Beacon Roofing Supply Inc (BECN) 2011 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Beacon Roofing Supply fiscal year 2011 second quarter conference call. My name is Devon, and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be conducting a question-and-answer session toward the end of this conference. At that time, I will give you instructions on how to ask a question. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

On this call, Beacon Roofing Supply may make forward-looking statements, including statements about its plans and objectives and future economic performance. Forward-looking statements are subject to a number of risks and uncertainties. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, including but not limited to those set forth in the risk factors section of the Company's latest form 10-K. The Company has posted slides on the investor section of its website under the events and presentations that will be referenced during management's comments.

On the call today for Beacon Roofing Supply will be Mr. Paul Isabella, President and CEO and Mr. David Grace, Chief Financial Officer and Executive Vice President. I would now like to turn the call over to Mr. Paul Isabella, President and CEO. Please proceed, Mr. Isabella.

Thank you, Devon. Welcome, everyone, to our fiscal year 2011 second-quarter earnings call. Our second-quarter loss was $0.13, versus a loss of $0.14 in 2010. The quarter's results came in lower than we expected, but was impacted by the harsh winter in our northern regions. Total sales for the quarter were up 3.8% and up slightly, organically. Our commercial and complimentary sales were up nicely, 13.7% and 6.9% respectively. Residential sales were down 11.1% year over year, as re-roofing during this period was weak in some of our markets. Overall, gross margin rate ended at 22% for the quarter, which was better than last year by 60 basis points.

We remain very positive about our full-year outlook, as we're very close to our internal plan after six months. Price increases for both residential and commercial products appear to be holding in the market, and there is storm volume we will be servicing in several of our markets. As we've conducted previous earnings calls, Dave will present the financial details of the quarter, and year to date periods, and when he is finished, he and I will go over a few pre-planned questions and then take any questions you might have.

I will now turn the call over to David Grace, our Executive Vice President and Chief Financial Officer. David?

Thanks, Paul.

Good morning, everyone. If are you using the slides to follow along, let's begin with slide 1. Our fiscal 2011 second-quarter organic sales, which reflect our existing markets by excluding sales at branches acquired since the beginning of last year's second quarter, were relatively flat for last year at $284.6 million. Although on a same-number-of-days sales basis, they were down 1.3%. Total sales, which is not in the slides, increased 3.8%, to $296.3 million from $285.4 million in 2010. It was a harsher winter for many of our regions, and as many of you know, we typically have our lowest volume of business in the second quarter of each year.

In our existing market, product group sales, nonresidential roofing, increased 13.7%, as commercial activity continued to rebound from lower 2010 levels. Complimentary products were up 6.8%, the fourth consecutive quarterly increase as the remodeling market appears to continue to strengthen in most regions. Residential roofing sales fell 11%, partially due to a decrease in shingle prices and also from lower re-roofing business resulting from the harsher winter factors in certain regions. And of course the continued post-arm re-roofing activity in the south, while new residential construction continues to be near all time lows in most regions. Regionally, we saw the strongest sales growth in the northeast, mid-Atlantic, and in the west for a change, while the largest decline was in the southeast. The other regions' existing market sales were down 4% to 5%.

We'll continue to estimate inflation in our product costs based upon our current inventories' product mix and net product cost as compared to the net product cost of the same products a year ago. Based upon this estimate, our overall net product costs were down about 3% as compared to March 2010 levels, although our asphalt shingle costs dropped even more than that. We had one additional business day in 2011, while we operated a total of 178 branches at the end of this quarter, compared to 172 last year. We opened one branch in this quarter, while we acquired one branch and closed one during last year's second quarter.

Total gross profit was $65.2 million, compared to $61.1 million in 2010, a 6.7% increase. Existing market gross margins increased to 22.1%, from the low rate of 21.4% in 2010. Our lower asphalt shingle costs had a positive impact on this year's second quarter rate, while lower prices to our customers of those products in the higher concentration of nonresidential roofing sales, which typically have lower gross margins, negatively impacted this year's rate. Existing market operating expenses, which is slide 2, increased by $2.1 million, or 3.2% to $68.8 million, from $66.7 million in 2010. Acquired market operating expenses increased $2.9 million, payroll and related costs including incentive-based pay, overtime, and profit sharing increased $1.4 million in our existing markets, mainly due to higher incentive base pay.

Our bad debt expense increased $1.6 million, in part due to an increase in our over 60 day past due aging, while selling expenses $0.7 million, mainly due to increased fuel and credit card costs. Depreciation and amortization decreased $0.9 million, due it a drop off in amortization related to purchase accounting and lower depreciation due to lower capital expenditures in recent years, while warehouse expenses were also down $0.5 million. Operating expenses as a percentage of net sales increased slightly to $24.3 million overall and $24.2 million in our existing markets, due primarily to the impact of the expense increases just mentioned, along with the flat sales. Interest expense declined $2.3 million in 2011, due mostly to lower debt and new interest rate hedges in place since last year's second quarter. The 2011 income tax benefit was $3.8 million, reflecting an effective benefit rate of 38.3%, compared to 43.8% in 2010, as 2011 included a benefit from a discrete item.

As a result of all I've mentioned, our net loss was $6.2 million for the quarter, compared to a $6.5 million loss in 2010. Our net loss per share, presented in slide 3, was $0.13 compared to $0.14 in 2010. Our earnings before interest, taxes, depreciation and amortization, and stock-based compensation, our adjusted EBITDA, which is reconciled to our GAAP net income in our press release, was $0.9 million for 2011, as compared to $2.1 million in 2010. As for the year-to-date results, which is shown beginning with slide 4, our fiscal 2011 first half existing market sales increased 3.8%. Total sales, not shown in the slides, increased 7.4%, to $701.1 million, from $653.1 million in 2010. In our existing market, product group sales, nonresidential roofing, increased 13.5%, complimentary product sales were up 10.1%, while residential roofing sales fell 5.5%. These changes were mostly -- were due mostly to the same factors mentioned for the second quarter. Regionally we saw the strongest first half sales growth in the northeast, and the mid-Atlantic, while the largest sales decline was in the southeast. The other regions' existing market sales changed only slightly.

Total gross profit was $160.0 million compared to $149.4 million in 2010, a 7.1% increase. Existing market gross margin was unchanged at 22.9%. The positive negative influences on gross margin in the first half were similar to what was mentioned for the second quarter, although we started to see year-over-year gross margin improvement in the second quarter. Existing market operating expenses, which is slide 5, increased by $4.0 million, or 3%, to $140.4 million, from $136.4 million in 2010. Acquired market operating expenses increased $6.1 million. Operating expenses as a percentage of net sales declined to 20.8% from 20.9% in our existing markets, due primarily to the impact of the higher first half sales that offset the impact of the expense increases just mentioned. Interest expense declined 4.4 million in 2011, due mostly to the lower debt and new interest rate hedges.

In 2011, income tax expense was $2.5 million, reflecting an effective tax rate of 39.0%, compared to 4.7% in 2010. Both periods benefited from certain discrete items. As a result of all I've mentioned, our net income was $3.9 million for the first half, compared to $1.4 million in 2010. Our net income per share presented in slide 5 was $0.08 compared to $0.03 in 2010. Our adjusted EBITDA was $28.6 million for 2011, as compared to $29.1 million for 2010. As slide number 6 shows, cash flow from operations was $68.8 million in 2011, as compared to $25.3 million for 2010. While we experienced a slightly larger sales seasonal increase in inventories this year, that factor was more than offset by a favorable impact from a significant increase in accounts payable and accrued expenses this year, compared to a large decline last year.

Our days sales outstanding in accounts receivable were up slightly year over year, due mostly to the higher mix of nonresidential sales, which generally have longer terms. Inventory turns were up from last year, as we have reduced our asphalt shingle inventories during most of the first half, due to the temporary stabilization of that market's prices. Capital expenditures in 2011 were $4.1 million, compared to $3.4 million in 2010. Our proceeds from asset sales were up $0.9 million. Cash used for acquisitions was $6.6 million in 2010. Net cash used for the financing activities was $4.9 million in 2011, compared to a cash used of $8.7 million in 2010. The current year amount was net of cash proceeds of $3.2 million from new equipment financing.

Finally, to summarize a few key points from the presentation, organic sales were flat for the quarter, with organic gross margins at 22.1% compared to 21.4% in 2010. Organic operating expenses and percentage of sales was up to 24.2% from 23.5% in 2010. The loss per share declined to $0.13 from $0.14. With cash of $178 million and a very strong balance sheet, we remain ready to invest in future growth as opportunities arise.

And now back to you, Paul.

Thanks, Dave. And as we've done in past calls, we will go through our pre-planned questions and answers. We have eight of them, so I will get right into it.

Number one addresses gross margins. David, gross margin for the quarter was up 70 basis points, organically, compared to Q2 of 2010, but down 140 basis points sequentially. Can you talk about the Q2 influences?

Sure. Q2 was usually our weakest quarter for gross margin, so there is no surprise that we are off sequentially from Q1. Last year, in fact, gross margins dropped 260 basis points sequentially, so we are actually encouraged by our recent results. Compared to Q2 of last year, a higher mix of nonresidential sales and complimentary products, which typically have lower gross margins than our residential roofing products, was more than offset by higher gross margins in residential roofing products.

Paul, you can talk a little bit about the competitive atmosphere that you're seeing out there?

Sure. Our resi roofing product gross margins continue to be above last year. Our complimentary products, which are more discretionary than roofing products, continue to see lower gross margins. This is due to the continued lower volumes in new construction. Remodeling activity, however, does appear to be picking up, which is good news. Nonresidential gross margins were essentially flat for both prior year and sequentially from Q1. Looking ahead, we expect 2011 quarterly gross margins to continue to fluctuate close to or within our stated annual range. Our April gross margin is up sequentially from Q2 and over the prior year. We are hopeful these results will continue through the rest of the spring and into the summer.

Number 2, Dave, you can give us an update on pricing and inflation for the quarter?

For the quarter, our net product costs for asphalt shingles were down about 7% year-over-year, much of which was passed on to our customers in the form of lower prices. Net product costs in our other product -- in our other 2 product groups was up about 2%.

Paul, can you give us an update on the pricing currently in the marketplace?

Sure. Since our last call, price of oil has risen. This rise, along with the demand expected to come from recent storm activity from hail and tornadoes seem to have solidified the prospect of announced price increases for asphalt shingles holding in the marketplace. In our commercial and complimentary products, price increases have also been recently announced, and at this point, we're pretty sure they are also holding the marketplace.

Number 3, on another topic, let me give you an update on our Q2 organic sales which were flat, despite what we believe was a harsher winter in other northern markets. Organically, January was down about 4%. February, surprisingly, considering the weather, was up 8%, while March was down 3%, leaving us with flat rates for the quarter and down 1.3% on a sales-per-day basis. April was off about 8% organically, but we feel the rainy weather and all of the storm activity was a short-term hindrance and that this delayed activity should benefit us for the rest of the spring and summer.

Our business, due to seasonality, is difficult to measure sequentially for month to month or even quarter to quarter, and we think this year may have had some more severe weather thus far. However, there are some recent indications that underlying activity in our industry is picking up. The non-res business continued strong in Q2 with all but 2 of our regions showing growth, some with double digit percent increases. Complimentary sales, a smaller portion of our total product mix, were up in 7 regions, while residential roofing was inconsistent again during Q2, with sales up in 3 regions, lower in the northeast, Canada, and the midwest due to weather, and still down significantly in the regions which had the major storm business in 2009.

Number 4, I would also like to give you further details on expenses for the month. Existing market operating expenses were about $69 million for the quarter, up about 3% from last year. At the end of Q2, we had about 100 employees in the branches acquired since Q2 of 2010, while organically, we had a reduction of about 4% of our work force since the end of last year's second quarter. Despite this reduction, a large factor in the increase in our existing market operating expenses was payroll and benefits at a $1.4 million increase, mainly due to increased incentive-based pay, as Dave said, and retirement benefits, as we are close to our expectations year to date as compared to last year, when we were below our first half expectations. In addition, our bad debt expense increased by $1.6 million, as credit conditions worsened over a harsher winter. Lastly, selling expenses were up slightly due to higher fuel and credit card costs, while warehouse and B&A were down $0.5 and $0.9 million respectively.

Number 5, David, as I just said, bad debt increased again this quarter. Please give us some information as to the quality of accounts receivable at quarter end.

We continue to be conservative and consistent with our bad debt allowance. We increased the allowance about $0.8 million since Q1, as we saw some customers defer payments which we believe was mainly due to the harsher winter. Our over 60-day past-due percentage, a detail you know we watch very carefully, was up about 80 basis points compared to last year, which we again attribute to the harsher winter. As part of our allowance, the coverage of our over 60-day past due total is about the same as we had at the end of last year's Q2. While our days sales outstanding and receivables at the end of the quarter was up about 3 days over last year, over half of which was due to the shift to nonresidential roofing products, which generally have longer terms.

Thanks, Dave.

Number 6, for the next topic, I would like to update you on the progress of our recently-acquired branches; as you know, we separate them from our existing markets. We've always maintained that we need a period of time to bring acquisitions up to our organic earning levels, as some of these branches are located in markets hit harder by the economic downturn. We fully realize when we acquired the branches that they would have a tough first 12 months or so. The losses are concentrated in areas where we expected to struggle for a while. With that said, we continue to closely monitor the progress and we have taken strong actions to improve operations in the second half. We have a great leadership team, working to make these improvements, and I know they will make it happen.

Number 7, moving on to our balance sheet, David, as you've noted in your prepared remarks, our balance sheet remains strong. Please give us a review of the key highlights and the current pertinent ratios.

Sure. As can be seen in our press release, we had about $178 million in cash at of Q2, up about $88 million from last year's Q2, while net working capital was up about $42 million. A portion of these increases are expected to be temporary, as we had more purchases toward the end of this year's second quarter than we did last year, and therefore, accounts payable did not drop seasonally, as usual. As I just mentioned, AR is in good shape, and we are a 1.47 to 1 ratio under our only current debt covenant, which is to remain an adjusted net debt to adjusted EBITDA ratio of less than 4 to 1.

Let me also recite a few other ratios. Our current ratio 2.6 to 1 compared to 2.7 to 1 last year, and net debt to total capital is 24%, compared to 37% last year. We have worked hard to maintain these healthy financial conditions and our balance sheet remains in excellent shape.

Thanks, Dave.

Number 8, to close the prepared questions and answers, I would like to give you an update on our comfort with the analysts' estimates for the full-year 2011. We think the current range and average of the analysts' estimates for 2011 are reasonable and obtainable. Q1 was a great start towards obtaining that yearly goal, and while we fell short in Q2, we are only slightly below our year-to-date expectations. We believe the harsh winter and recent storm activity along with the already-announced and anticipated price increases in our industry, both residential and commercial, will allow us to end the year in the mid range of the analysts' current estimated EPS. As we have said in the past, we're in a great industry that has demonstrated consistent growth over time, we have costs under control, and extra capacity exists in most of our regions. Lastly, we have an outstanding group of individuals who make up our team, working day in and day out to make us a success. I have all of the confidence that our team can deliver.

That concludes the planned questions and answers. Now, I would like to open up the call to any questions that you might have.

(Operator Instructions)

Our first question comes from Thomas Hayes of Piper Jaffray.

Good morning, guys. It is Dan on for Tom this morning.

Good morning.

Good morning. It's Dan on for Tom, this morning. Just from a pricing standpoint, I think the bias has been -- and I know you touched on this, the price increases on the residential side, would be somewhat more difficult than nonres, but it sounds like you have been pleased with the traction on even those increases. Can you just give us a little more color on how things have shaped up on that side of the business and the potential for further price increases on either side?

As we always said, the difficulty with price increases in the nonres business is that it is a much more actively bid process than it is for residential roofing products. In general, our residential roofing contractors come to us as prices change and they get a new price, it is not a list or anything else like that, but it is a general consensus about how we're going to sell them the products, and unless something changes, or they get a larger job or want a competitive price, that ends up being their price until the next price increase or price drop.

The nonres business, though, is the exact opposite. Almost every job will have both us and other competitors at the distributor levels. It can have competition at the manufacturer's level, and then of course, it will have competition at the roofing levels, so there's really 3 stages and 3 processes that it has to go through. The larger jobs are bid quite competitively, and if everybody prices it at good levels throughout the system, the price increases will go through, but in some sense, it only takes 1 of them to break the chain and then prices may not go through on that particular job.

Yes, Dan, on the residential side, there has been 2 increases that everyone announced. 1 was announced originally for the beginning of March that got pushed to the beginning of April. We're just starting to see that trickle into the market in some of our regions, so we feel pretty good about that.

The second was announced for May 1, which we probably won't see, as we've typically said, 4 to 6 weeks, in the marketplace, and then last week, 1 of the manufacturers announced a June 13 increase of 12% to 15% on all of their products. So, I think with the combination of this recent storm activity in the midwest, southern mid-Atlantic, and even the southwest, Oklahoma, Arkansas, Dallas area, in addition to oil still being relatively high compared to where it's been, that drives a lot of the optimism.

And, even as we've gone into May, and we've talked a little bit about our April sales being down, this first week of May, we've seen a lot more activity across our regions from a selling standpoint as the wither has kind of broken and the folks have been able to start shipping product.

So, in the past, I think you guys have really taken a constructive view of some of the consolidation that is taking place in the industry, in terms of what it might mean for pricing as price competition. I'm just wondering, can you give us a sense of whether you're seeing any improvement relative from price competition standpoint yet, and what your outlook is on that from here?

We see pockets, that is a good question, we see pockets, and because there are so many locations across the country, where we compete, with various distributors, we are seeing pockets of rational pricing and increased pricing. And then we still have pockets -- and it usually is where there is less volume, southwest, southeast, some of that former storm volume that is still -- we haven't lapped from a finance standpoint, where we'll see a lot more competitive situation. So, overall, we think a destruction consolidation is going to be helpful, short term and even long term, of course.

And then just 1 last follow-up, just in terms of the nature of the hard winter and there being a bolus of volume after the hard winter, is there any -- it sounds like you're still kind of looking for that sort of situation. Is there any bend towards residential or commercial in that? Or is there any color you can give us on that?

Very little. In general, it is increases in both areas. The northeast and perhaps part of the midwest saw more residential damage than they did commercial. Sometimes it takes the commercial longest to get to market because, again, it is a bidding process and they will take their time and decide how they are going to design their roof, if they're going to change it or not. That's about all of the color we can give you on it.

Thank you. Ladies and gentlemen, as a reminder, please limit your questions to 1 question and 1 follow-up.

Our next question comes from Ryan Merkel of William Blair.

Thanks, good morning, everyone.

Good morning.

Can you provide a little more color on the conversations you're having with customers about the prospect for strong storm business this year, given all of the snow we had in the midwest and northeast, as well as the hailstorms and tornadoes in the east?

Conversations with our contractor customers?

Yes, contractor customers or even sales people. How significant is the damage and what -- is the boost, something that is going to be meaningful this year?

I think depending on the market there has been some significant damage around the midwest in Kansas city where we have a number of branches; there's been significant damage, TULSa, Little Rock, and Springdale, that area in Arkansas, had seen significant -- even around the Dallas area, there has been significant damage.

I won't say. I guess to a lesser extent the mid-Atlantic, southern part of North Carolina, seeing damage, so yes, there is -- and again, some of it has been bottled up, especially in the midwest, where as we went through April, there was definitely more rain days than we expected, and it is starting to come out now, pretty much all of the storms are just starting,

We're just starting to see the shipments, but I think they're relatively significant. I couldn't give you a volume number, because that depends on the timing and insurance and all of that type of thing, but the contractors are definitely keyed up.

Thanks. Great color.

And then second question, with the pricing increases looking to be coming through and probably some lower cost inventory in your warehouse, is there an opportunity for a gross margin boost in the second half of this year?

I think that is certainly always a possibility that if us and the competition can raise the prices as they come through, that we'll gain that. Again, after last year, the experience of just the opposite happening, I'm a little hesitant to say that's what is going to happen.

A lot of it has to do with demand in the marketplace, and I'm sure in the areas that Paul just mentioned and perhaps in some other parts of the country that had some damage over the winter, that will be more so that we will gain that advantage, but the fact of the matter is that it really depends on if there is enough demand.

In the places where there is less demand, we may go backwards a little bit. I know that doesn't answer your question, but in normal times we would see that little bit of boost in gross margin, especially where we're hearing of the series of price increases. I won't relate it back to 2008 yet, but there is certainly that opportunity as those price increases go through that we do gain some advantage.

And Ryan, we tend to talk a lot -- and we should -- about the residential piece and the residential price increases, and we're also though very cognizant of what is happening commercially. These folks have seen some major increases in raw material, and they pushed out increases earlier in the year.

They actually announced in January, and -- for increases slated that went through in February, March, and then they have the April increases; there's planned May and June increases on both EPDM, TPO, and some of the accessories. So, those -- given the amount of dialogue we've had with the commercial manufacturers, and the very, very large increases, multiple increases on raw materials that they're seeing, we would expect that trend to continue.

Thank you. Our next question comes from Kathryn Thompson of Thompson Research.

Thank you for taking my questions today.

First is just a clarification When you went through the Q&A at the end of your prepared comments, you said that you were comfortable with the analysts' range of estimates. Is this before or after the Q2 results?

Before or after?

In other words, there's about a $0.05 delta between your reported numbers versus consensus for Q2.

It is after the announced results we just had. I'm not sure what the analysts will do once we have announced those, but as they sit today.

As they sit today, perfect. That's helpful.

You talked a little bit about volume trends this quarter end. April was still a little bit soft, but early May seeing some strength. Digging a little deeper though, and looking at your nonresidential versus your residential segments, do you still expect to see the same type of double digit gains in nonresidential?

And, could you give us a little bit more clarity on when we can see some increase in demand for residential repair activity? It is my understanding, it is really May that you would see that, but if you could give a little bit more clarity on that segment, too.

I think we've been talking about the nonresidential for the last couple of quarters. We fully expect that to flatten out, because we have now rounded the year-over-year increases where last year, we were in strong double -- teen growth or above for each of those quarters, so we think that will flatten out.

The other indicator which you didn't bring up, which is the compementary products, were up against some tougher comps from this period ending because of the new construction boomlet that happened with the home credit -- home buying credits and also the energy credits that were in place last year, for windows and doors.

As for the residential, with the recent storm activity, over the winter in the northeast, and now the hailstorm activity, re-roofing in those areas will certainly be a little bit better, but we're continuing to struggle in those markets that had the big storms in '09; and they may not seem like big storms, but with demand the way it has been, it has taken out a chunk of business that was pulled forward, as you know.

We're expecting that it will flatten in those two 2, with complimentary and nonresidential, and then that the residential will start to pick up, which is a great testament to our business. We have a rounded product mix, and when those different factors happen, they can often even each other out and provide growth.

And then that drop that Dave is talking about on the residential piece started really at the tail end of that -- the big hurricane they had at the end of '08, and as we trailed into Q4, Q4 of '09, we started to see the residential as the comps hit; we started to see the mid-single digit decreases that went up into double digits for the balance of at least about 15% or so negative through '10 and have kind of -- well, it lessened in Q1 being basically flattened and down the 11% we just reported. So, yes, hopefully there will be good news as some of that re-roofing bounces back in now that we're out of some of this pretty tough winter weather.

Thank you.

Our next question comes from Scott Ciccarelli of RBC Capital Markets.

Good morning, guys. This is actually Austin sitting on for Scott.

I just wanted to ask a follow-up question on the complementary products business. You noted that there were tough comparisons in the quarter against last year's tax credits and higher new residential construction last year than this year, but organic sales still increased I think about 6%, and you talked about an increase in repair and remodel. Could you just maybe go into a little bit further detail on what you're seeing on the repair and model side.

Yes, the comments I just made, Austin, were for April and May. You know, we still hadn't hit the bulk of it, which happened in April, May as those sales increased last year. The remodeling market and certain markets, as we said, almost in every market, we have with the complementary is up. How long that maintains I'm, not sure.

Like anybody else, we watch the price of gasoline and other factors that influence consumer demand and consumer spending, and we think throughout the year, things will get better and better. It just depends if it is better and better year over year.

Okay.

So, I guess you saw some strength in the first quarter on the complementary, but you think that the comparisons will get tougher in the coming quarter as you lap last year's tax credit. Is that right?

Yes, especially after Q3. After Q3, I think some of that demand flattened out. We were still up year over year last year but, the big surge was definitely in March, April, and May of last year.

Our next question is from Michael Reholt of JPMorgan.

Hi. This is actually Jason Markison in for Mike. How are you?

Good morning.

You highlighted in the press release that most regions experienced declines in the residential re-roofing business. I was just wondering, first of all, if you're able to provide the overall magnitude of what the declines were in re-roofing? And then also, if this was true in some of the regions such as the West, the Northeast and the mid-Atlantic which showed positive overall year-over-year sales?

Yes, it is all re-roofing, because the new construction is at such a low level. Some of it may have diminished in the mid-Atlantic from last year where they had again a bit of a surge from the home buyer credit ending, but almost all of this is re-roofing in the markets we're in. There is very new -- little new construction.

Okay.

And then just regarding the SG&A, given the higher SG&A in the quarter, would you still be comfortable with an SG&A for the full year in the 17% to 18% range?

We're on trend to hit that number. Again, remember, because of the way the quarter's hit with the winter months, we had a lower period this period, and those dollars will not be spent in the future, because we have already booked them against profits in the incentive pays that we have.

Okay. Thank you.

Thank you. We have time for a couple more questions.

Our next question comes from Ivan Marcuse of Northcoast Research.

Hey, guy, a couple quick questions. In the northeast, comps are up a third. I'm surprised by that because of all of the severe winter storms you had during the quarter. What drove that demand in the northeast?

Well, in the northeast, it was March coming out strong after those, doing some repair work and things like that, and doing re-roofing mainly on the residential. The nonresidential will take a little bit longer to kick in, as we said, but February was real tough in the northeast and they made it up from March which is always the strongest month of the quarter.

Got you.

And then my second question is, on pricing, I understand how as prices go up in residential, your gross margins tend to increase, but with the way nonresidential -- you purchase them per job. Do you get, when pricing is going up, the same sort of gross margin uptick? Or does it stay relatively flat throughout, even if prices increase?

The biggest factor there, Ivan, and that's a good question, is that a lot of that material ship direct. Sometimes a third to 50% of that material is direct, so you don't get the inventory gains that you normally would with a residential which we have to stock. That being said, if we can sell products for a higher price and even maintain our gross margins; we gain gross margins always, as you know, which helps us with the leverage on the SG&A.

And, again, even with that per bid mentality, for the most part on commercial, our guys are still keyed into the fact that they're receiving material or quoting material with a 4%, 5%, or 6%, whatever it might be increased on that matrix, and we make every attempt to pass it through, of course.

Thank you. Our next question comes from Jack Kasprzak of BB&T.

Thanks, good morning, guys.

Good morning.

The pricing pressure in asphalt shingles that you mentioned in the first quarter, I think you said down 7%, if I go back to 2010, pricing from commentary on previous calls, was that it was pretty stable. What was the cause of the weakness in the first quarter? Versus what we had been seeing?

In the first quarter, we're actually were up sequentially, over the other quarters, so I'm not sure I understand your question. The prices from our vendors became sharper because there was less demand and they basically, during the first part of the year, had pre-sold a lot of the business, and as that pre-sale petered out and we ate through it, they had to be more competitive to get us to buy product. If that answers your question.

And then the same thing happened as we sold into the market. The demand was so constrained during the quarter, there was just an extraordinary amount of competition in most of our regions.

Okay. That makes sense. Thanks for that.

And then the comment on repair and remodel activity is -- has been good and complementary product sales are up, and yet residential re-roofing activity is -- was down in the quarter. Is the difference there that complementary sales are benefiting from a nonresidential repair and remodel?

Some of it could be -- not necessarily nonresidential, but it could be multi-family, which seems to be doing a little bit better in most of the marketplace, but remember, you can do remodeling and not spend as much as you would to do a whole roof. So, if you do a small deck or a do a few windows in your house, the price point isn't at fully re-roofing your home, and I think that may be some of the influence, but we have no statistical data to support that.

We have time for 1 more question.

And our final question comes from David Manthey of Robert W. Baird.

Hi, guys. Thank you.

First question, you said, just a moment ago, Dave, you said that pricing is up sequentially from where it was the back half of calendar 2010. Could you talk about in percentage terms or where we are today versus where we were at the trough?

Well, if you look at the -- just the math on the results, we said that the residential roofing was down about 7%. Our gross margin eeked up a little bit overall, and I think you can assume most of that is from the residential roofing, so it is probably 5% - 6% below.

You mean up 5% to 6% from the trough?

From the trough?

Yes, from the low point of shingle pricing in the back half of last year. You said that shingle pricing was down sequentially; I'm trying to get a gauge on how much it is up.

Okay, I misunderstood your question. From the trough, it is probably up that same 5% to 7%, but it is down sequentially.

Okay. I guess I'm not following you there. I will follow up afterwards.

One other question, you said that you're comfortable with the current consensus which I think is $1.08 this year. Talk about what would cause you to be above or below that? And, when you say you're relative to your internal plan, are you speaking to the budget that you put in place in late last year, prior to anything that they announced or did you (technical difficulty).

Well, 1, we don't feel that the first half has had much influence on those prices. In fact, the prices have gone down, so that is true that it doesn't include those, and that's why, as we look at the second half of the year, we're optimistic, that we can make up some ground; gross margins should come up for a little bit, as they always do, during price increase times, but our budget obviously did not include these types of price increases that we're seeing today. And, we did not think that we would have such a steep rise, just almost a quarter ago, when we -- before we saw the price of oil kick in, kick up.

That concludes the questions. Now, I would like to turn the call back over to Mr. Isabella for closing comments.

Thank you. Thanks for your questions. Dave and I will be available for follow-up questions immediately after the call.

With just a few minutes remaining, I will close this earnings call with a few summary comments. Our first quarter loss was $0.13 per share versus a loss of $0.14 per share in Q2 of 2010. Overall, gross margins ended at 22%, 60 basis points higher than Q2 of 2010. Cash is approximately $178 million, and we paid down debt.

And, as we just said, for our first half of 2011, we're very close to our internal plan and feel comfortable with the full-year analysts' estimates. Our company is well positioned geographically and from a product mix standpoint. As the economy continues to improve, multiple price increases are passed from the manufacturers, and we service multiple storms, Beacon should benefit.

I will close now by thanking our hard-working and dedicated employees who have made our success possible. We do have a great team that I'm extremely proud of. Thanks again for your interest in and support of Beacon. That concludes the call.

Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may all now disconnect.

Thank you, and have a nice day.