And while the company’s astounding EPS growth over the last five years shows its profits are trickling down to shareholders, the downside is its gross margins are lower than its industrials peers.

Beacon Roofing Supply’s P/E ratio based on the next 12 months is 15.6x. This valuation multiple is fair, but we don’t have much faith in the company. We're fairly confident there are better stocks to buy right now.