Beacon Roofing Supply Inc (BECN) 2012 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Beacon Roofing Supply's fiscal year 2012 first quarter conference call. My name is James and I will be your coordinated for today. At this time all participants are in listen-only mode. We will be conducting a question and answer session towards 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 sales 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 a summary financial slide presentation on the investors section of its website under events and presentations that will be referenced during management's review of the financial results. On the call today for Beacon Roofing Supply will be Mr. Paul Isabella, President and CEO, and Mr. David Grace, Executive Vice President and Chief Financial Officer. I would now like to turn the call over to Mr. Paul Isabella, President and CEO. Please proceed Mr. Isabella.

Good morning and welcome to our fiscal year 2012 first quarter earnings call. We started the year off nicely by delivering a strong performance in the quarter fueled by strong sales growth, improved gross margins and by leveraging our fixed cost.

Our entire team did an excellent job of driving these strong financial results, while staying focused on our core mission of providing superior customer service. Our EPS results of $0.41 for the quarter beat our internal plan and far exceeded last year's $0.22, which has been the case for the last three quarters. David will go through the details of our financial results in a few moments.

As is the case in Q4 of 2011, our two largest product groups, residential and commercial roofing, continued to deliver double-digit growth in the quarter, as both re-roofing and storm damage demand were strong and industry-wide price increases had a positive impact.

Also the milder weather this year compared to last year in many regions helped generate demand for the first quarter and that effect has continued into January and early February.

Our commercial business has now shown double-digit growth over the last seven quarters, while residential delivered its third consecutive double-digit quarterly growth, over 25% in the current quarter. As you can see in our slides, all of our geographic regions showed great growth in the quarter, which is very encouraging, especially given that some did not have any storm demand.

There continue to be fairly strong demand from storm damage in the southeast and midwest, but the storm demand will decrease over the next few quarters. It is difficult for us to evaluate the impact of the storm re-roofing this quarter due to the milder winter and overall re-roofing strength.

We are working hard and we have plans in place to offset the higher storm comparisons we will be up against in Q3 and Q4, in case there are no storms this year. Overall pricing was up 8% year-over-year and I plan on giving some more details on pricing later.

Our gross margins in the quarter were up, ending at 24%. This is more in line with our historic levels for our current product mix. The continued strong demand both for storm re-roofing and overall re-roofing and the higher mix of shingles in our sales drove the increase.

We continue to believe our gross margins will be in the stated range of 22.5% to 24%. Cash flow generated was strong for the quarter even after the impact of paying for Fowler & Peth in Denver and The Roofing Connection in Halifax, Nova Scotia. David will give some more details during his portion.

During the quarter we continued our integration work with our most recent acquisitions, migrating them to our IT system and continuing the ongoing work of transferring best practices, and our acquisition pipeline is very full and we are confident we will continue to purchase quality companies. In terms of operating margin, we had a very solid quarter delivering 7.3% versus last year's 4.9%. It is also worth noting that our costs as a percent of sales were at 16.6% versus last year's 18.5%.

I'm very proud of what our teams have done serving the additional volume we enjoyed. And as we've said, doing more with less is the Beacon way. For the full year we see earnings continuing to be strong and within the analyst range.

We believe we can have another record year fueled by organic branch and acquisition growth and having another normal storm year could add to our results. And as always, we will continue to focus on our core initiatives -- providing excellent customer service to our contractor customers; sales growth both organic and acquisitive; and operational excellence as we begin the next quarter.

Now I'd like to turn the call over to our CFO, David Grace, who will go over some of the detailed financials. After David is finished, I'd like to give some additional information on sales, pricing and EPS trending before we open up the call to questions. David?

Thanks, Paul. When I refer to 2012 in my discussion I am referring to this year's first quarter of our fiscal year ended September of 2012, while 2011 refers to last year's first quarter. When I refer to our regions I am referring to our geographic regions as presented in our 10-Q. If you're using our slides to follow on, let's begin with slide 1.

Our fiscal 2012 first quarter organic sales, which reflect our existing markets by excluding sales at branches acquired since the beginning of last year's first quarter, increased 17% to $473.7 million. We had only 60 days in 2012 compared to 62 days in 2011. So on a same business days comparison, organic growth was 20.9%.

Total sales for this quarter, which is not shown in the slides, increased 21% to $489.9 million from $404.8 million in 2011. At our existing markets lines of business, residential roofing sales increased 25.4% and nonresidential roofing increased 15.5%. Our first quarter roofing sales this year were favorably impacted by higher industry-wide selling prices and strong residential roofing business in most markets, including some continued re-roofing activity left over from last year's storms.

We really cannot evaluate the impact of the storm re-roofing this quarter due to the milder winter. Some regions outside of the storm areas had higher growth than those in the storm areas. Nonresidential roofing sales growth continued strong, further helped this quarter by year-over-year price increases. Complementary products declined 2.6% in existing markets, but were flat on a same business day sales basis.

And as you can see in the slide, all of our regions had organic growth for the quarter, with double-digit sales increases in every region but in the southwest and Canada, which both had single digit increases. We estimate inflation in our net product cost based upon our current inventory product mix and invoice cost, net of short-term buying programs compared to similar cost of the same products a year ago.

Based upon this estimate our overall net product costs were up about 8% as compared to December 2010 levels. Residential roofing cost were up 8%, complementary products where up around 5%, while nonresidential roofing products where up about 10%. We operated a total of 192 branches as of the end of this quarter compared to 177 last year. We acquired nine branches and closed two in this quarter, while we closed two branches during last year's first quarter.

Total gross profit was $117.3 million compared to $94.8 million in 2011, a 23.7% increase. Existing market gross margin increased to 23.9% from 23.4% in 2011. We had a higher concentration of residential sales, which typically have higher gross margins, along with higher average selling prices and increased demand in most markets. All of which helped us to keep this year's first quarter gross margin rate to a more seasonally normal rate.

Existing market operating expenses, which is slide 2, increased by $3.9 million or 5.2% to $78.9 million from $75 million in 2011. Acquired market operating expenses where $4.1 million, including a $1 million favorable adjustment of our estimated earn out liability associated with the prior year purchase of Enercon, which is discussed further in our 10-Q.

In existing markets, payroll and related costs included in Santa Fe's pay, overtime, and profit sharing increased $2.8 million in our existing markets, mainly due to gross profit and operating income exceeding expectations and to service the increased sales. Selling expenses increased $0.9 million, mainly due to increased fuel costs and higher outsourced transportation cost.

We also had other expense increases of about $1.6 million, primarily from increased professional fees, increased general liability insurance, and travel and entertainment, although bad debts where down $0.4 million. Depreciation and amortization decreased $0.9 million due to a drop-off in amortization related to purchase accounting and lower depreciation due to low capital expenditures in more past years.

Operating expenses as a percentage of net sales dropped to 16.9% overall and 16.6% in our existing markets, due primarily to the favorable impact from the highest sales, partially offset by the expense increases Jeff mentioned.

Interest expense was down $0.2 million year-over-year to $3.3 million due to the slightly lower debt levels. Income tax expense was $11.9 million in 2012 reflecting an effective rate of 38.5% compared to 38.6% in 2011. Both quarters' tax provisions reflect benefits from discrete items, as our normal income tax rate is approximate 39% to 39.5%.

As a result of all I've mentioned, our net income was $19.1 million for the quarter compared to $10.1 million in 2011. Our diluted net income per share increased by 86% to $0.41 from $0.22 in 2011. Excluding the adjustment for purchase accounting on the earn out, net income would have been $18.1 million and diluted earnings per share of $0.39 this year as presented in slide 3.

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 $41.1 million for 2012 as compared to $27.7 million in 2011. As slide number 4 shows, cash flow from operations is $59 million in 2012 as compared to $57.5 million in 2011. The higher cash flow from operations was principally due to year-over-year increase in operating income offset somewhat by an increase in working capital.

Favorable increases in accounts receivable and inventory were offset by unfavorable decreases in accounts payable and accrued expenses, along with an unfavorable increase in prepaid expenses and other assets. Our day sales outstanding in accounts receivable where down slightly, mainly due to a higher residential sales mix in December compared to last year.

Inventory turns were relatively flat year-over-year, as the impact of this year's higher level of inventory was offset by the effect of the equally higher sales. Capital expenditures in 2012 were $2.4 million compared to $0.9 million in 2011. Cash used for acquisitions was $46.6 million in 2012. Net cash used by financing activities was $0.7 million in 2012 compared to a cash provided of $0.8 million in 2011.

To summarize a few key points from my presentation, organic sales where up 17% for the quarter, with organic gross margins at 23.9% compared to 23.4% in 2011. Organic operating expenses as a percentage of sales were down to 16.6% from 18.5% in 2011. Diluted net income per share, excluding the adjustment of the purchase accounting, increased 77% to $0.39 from $0.22. 2012 has started out strong. Business is good in most of our markets and we generated cash flow of $12 million in the first quarter despite spending $44 million on acquisitions.

While the mild weather has helped and as expected we benefited from year-over-year price increases, it was great execution by our team to obtain these results. And we continue to have a strong balance sheet, which forms a solid foundation for future growth and for building value for our investors. And now Paul would like to add a few comments before we open up the call for questions. Paul?

Thanks, David, and as you can see very, very solid results, which we're very pleased with. Wanted to talk about three topics. There will be some repeats in here, but I think it is worth reemphasizing sales, pricing and EPS trending. So, I'll start right off with sales.

And again as we said, with this year's much milder winter so far, it is difficult to determine if the upswing in activity is pull forward of activity scheduled for the spring or an indication of increased overall demand in our markets.

We are more, though, inclined to believe some of the growth is from the latter, given the very strong performance of our regions not impacted by the storms and you can see that in the slides that we sent out.

When you going into fiscal 2012 that due to last year's tough winter and year-over-year price increases combined with the storm volume carryover, we would see our strongest growth, no doubt, in Q1 and Q2. We also knew that we needed to make up for some of last year's storm damage demand in Q3 and Q4, especially if there are no storms this year.

We are still comfortable with our full year guidance of 5% to 10% growth over 2011, exclusive of our recent Q1 acquisitions. Our team is working very hard to execute the business plan which aims to make up for the tougher sales comp coming up in Q3 and Q4. As I've said, trends in non-storm regions are very encouraging, as a number have seen double-digit growth. We see this as a positive sign that re-roofing is strong and hopefully will continue for the rest of the year.

So in summary, we are very pleased with the sales growth we had in Q1 and we believe it could be a sign of better economic atmosphere for the remainder of the year. We do know that some sales have been pulled forward in Q1 and the beginning of Q2 as result of the better weather. What that means for spring volume is hard to predict. We do think that better demand in general could offset some pull forward that might have occurred.

Now I will talk a little bit about trends in pricing within our industry. Residential shingles continue to see an up and slightly down at times pricing cycle. Last year we saw two announced price increases in the spring, which took hold amongst a background of increased storm business.

And two more announced price increases at the beginning and end of the summer, both of which seemed to fizzle out. As a result we ended the calendar year with prices up about 8% year-over-year on resi products, but with the expected discounting coming over the winter months.

In our industry we typically expect prices to fall back some during this winter period and then if the demand is there we think we will see more announced price increases. Already Owens Corning has announced a March 1 price increase of 7% to 9%. In the non-res markets 2011 was the first year in a long time that prices went up and stayed up.

As we ended the calendar with prices up a healthy 10%, as Dave mentioned, this market is tough at times to track, pricing changes are predict future changes. As much of the projects are sold for bids for specific work, it cannot be compared easily.

We think pricing may react much like 2011 in 2012, as we've already seen some planned increases effective April 1 due to raw material pressure on our manufacturers. Our complementary products saw some small price gains in 2011, but they still need demand increased to have some needed price increases take hold.

All of these changes position us well for fiscal 2012, as demonstrated by the positive impact of the price increases in Q1, and we expect the advantage will remain for nonresidential and complementary products through Q3 and the residential products prices will begin to flatten early in Q3 unless these further price increases take hold. As stated, though, there seems to be stronger pressure on the manufactures from increasing raw material cost, as well as transportation cost.

I'll make a few comments about EPS. As we had mentioned, Q1 was above our expectation in sales and gross margins and our team did a fantastic job of leveraging our operating cost to provide a robust $0.41 of EPS for the quarter.

We are off to a good start in Q2, as January was up double digits compared to last year as we head into the tougher year-over-year comparisons for the last half of the year. We are, however, expecting a better based demand outside of storms, as we've alluded, and we're still comfortable with the analyst average estimate of $1.36, which is an 18% increase over last year.

And we could see upside to this estimate if we see normal yearly storm activity in our markets or if we see an increased economic recovery. As always we run the business based on our current sales volume generated. If the stronger sales volume continues, we expect to see the strong cost and EPS leverage we demonstrated in Q1. As you can imagine, it is always difficult for us to make earnings estimates based on a projection of storms or economic recovery.

We do, though, have the sense, as we've said a number of times on this call, that overall demand is stronger and of course aided somewhat by better weather. And now I'd like to open up the call to any questions you might have.

(Operator Instructions) David Manthey with Robert W Baird.

First question in terms of what you said in you monologue there Paul. You had mentioned that you had some plans to offset the tougher comps in the third and fourth quarter if there were no storms and I heard you talk about the underlying economy and the potential for price increases and normal storm activity, et cetera, but anything Company specific that you are doing, initiatives to offset those tougher comps as we get to the back half of the year?

Dave, that's a good question. It is obviously been on our minds since storms hit last year to make sure we are prepared. I think our entire operating system is geared towards that. We have a model, as you know, where every branch is a P&L. So, as we built our budget we took into account their comps, branch by branch, and built that plan in.

So, specific actions would be prospecting for new customers, mixing up changing lines of business, additions, things like that. I think the other important thing to note, and we talked about it on the last call, is we estimated as best we could that the storm impacted around 20 branches last year. So, we have to face the reality that a number of those 20 branches won't see the same levels.

That gives us 160 plus to deal with in terms of organic growth, et cetera, to make up for some of that change. That all mixed together with pricing, with some better economic news, a little better milder winter, which has given us a good running start in Q1, I think gives us the confidence that we can make up the comps in the back half.

And just in broad strokes as you are thinking about the overall economy, what is your outlook for new construction, if you could address both residential and nonresidential, and is that part of what you are seeing in terms of the better economic backdrop as you referred to here?

I will take a stab at first, then Dave can follow-up. Our assumptions are virtually no change as we build our plan, because there's been predictions over the last three years that new construction, whether it is resi or commercial, is going to increase (to ask whether it was in the 600s or high 500s or 700s.

I'm even seeing some numbers now that are in that range. We just -- we don't build that into our plan to say we are going to see 20% more new construction. We are certainly aggressive with it in the markets where there is activity, like in the mid-Atlantic or in Texas, for instance. But it is not something we built in as a big adder. Dave, I don't know if --.

I will add something as far as the non-res goes is we listened to Carlyle's call and they track whether the bids come in from new construction or from re-roofing and they are saying they are seeing an increase bidding process for some new construction. Hopefully, that will be in the areas that we do business with Carlyle, because we don't match up with them 100%, as you know, but that's a good indicator that there may be some. But as Paul mentioned, we're not building that into our process right now because it is just been so inconsistent.

And, David, of course it doesn't mean we ignore it. As I said, we are aggressive. We look for it. But we also know it is still at the much reduced level. So, yes, in years future, when that building cycle starts to bump up it is going to benefit us. There's a doubt. Even if it is only 15% or historically 20% to 25% of our volume and not much lower, it is going to benefit us.

All right guys, thank you very much.

Thanks, Dave.

Ryan Merkel with William Blair.

First maybe Paul, could you be a little bit more specific on January. You said up double digits, but typically you give us a number. Is there any chance we can get a more specific number there?

January was up above 20%, but we also know we had a very, very rough January last year. As you remember, Ryan, weather was extremely difficult. So we are not -- although it is very strong, we also recognize the comp. It is also one of the smallest months of the quarter, so we don't want people to read into it that we think it is going to be about 20% for the whole quarter. It could be, if this weather continues, but right now it is a little difficult to say if it is just that last year was so bad and this year is normal.

Yes, I can certainly appreciate that, but I recall February last year was pretty rough, too, with a whiteout basically in the midwest and northeast.

No doubt, but those, again, those are the two smallest months of the quarter.

And then maybe if you could comment on gross margin trends thus far in 2Q or at least am I right that mix continues to get better and that price yield should continue to push gross margins up year-over-year?

Yes, looking at it through the three groups your absolutely right. We went up over 300 basis points in mix towards the residential products and we continue to state those are much highest -- the highest gross margin products we have. But we are also seeing some slight increases in the non-res gross margins. Some of it is the effect of those price increases, because we carry some inventory at lower prices that we can sell at the current price, of course. And the complementary products were about level with last year's gross margins, so most of it is mix.

And then lastly, can you just talk about inventory levels in the marketplace currently. Is the channel lean here and then do you plan to add more inventory or meaningfully more inventory as we head into the selling season? I guess it depends on the price increase.

Yes, it is difficult for us to determine how lean or how full distribution is. I think there's a number of distributors that are in the process of buying inventory, but it is very difficult for us to tell. This is a typical part of the year where buys are made. And we are continuing our normal pattern of buying for inventory we need to sell. We are the only public Company who really don't want to give our competitors an idea of what we are up to. It is a little bit of that, Ryan.

Fair enough. I will get back in line. Thank you.

Thanks, Ryan.

Ken Zener, KeyBanc.

The gross margin spread, it sounds like it is pretty similar to where it might've been last quarter between res and commercial in the cart, 1100 to 1200 basis points, could you clarify that?

Yes, it is at least that. We've always said it is in the history was 800 to 1000, but it is crawled up a little bit, especially in the storm markets where there's not as much pricing pressure as there is service pressure. So we think that it is still around that same 1100 to 1200 spread. It might be a little bit more, but it is not much more.

Okay.

Ken, I think it is important to note that with that even with lower gross margins just because of the product, we still have very similar operating income expectations on the commercial line as we do with the residential.

Certainly and I've seen that largely due to the higher dollar cost and absorption of each project.

Correct.

Now, it seems to me the3 -- if you can help clarify, SG&A was -- and you got, obviously, a lot of leverage on a percentage basis. Could you -- you had $75 million last year for existing versus $78.9 million this year. Given the strong volume, how should we think about SG&A being a fixed cost that your leveraging per your distribution centers? And how might that move? If it is higher utilization, because that's -- to me, that was a very -- a lot of leverage there and I just want to understand how that might play out? Would you be at 70% of your operating leverage before you have to open up the new stores or is this really an anomaly? Any help there would be greatly appreciated.

I don't think it is an anomaly. You'll see in most distribution models that there's a very high fixed amount and we've always said it is 60% to 70% of our cost. You'll see that drop down in Q2, because of that the variables will shrink. Year-over-year the difference is mainly payroll.

It is $2.8 million of the increase and that is variable depending on what our budget amount was compared to what we actually did, because performance bonuses kick in and that will be a pure variable against our highest sales. That being said, last year at $75 million is probably a base year. Traditionally two of the quarters that are more active, that's about where we've been. When we do better than that from sales and income, you'll see our payroll kick up and also the cost of doing the business and transportation cost and those things will also pick up.

And then I know you commented on generate (inaudible) repricing, which we really didn't see in the December quarter so much, but if one looks back historically you might get that 2% to 4% seasonal separation. Is there any reason we shouldn't expect that normal season of deflation before that potential mix and I think, Paul, you said third quarter pricing would be probably flat in res, were you talking about just stabilizing sequentially? Thank you.

This is David and what we were talking about is that typically during the winter period the manufacturers, because obviously it is slower and they are not shipping as much and they want to keep their plants running offer discounts for us to buy more inventory at this time of the year. Going forward we are not sure if the price increases that have been announced for Q1 of the calendar year will take place, but if they don't and I think this is Paul's point, it will start to flatten out in Q4 as we go through all the price changes that went through last year.

Yes, it is really just a function of us hitting those price increases from last year when they first took off. But if the OC number holds, let's say, and or GAF or whoever also announces because they are feeling raw material pressure, demand is solid, strong than that could mean prices will increase again throughout spring, summer, et cetera.

We will just have to wait, because it is very difficult, obviously, for us to predict that. We will just have to wait and see what occurs.

Appreciate your comments. Thank you.

Okay.

John Kasprzak with BB&T.

With regard to the price increase, the Owens Corning's 7% to 9% you mentioned, are other suppliers out yet with a similar price increase?

No, I haven't seen any on the residential side. Late January, Firestone -- on the non-res side Firestone and Carlyle announced increases for both installation and sheet products, as I said, to take effect in April, because they are seeing some pretty heavy raw material pressure. But nothing yet on the residential side.

I'm sorry, on residential, you mentioned in 2011 some of the back-and-forth on pricing and response to the storm activity, in part I guess, but if the underlying markets are looking a little better in 2012, that's a dynamic maybe we haven't seen in roofing in three or four years. Would that alone be enough to push another price increase, do you think?

It could very well. Again, it is difficult as we look at one quarter and we throw a lot of factors into this soup with the milder weather, the pull forward, and storms, but the fact remains we've seen, for instance, New England with some very big increases that geography year-over-year without storms. There might be a little bit of weather pull forward, for sure, but it bodes well given the size of the increase and makes us confident, more confident than we normally would be about the future.

Sure.

And remember, the manufactures push through price increases when the economy was actually going backwards. So, I assume when the economy takes off a little bit that the price increases will continue, because the cost of oil will go up and that's what asphalt is made from.

That's what will drive them as they see more pressure on raw into our transportation cost.

And all that question of the underlying markets or the underlying demand ex-storms and I appreciate the point of sales being up in markets where there really wasn't storm damage and that gives us confidence, in addition to that, what are the guys in your branches telling you? Are they calling back going, it is finally happening, we've been waiting for this or are they really surprised, because underlying roofing demand has been down four or so years in a row. What's kind of the feedback out in the field?

I don't think there's anything definitive that folks are saying, it is about time things have changed. They are extremely happy with the volume. So, as I said, we are more optimistic, but we also know there's seasonal changes that occur, whether it is weather, whether it is the economy, whether it is pull forward. We stick to our business plan of -- number one, trying to have the best customer service we possibly can have; trying to prospect new customers, trying to open up new accounts, that activity goes on and has gone on here for years. There's overall just more optimism in the field about what they are seeing in general.

Okay. Great. Thanks very much.

Thank you.

Sam Darkatsh with Raymond James.

Most of my questions have been asked, just a couple little housekeeping numbers. You mentioned the 7% to 9% increase from Owens, what was the approximate increase from Firestone and Carlyle on the non-resi side?

It was around 5%, 6%. I don't know if their range - I don't have the letter in from of me It was 5% to 7% and it was different by products

You've also mentioned, Paul I believe, $120 million to $200 million worth of potential or anticipated acquisition sales for this year. Is that still -- you mentioned the pipeline is full, but is that still a good target for us at least informally to think about?

Yes, that's pretty close. Enercon was about a $50 million business. We bought that in May last year. And them F&P was $60 million or so. So, it is going to be in that range.

And the fact that you had the earn out reserve benefit suggests that Enercon perhaps is not hitting targets, is there something specific to that business that might yield to those types of results?

I think, one, they've had -- as you can imagine the location they are in, they've had a very tough winter. I think a worst the normal. The market up there has softened a bit, but our earn out numbers were -- are aggressive, as they should be, and that's what we based the earn out on. So, as they come off it changes the map with the earn out, but they are still an extremely strong Company, they have good gross margins, they have a good market position. So, no, there nothing inherently wrong with Enercon that's not going to correct itself as we go through time anyways.

Specifically, regional aspect and regional impacts that were affecting it.

Yes and the way the calculation is done it is obviously purely on how they perform. And like Paul said, that was a stretch goal for them. It was higher than what they were operating at the time we bought them for, because they thought the value of the Company was higher and hence we had an earn out with them. But their performance is as expected, so far for this year. It is just not up to that level that they can make that earn out at this point in time.

We are not concerned at all about that performance level, as we treat it like we do every other region. We want them to be the best they can be.

Last question if I might, you mentioned that the quarterly results beat your internal expectations. To the extent that you'd like to quantify with us, could you give us a sense of by how much?

We typically wouldn't talk about our internal budget or targets. I don't think it would be appropriate.

Okay, thanks much.

Okay. Thank you.

(Operator Instructions). Michael Rehaut with JPMorgan.

First question, looking at the 5% to 10%, I believe you said, organic growth guidance for the full year, rough math I think it does imply kind of a flattish comp in the back half of the year and obviously you guys are pointing to the tough comps that you will be facing starting the third quarter. Is that right and the initiatives that you are trying to put in place or some of the prospecting, et cetera, is that just to try and get it to flat or do you think that with some of the initiatives might bearing fruit you might still be able to eek out some top line growth because of that?

I think it is twofold, even threefold, Mike. It is the fact that in our initial budgeting process we had some slight increases for those quarters. It wasn't as high as Q1 and Q2, as we've said in the past, and as we sit today we're probably just a little bit cautious because there may be some pull forward into Q1 and Q2. But if we see some price increases take hold and also the economy take off and then maybe have a little bit that there's some storm business that we just don't have in our budget, you could see us perform very well and have some upside potential in those last two quarters even.

Mike, that's why I emphasized a number of times that it is just very hard for us to predict and it wouldn't be -- I don't think it would be right for us to go out and try to peg a higher number when there's a number of variables. But what we still are sticking with our fundamentals, which we do very well in terms of customer service, sales growth, etc.

Fair enough. I'm, again, just trying to get a sense of numerically or rate wise what that was implying. Second question on the margins. You did have a nice improvement year-over-year and something that finally, I guess, you got back to a 24% type rate that you saw in 1Q '10 and in prior years as well. Is that type of -- do you expect that the positive mix to continue to benefit you on a year-over-year basis to that degree? 60 bps up year-over-year? The positive mix shift is that something that we can count on?

It is a little difficult to say. The storm business, because of the difference between the winter periods, is hard to tell. In the storm markets that we see, it is a lot more residential than it is nonresidential. And nonresidential has been growing, as Paul said, for seven quarters in a row. You would think eventually that would flatten out and residential would start to pick up a little bit and that mix change would happen. And we could get above 24% if that mix continues to be stronger residentially. I don't think that answers your question specifically, but that's what we think we've see for the future.

I guess last question, if I could sneak one more in. The SG&A, can you just give us a sense -- again, remind us what is fixed versus variable?

As we said, it is about 60% to 70%. We think of the SG&A as purely fixed and we include people's salaries in that fixed amount. Our performance bonuses, commissions or our overtime for hourly wages. That's why it is as high as that. And as we talked in the past, we also think we have some capacity of volume in our branches still that will help us leverage that in the future as revenues come back.

I'm sorry, just to clarify, before you said you could stay over 24%, is that throughout the year or more just on an overall -- annualized over the next year or two?

It could be for the year if the mix stays up as high as it is.

Okay. Thank you.

Jim Barrett with CL King & Associates.

Could you comment on the complementary business in terms of how it performed relative to your other key businesses given the trend your seeing in the marketplace?

Sure. And our complementary business is heavy in vinyl siding and windows and doors and we also have a little bit of commercial products in the water proofing. I think a general trend in those products is that once the tax credit went away last year and it went from $1500 to $500, that had some stronger business last year than this year. I do not believe it is anything fundamental other than that change that has caused us to be flat for the first quarter.

I think as the economy recovers these are products that are discretionary in nature and as people maybe are stuck in staying in their homes because of mortgages and things like that, that they will start spending on their homes. It is almost all remodeling for us at this point in time for those products, so it is dependent on how America starts working on their homes. That's key, I think, to remember going forward that it truly is much more discretionary then the roofing products. And it is a much smaller piece of our overall portfolio. But it is highly dependent on the economy, disposable income, et cetera.

And then as a follow-up, are you seeing price increases from those manufacturers in vinyl siding, windows and doors?

As we said, we are up almost 5% for the Q1. Not sure what's going to happen in the spring. You hear of like some other residential products, such as Gypsum and stuff like that, starting to push for pricing, same thing with building installation. I think a lot of it depends on if the demand comes back.

Okay. Well, thank you both.

Thank you.

Neil Frohnapple, Northcoast Research.

Can you give us some more color on how the integration of Fowler & Peth is progressing and are there any opportunities for new store openings in this region at this point?

The integration -- I will give you, obviously, as much information as I can. The integration is going extremely well. We have a very solid team in the midwest with a lot of talent. So our typical process with any acquisition is we put a number of folks in there to make sure we are transferring all the good practices we have in the rest of the Company. At the same time take any good practices they have and bring them back to our regions. We did the IT transition in January. But things are going quite well and they are on plan, actually, so we feel really good about it.

And then just to clarify and sorry if I missed this, but does the 5% to 10% organic sales increase include any benefit from the announced price increases or is it just the carryover benefit from last year?

It is just the carryover benefit from last year. We don't try to predict that far out the price increases.

So, we wouldn't have built, as we said earlier about storms, we don't build any price increases into our budget process that haven't occurred yet.

All right, great, thank you.

Thank you.

Brent Rakers with Morgan, Keegan.

What to hit again upon the [transent] and shingle pricing. What you are seeing maybe on a sequential basis. You've talked historically about the seasonality of the business and the discounting that comes on in the December quarter, could you maybe compare and contrast how that discounting worked this year versus how it worked last year? It seemed like last year it was more in the mid single digit kind of numbers than it is this year.

I don't think it is that much different. The pricing as you head into the winter always comes back a little bit, because they discount just as much in their calendar Q4 as they would in Q1. Probably we don't buy as much then. We are shrinking our inventories a little bit. But I don't think the prices to our customers has changed much really since the middle of the summer. We have gained a little bit of gross margin, but it is mainly because we bought better and our purchasing department has done a great job to get us better prices.

And then just to clarify how that may have impacted gross margins in the quarter, so if discounting is going on from the manufacturers at the same level and your demand has extended deeper into the season, does that suggest that inventory profit component of the gross margin uplift to the quarter?

A little bit. I think that's correct. But it also means we have got to turn our inventories more than we did last year. So we got into some of those cheaper prices quicker.

And theoretically, Dave, that same kind of dynamic would still exist at least into the early portion of this March quarter as well, right?

Correct. And it always does. That's the secret is you buy that cheaper material, you got to turn your inventory to take advantage of it.

And then just last question. You talked about the past acquisitions you've made and the contributions going forward, but I seem to recall last quarter you guys seemed to feel very comfortable with the acquisition environment and seemed to be on the road on a couple of transactions. Could you maybe update us on that two months down the road now?

There's not much we can say, obviously, because they are all confidential discussions, so I'll leave it at the pipeline is extremely full. We are extremely active and as we execute these deals, which we think we will be able to do a couple of them this year. We will announce those.

Either we're so positive. And I think, Brent, to be honest with you, the times are getting a little bit better and I think you're going to see some activity pick up in the M&A in our industry and we're going to participate, as we always have in the past.

Great. Okay, thanks a lot guys.

That concludes the questions, now we'd like to turn the call back over to Mr. Isabella for his closing comments.

Great, thanks. Let me just go through a couple of the highlights that we talked about today. Adjusted EPS for the quarter ended up $0.41 versus $0.22 last year for a increase of 86%. Gross margins where strong overall ending at 24% for the quarter, up 60 basis points versus last year and at the higher end of our stated range. Price had a positive impact in the quarter of approximately 8%.

We believe these price gains will carry through at least the next two quarters. And residential and commercial growth for the quarter was strong, coming in at 25% and 15% respectively. Dave said cash remains very strong at $155 million, including paying for Fowler & Peth and The Roofing Connection in Nova Scotia during the quarter. And as I just said, our acquisition pipeline is very full and we are confident we will continue to purchase quality companies.

And we are confident we can achieve the current analyst estimates of $1.36 for the year, with a potential upside after our weather events and our markets. So we're off to a good start in 2012 and we are working hard to continue this execution in Q2 and beyond. As always, I'd like to thank the employees of Beacon and the support of our investor base. We are working very hard to execute our business plan. Thank you for your interest in our Company and David and I are available for any other questions you might have in our Peabody office. Thank you and this concludes the call.

That does conclude today's conference. Thank you for your participation.