Beacon Roofing Supply Inc (BECN) 2012 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Beacon Roofing Supply fiscal 2012 fourth quarter and year end conference call. My name is Beth and I'll 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. This call will contain forward-looking statements that fall within the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 regarding future events and the future financial performance of the Company, including the Company's financial outlook. Bear in mind that such statements are only predictions and actual results may differ materially as the result of risks and uncertainties that pertain to our business. These risks are highlighted in our quarterly and annual SEC filings.

The forward-looking statements contained in this call are based on information as of today, November 29, 2012, and except as required by law, the Company undertakes no obligation to update or revise any of these forward-looking statements.

Finally, this call will contain references to certain non-GAAP measures. The reconciliation of these non-GAAP measures is set forth in today's press release and in our Form 8-K filing. 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 factor section of the Company's latest Form 10-K. The Company has posted a summary financial slide presentation on the investor section of its website under events and presentations that will be referenced during management's review of the financial results.

On today's call 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.

Thanks, Beth. Good morning and welcome to our fiscal year 2012 fourth quarter earnings call.

I'm very proud to report for 2012 Beacon topped $2 billion in sales, with a market cap of almost $1.5 billion. We accomplished this with a hard-working, dedicated team who provides great customer service, but also a disciplined focus on operations and continuous improvement. Over the years, we've made many acquisitions that have effectively integrated and contributed to the culture and success of our great Company.

For 2012, Beacon closed out the year with a very strong fourth quarter and full year, ending with $0.60 and $1.67, respectively; within our expectations. We had some one-time adjustments, which are detailed in our press release and David will explain them further during his portion. In total, we're very -- extremely pleased, rather, with the way we ended the quarter and full year.

For the quarter, our operating regions had solid results with our existing markets margin at 8.8% versus 8.3% in 2011. Sales in total were up nearly 4%, while existing market sales were down 5.6%. This was no surprise, as we were aware sales from last year would impact comparisons to this year's fourth quarter. Our acquired markets did very well in the quarter, with operating income in the 6% range without the impact of purchase accounting and one-time costs. We've made some excellent acquisitions over the last two years with great management, who have improved margins and built up their market position.

Our gross margins continued to expand, reaching 25% in Q4 in total. We benefited from favorable inventory costs, as well as a shift in product mix sold. Our teams have done an excellent job working in a very competitive marketplace.

For the year, we ended up with total sales over 12% and organic sales up over 7%. These results were in the range of what we discussed on our last earnings call. For fiscal 2012 our adjusted operating income ended at 7.2% versus 5.7% last year. This sits in the upper half of our stated 6% to 8% goal. We're proud of our progress in this area. We also believe there is room for improvement in the future.

Since the end of the year, we acquired McClure-Johnston of Braddock, Pennsylvania with approximately $85 million in sales. McClure is a well-run Company with 14 branches, with its footprint in western and mid-Pennsylvania, West Virginia, Maryland and Georgia. This continues to grow our national footprint and when added with our previous acquisitions over the last year and a half, this totals over $300 million in additional annualized sales. This fits well within our strategic plan of 10% to 15% sales growth through acquisitions per year over time.

So to summarize, another great quarter to finish the full year with EPS growth 44% ahead of last year. I'm very proud of the solid execution our team continues to demonstrate. We believe we're well positioned for 2013, as our acquisitions are integrated and roofing demand grows. As noted in our filing, the roofing market is expected to grow over 5% per year through 2015. And now I would like to turn the call over to our CFO, David Grace. David?

Thanks, Paul. Good morning. If you are using our slides to follow along, let's begin with slide 1. Our fiscal 2012 fourth quarter organic sales, which reflect our existing markets by excluding sales at branches acquired since the beginning of last year's fourth quarter, decreased 5.6% to $543.1 million. Total sales for this quarter not shown in the slides increased 3.9% to $598.1 million from $575.6 million in 2011.

We had 63 selling days in 2012, while 2011 had 64 days. Organic sales decreased 4.1% on an average sales day per method basis.

In the product groups for existing markets, residential roofing sales decreased 3.3% and non-residential roofing decreased 10.5%, while complementary products were up 1.2%. Overall, we could not match last year's strong existing market sales, which were boosted by higher levels of reroofing activity from storms. Non-residential roofing continued to struggle in the fourth quarter, as volume was off about 16%, while average selling prices were up about 5%. But just as a reminder, we saw eight quarters of year-over-year sales increases before our third quarter of this year.

Complementary product sales increased slightly this quarter, after being down in the third quarter. In our geographic regions, only our Southwest region showed existing market sales growth for the quarter, mainly due to servicing some hail damage in Texas this year. Other regions were either flat or down due in part to prior year storm activity, or in some instances, some left-over pull forward due to the mild winter we experienced in Q1 and Q2.

We estimated the impact -- we estimate the impact of inflation on our sales and gross profits by looking at changes in our average selling prices and gross margins. Average overall selling prices were up only slightly in this quarter, with non-residential roofing products up 5% to 6% and complementary products up 1% to 2%. These increases were mostly offset by a drop in residential roofing prices of about 4% year-over-year.

Our gross margins were up during the quarter, so average changes in product costs were down somewhat. Average selling prices in comparison to Q2 -- Q3 were relatively consistent across all product groups. We operated a total of 209 branches at the end of this quarter compared to 185 last year. We opened two new branches and acquired seven branches in this year's fourth quarter, while we opened one branch and closed a branch in last year's fourth quarter.

Total gross profit was $149.6 million compared to $132.9 million in 2011. That's a 12.6% increase. Existing market gross margin increased to 24.9% from 23.1% in 2011. We had a greater concentration of residential roofing sales, which typically have higher gross margins than our other products, along with improved gross margins in those same residential roofing sales due to lower product costs, offset somewhat by the impact of the lower selling prices I just mentioned. Gross margins in our other product lines were down slightly. We estimate that approximately 40% of the gross margin improvement of 160 basis points in our existing markets was from the sales mix change to more residential roofing.

Existing market operating expenses, which is slide 2, increased by $1.8 million (sic -- see presentation -- $1.7 million), or 2%, to $87 million from $85.3 million in 2011. Acquired market operating expenses were $14.3 million in 2012. That includes approximately $2.1 million of termination benefits related to our fourth quarter acquisition. Payroll and related costs in our existing markets, including incentive-based pay, overtime and profit sharing, increased $2.8 million due to certain severance costs, an increase in our profit sharing contribution, higher group insurance costs and higher delivery wages in overtime. Other general administration costs increased by $1.7 million due to higher general insurance costs and professional fees. Bad debts were $1.3 million lower, primarily due to a lower percentage of past due accounts, as the milder winter enabled more of our customers to stay current with their requirement payments and that favorable trend has continued through Q4. Our selling expenses dropped by $0.6 million, mainly due to lower transportation expenses. Finally, depreciation and amortization decreased $1.1 million due to the drop-off in amortization related to purchase accounting and lower depreciation due to lower capital expenditures in recent years.

Operating expenses as a percentage of net sales increased to 6.9% overall and to 16.0% in our existing markets from 14.8% in 2011. The expense rate increase in existing markets was mainly due to the impact of lower sales. Interest expense was down $0.9 million to $2.5 million in the fourth quarter, as we benefited from lower debt levels and lower interest rates, including less impact from our swaps this year. Income tax expense was $18.0 million in 2012, reflecting an effective tax rate of 39.2% compared to 29.3% in 2011. The 2011 income tax expense included a one-time benefit of $5.1 million from converting our Canadian entity into a controlled foreign corporation for US income tax purposes.

As a result of all I've mentioned, our net income was $27.9 million for the quarter compared to $31.3 million in 2011, while diluted net income per share increased to 58 -- decreased to $0.58 from 67% -- $0.67. However, adjusted net income as calculated in our release was $29.0 million compared to $26.2 million in 2011, while our adjusted diluted earnings per share was $0.60 compared to $0.56 in 2011, as shown in slide 3. Our earnings before interest, taxes, depreciation, amortization, and stock-based compensation or adjusted EBITDA, which is also reconciled to our GAAP net income in our press release, was $57.1 million for 2012 as compared to $55.4 million in 2011.

Now, let's take a look at our financial fiscal year results, which start on slide 4. 2012 sales increased organically 6.3%, while 7.6% on an average sales per business day basis. Overall average selling prices increased 3% to 4% year-over-year, so volume was up about 4%. Total sales, not shown in the slides, increased 12.4% to $2.04 billion from $1.82 billion in 2011.

On a same-business day measure in existing markets, residential roofing sales increased 13.1% while non-residential roofing and complementary products increased 3.5% and 0.8%, respectively. All geographic regions, except for one, had organic growth for the year, with three regions above 10%.

Total gross profit was $501.4 million compared to $519.6 million (sic -- see Press Release -- $419.6 million) in 2011, a 19.5% increase. Overall gross margin was 24.5% compared to 23.1% in 2011, while existing market gross margin increased to 24.4% from 23.1%. We had a greater concentration of residential roofing sales, which typically have higher gross margins than our other product, along with improved gross margin in those residential roofing sales, resulting mostly from an increase in average selling prices.

Existing market operating expenses, which is slide 5, increased by $9.8 million, or 3.1%, to $321.1 million from $311.3 million in 2011. Acquired market operating expenses increased by $32.1 million to $36.7 million. For 2012, acquired market operating expenses include the $2.1 million in termination benefits mentioned in my comments for the quarter plus $2.8 million of purchase accounting amortization and approximately $1 million of acquisition-related professional fees.

In our existing markets, payroll and related costs increased $12.3 million, selling expenses increased $1.4 million, and other expenses increased to $4.2 million, while we saw savings of bad debts of $3.9 million and depreciation and amortization decrease $4.3 million. Operating expenses as a percentage of net sales in our existing markets improved to 16.8% from 17.4%.

Interest expense was up $3.8 million due to approximately $4.9 million in charges related to our refinancing of our debt, offset by recent savings as I mentioned for the quarter. The 2012 income tax expense was $50.9 million, reflecting an effective tax rate of 40.3% compared to 35.5% in 2011, which included the one-time benefit mentioned in my comments for the quarter. We expect our future effective rate to range from 39.5% to 40.5%, excluding any discrete items and dependent upon profitability changes within our regions. As a result of all I mentioned, our fiscal 2012 net income was $75.6 million compared to $59.2 million in 2011.

As you can see in slide 6, without the fiscal year impacts of special items, our net income increased 47% to $79.9 million in 2012 compared to $54.2 million in 2011 or to $1.67 adjusted net diluted income per share from $1.16, which is a 44% increase. Reported diluted net income per share improved to $1.58 from $1.27.

As slide 7 shows, cash flow from operations was $85.4 million in 2012, as compared to $79.3 million in 2011. The higher cash from operations was principally due to favorable impacts from the increase in net income and higher non-cash items, partially offset by less favorable changes in working capital this year. The 2012 changes in working capital consisted of favorable impacts from decreases in accounts receivable and inventory of $19.9 million and $13.3 million, respectively, which was more than offset by an unfavorable $41.1 million decrease in accounts payable and accrued expenses and an unfavorable increase of $22.4 million in prepaid expenses. Our accounts receivable remain in good condition, with day sales outstanding down slightly compared to last year, mainly due to a higher concentration of residential sales during the [first] quarter.

Annual inventory turns were flat, as the positive impact of the higher sales offset the negative impact of this year's higher inventory levels. The increase in prepaid expenses and other assets was primarily due to the higher amounts due from vendors [for] incentives, which resulted from a high level of purchases and increased special buys this year. Lastly, the decrease in accounts payable and accrued expenses was primarily due to lower levels of inventory purchases during this year's fourth quarter compared to last year's fourth quarter.

Capital expenditures in 2012 were $17.4 million compared to $14.4 million in 2011. We expect capital expenditures to increase from our current range of 0.8% to 1% of sales to 1% to 1.2% of sales for the next three years, as we catch up on certain transportation equipment upgrades following the lower levels during the recession. Cash used for our acquisitions was $141.0 million in 2012 compared to $35.9 million in 2011. We acquired 22 branches from five acquisitions in 2012. Net cash used by financing activities was $31.8 million in 2012 compared to $5 million in 2011. This year's financing activities include the paydown of debt, down at a time of our refinancing.

Now, to summarize a few key points from my presentation, organic sales as expected declined 4.1% for the quarter on a same-day business basis, but organic gross margins were up nicely to 24.9% from 23.1% in 2011. Organic operating income margin was 8.8% compared to 8.3% in 2011. Adjusted diluted net income per share for Q4 increased to $0.60 from $0.56 in 2011. With a 44% increase in adjusted EPS, fiscal year 2012 was very strong. Although our growth was slowed recently in comparison to last year, as expected, we look forward to 2013 with hopes of an improving economy and hopefully a higher level of new construction. And we also have the potential impact from Hurricane Sandy.

Fiscal 2012 existing market operating margins was at a high end of our annual goal of 6% to 8% operating margins. But we are not being complacent. We continue to believe we can leverage the business further in the future. Current margins are holding up well in most of our markets and we continue to successfully assimilate our recent acquisitions. We have a strong balance sheet which, along with our new credit facility, continues to form a solid foundation for future growth and building values for our investors.

Finally, I would like to say it's been my pleasure to be part of the team that helped build Beacon to the great Company it is today. It's been quite a journey, from three branches and $18 million in annual sales in 1986 to $2 billion in sales and 224 branches today. To all my friends at Beacon, I will miss you the most. It's been a lot of hard work and challenges, but it's also been enjoyable and satisfying. I'm confident that you will continue the ideals that built our great Company as you move forward, unfortunately without me. I wish all of you the best in the future. Paul?

Great, David. Thank you. Great summary. Great results.

Now I would like to go through, as I have the past few quarters, some trending information to give you a view, a little more detailed view and talk a little more about '13 in terms of sales, pricing and EPS. I'll start out with sales. For the quarter organically July ended down 2.5%. August was down 4.5%, while September was down 10%. Adjusting for the two extra business days in the quarter, October was down about 9%, but November is tracking to be less -- down less than 5%, which is good news. Some of these lower organic sales were driven by the Midwest, as they were up against and continue to be up against strong storm comparisons from last year, as we have said. The West and the Northeast mostly we believe from the pull-forward from the milder winter last year.

Looking forward, we see 2013 sales growing 5% organically, knowing there could be some variation by quarter because of weather and/or market conditions. Recall last year the winter in most parts of the US was extremely mild, which could have an impact on this year if weather returns to a more normal, harsher trend. But if that is the case, we typically see more repair work in the spring after winter. So, although we run the Company day by day, transaction by transaction, doing everything we can to satisfy customer demand and contain costs, we do know we have a full year plan we have to hit regardless of any quarterly fluctuation due to the weather or short-term market changes. And I do know our team is up to the challenge.

On another note, sales from acquisitions for 2013 will be approximately $275 million. This means overall growth is anticipated to be in the 15% range for 2013.

Dave made mention to Hurricane Sandy. For sure, this was a strong storm which caused severe damage. The majority of the heaviest roofing damage appears to be in areas where we don't have a lot of branch density. However, we do have approximately 10 and it could be more branches that will be servicing a portion of the impacted area. We are seeing and do expect to see additional incremental volume. How much, as always, is difficult to say at this point because of the large amount of reconstruction that needs to occur. Initially, we have seen more repair work than whole roof replacements. This, of course, could change as the extent of the damage is realized.

Let me talk about pricing. As David has stated, overall pricing has been basically flat year-over-year for the quarter. Commercial continues to gain at 5%. Residential dropped 4% and complementary gained 1% to 2%. We were able to keep gross margins higher partly because of the lower cost inventory and partly because of a higher mix of residential roofing products sold, as Dave said. The year-over-year drop in residential pricing is not concerning us sequentially. And I think this is very important, from Q3 to Q4 pricing went up slightly. Actually sequentially we have gained residential price for two quarters in a row, albeit in the low single digits. As you may recall, residential pricing was solid from May until year end last year because of the storm volume. For 2013 we hope to see low single-digit price gains, which would enhance our current estimate of organic growth.

And on EPS, on our Q3 call we said we were comfortable with the 2012 full-year consensus estimate, which at the time was $1.66 per share. As you know, we ended up at $1.67 per share. These full-year results were above our internal estimates and lay the groundwork for having an even better 2013. We see 2013 to also be in line with the current analyst estimates. The way we achieve this full-year number could vary by quarter, if winter weather comes early and is more severe, as I had stated earlier.

We're in a great market. We've made several solid acquisitions and our core branches continue to improve. We feel confident we can deliver another very solid year. Now I would like to open up the call to any questions you might have.

(Operator Instructions)

Neil Frohnapple from Northcoast Research.

Could you discuss gross margins directionally for FY 2013? What are the puts and takes we should consider versus this past year, which was very strong at 24.5% and I believe above your stated range? Are we going to see the absence of the lower cost inventory that could drag, could be a potential drag, or just some thoughts there would be helpful.

Yes, I'll start it off and Dave can add color. Our view of 2013 is that GM is going to be around that 24% mark. And I believe we're going to continue to see -- now, there could be fluctuations as, let's say, happens every Q2 for us, with some drops because of the drop in sales.

But there could be some fluctuations. We should still see strong residential gross margins and I have no reason to believe that our commercial margins are going to drop. Carlisle talked about a strong reroofing year for 2013 and I don't see anything different. We've seen this latest drop-off sales wise commercially, mostly due to comps and some deferrals. So I'm pretty -- we're all pretty bullish, knowing, though, there's a lot of hard work that we can stay close to the 24%.

The only thing I would add, Neil, is that if those buys don't go as deep as they did this year, that probably means that the economy will probably be a little bit better and we'll get some price increases this year, where last year it was 1% to 2% throughout the whole year. The expectation is if things are a little bit better, then you'll get some price and that could offset the difference in buying the inventory cheaper.

And then can you give us some more color regarding the FY 2013 organic sales growth of 5%. Maybe just directionally how that breaks down between non-res, res and complementary? Do you anticipate greater growth in non-res versus res?

No, I think as we've -- we can't go through the details of our internal plan, but in general, they are all about the same in that 5% range. Now, we know going through the year there will be changes. There will be variation. Some of it depends on if, which we don't have in our plan, if storms occur. Normally hail activity and/or if Sandy has a greater impact than we're thinking right now.

And Neil, remember, as Paul said in his comments, that's outside of price increases. So you could see some more upside to that. In general, I think if trends continue, you probably would expect a little higher residential roofing mix than this year, only because the commercial's been down and unless we see that turnaround and as Paul said, Carlisle's expecting to see a turnaround in reroofing next year. We're just not as comfortable as maybe they are.

All right, great. Thank you very much, guys.

Thanks, Neil.

Ryan Merkel with William Blair.

Paul, did I hear you correctly that acquisitions were going to add about $275 million to sales next year?

They won't add. That will be the total, Ryan.

Minus $138 million would be the growth on that.

Yep.

I'm just curious, what roughly is the SG&A rate that we should apply to the acquisition sales?

They were at the higher end. It's a little difficult to tell because we haven't done the purchase accounting yet for McClure and seeing what we'll have for amortization and the like. If we saw the drop-off like we've seen in the past, I think they would be in the 18% or 19% range. They have more residential, so they have more costs. And the newer one will be higher than that, because you'll have the expenses from the purchase accounting.

And Ryan, you can see from the K the gross margin for them is also obviously higher.

I did see that. And then just moving to organic SG&A growth, guiding to kind of 5% organic growth, are you going to be able to keep core SG&A below that 5% number, just like you did this year?

I think that's the expectation. For a full year, as Paul said, if we're at 24% to 24.5% gross margins, to hit that 7 or above percentage, that would put them at 17% to 17.5%, which is a little bit below the 5% growth, as you mentioned.

And then could you just talk about what the OEMs are saying about price increases? I think there was chatter for a price increase maybe this fall/winter. Just wondering what happened there and then maybe how you're positioning inventory into next year.

Yes, inventory, we're very well positioned, as we are always at this time of year. We feel we are definitely not in an overstock position. We're pretty prudent about how we control inventory throughout the year. The fall price increase, I mean, we talked about our sequential changes, which are positive. So there was a little bit of realization quarter to quarter.

But in general, that fall increase of around 5%, our view is that it didn't take in the market. It's still extremely competitive. I can't, obviously, look inside any of the OEMs, but I would suspect as normal, as we go through the winter, they will announce price increases. Commercial has continued to be strong from a pricing standpoint and I would think from everything I've read that they are still continuing to see input cost pressure, margin pressure, et cetera, that they are going to want to raise prices in the winter. So we're positioned -- we believe we're positioned well for whatever winter buy we need to make, more so obviously on the residential side than commercial.

Okay, great. And Dave, good luck. It's been great working with you.

Same here, Ryan.

And with BB&T Capital Markets, Jack Kasprzak.

Hi. Let me also offer Dave best wishes and good luck in the future.

Thank you.

The acquisition program, you guys have obviously picked that up this year, spending about $140 million during the fiscal year. Can you just talk about what you're seeing out there and obviously opportunities are there, but why the pickup in frequency? Did buyers -- I'm sorry, did sellers just get more fatigued during the downturn and finally look for a partner? Why were you able to just pick it up to such a great level this year?

Yes, I think some of it is timing. Some of it's the timing of their results improving versus maybe the tougher years they would have had in '07, '08, '09, even. And -- which made the market and the pricing right for them to get out and they were at that point in their lifecycle where they wanted to sell.

There was very little talk about any potential tax changes, et cetera. In terms of the go-forward, our pipeline is still very active. We continue to talk, as we have been, to a number of different companies. And I think what's important for us is our reputation speaks for itself with all the acquisitions that we've done and the way we've treated them, the way we've integrated them. It's just -- I think, Jack, it just helped us over the last 18 months to do this, these numbers that we've done and there's no reason for me to believe that's going to stop, especially with the way the market looks going forward in terms of overall improvement. We think their businesses will continue to improve and as the owners age, et cetera, they will continue to sell.

Obviously, your business in general is far more tied to renovation spending, but a lot of housing, new housing statistics lately have been very positive. As your general optimism about next year reflects some view that you're seeing the new home market, even though it's small for you guys, pick up off such low levels?

Yes, there's no doubt. I would say we have very little built in just because the historic new construction piece is in that 20% range, plus it's -- it has been less now. But you're right, the latest numbers are showing starts closer, total starts multi and single, closer to 800,000.

And when you look at the projections for the improvements, although there are some out in Arizona, et cetera, most of them are in an area where we have branches, which will bode well for us. So it should help us as we go through '13, '14, '15, both residentially and as commercial construction picks up.

Okay. That's great. Thanks very much, guys.

Okay.

Sam Darkatsh with Raymond James.

This is Josh filling in for Sam. Most of my questions have been asked and answered, but wanted to clarify a few points on the guidance. So the 5%, that's all volume and any price would be incremental to that. Am I hearing that right?

Correct.

Yes.

And are you including any Sandy, like an estimate for Sandy in that 5% and would you be willing to share that with us?

No. We had said that in addition to price, if there was anything on the Sandy side, it would be incremental. But, again, as of now, we just don't seeing it being large. But, again, some storms have surprised us. We're going to be there ready to service the areas. As I said, we don't have the density in Middleton, Northern Jersey or Long Island, but we have branches in eastern Pennsylvania, Southern Jersey, et cetera, Connecticut that can service the area. So we're just going to have to see. But we did not build in any of the, in that 5% number, any of that.

And then back to the acquisition line of questioning, could you talk about the sort of multiples that you're seeing in the marketplace and what the general trend is there?

Yes, I mean, it really has been what we have seen in the past and that's in the 6 to 8 range. There has been some variation, but in general, it's been very consistent.

And I think going forward, you'll see those drop back into that range. We paid a little bit more for some of the more recent ones. It's because the expectations of going forward are higher than they would have been 1.5 years, 2 years ago.

Okay. Thank you very much.

Okay.

Michael Rehaut with JPMorgan.

Dave, it's been a pleasure and best of luck going forward. Working with you since the IPO and it's been a long time and even longer for you. So really, best of luck. It's been great working with you.

Thank you very much, Michael, same here.

On the gross margins, just to get back to that, you said you hoped to keep it around in the 24 range, but at the same time, you said you expect perhaps a little bit improved or continued a little bit of higher, potentially, higher mix from residential, which would be a positive driver. Are there any kind of negatives that perhaps would offset that, either from acquisition accounting or mix or other items that kind of offset it? Because also with potentially higher prices, all else equal, perhaps that would also be a potentially positive benefit. Any more granularity there?

Yes, the purchase accounting wouldn't have an impact at all on that. I think mix could. And the 24, without being forecast the future in exact detail, that's I think, a fairly accurate number for us.

Mix could impact that, if commercial takes off, let's say, as Carlisle's alluded to, and we think in some circles could increase, that could have an impact as it did this quarter the other way with residential increasing. So, no, I don't think there's anything necessarily negative lurking out there. It's just a mix of how we view the business with all of the inputs and outputs.

And the other thing, Michael, is we're somewhat conservative folks here and we know we had a big advantage with the buying that went on last spring. That buying will continue this year. What level it is at, we just don't know yet. And that's why we may be a little bit cautious. But there's no reason to believe if we can offset some of that with some price increases that we could end up at the 24.5 again, just that we're a little more conservative.

Okay, fair enough. Also on the SG&A this quarter, I think excluding charges, we have it at 16.4%. That compares to 14.8%. I think there was a $2 million one-time -- I don't know if that -- if the 16.4% excludes that as well. But, it's still a nice year over year improvement. So how are we to think about 2013? Is this year over year higher ratio something to think about into the future, or would you expect SG&A to be in the mid 17%s on a full-year basis for '13 like it was in '12?

If you look at -- what we had kind of given for an outline in guidance, and we mentioned it earlier, the 24% gross margins and 7% plus operating income, that would infer 17% on the cost side. Which we believe we can -- there's constant pressure that we place on the organization for cost reduction and we obviously can't anticipate if there's going to be any other one-time adjustments that would occur in '13 like occurred in '12.

And Q4's our biggest volume quarter, Michael. And that's why you tend to see lower percentages there. For the year, just for everybody's information, we're about 17.3% without the one-time charges compared to 17.4%. So we did have some improvement and we probably can do a little bit better next year. But as we grow in size, we need to get better and better and more efficient.

And then just one last one. I think you said that of the $275 million sales from acquisitions, roughly 50% is incremental. In other words, you have the 5% organic. You have maybe 2% from price, and about another $135 million, $140 million from incremental sales from acquisitions that you didn't book in 2012.

If I understand that right, though, you have McClure Johnson at $85 million. Maybe you get 10 out of those 12 months, you get seven months of structural materials at $81 million. I'm sorry, more like nine months of that and seven months of Cassady Pierce. It seems like the numbers are adding up closer to like $175 million. I don't know if that's--

That is correct. Remember, the way we do our acquired markets is that we will have Enercon dropping off out of those acquired markets, which is about a $50 million annualized rate that will drop off from acquired. So the $175 million is a correct amount.

Of incremental?

Yes.

Okay. All right. Thank you.

David Manthey with Robert W. Baird.

Dave, congratulations, and best of luck here. As most people have been saying, it's been a real pleasure working with you and for sharing your time and your wisdom, we really appreciate it over the years. So thank you.

Thank you, Michael. I mean --

Second, in terms of the shingle manufacturers, I'm wondering about the pre-buy disruption. We heard from some of the OEMs that they were concerned about how much front end loading there was and how they were loading their plants through the year. I'm just wondering if you expect there's any change in the timing of pricing this year or should we expect business as usual? And as a follow-on there, in terms of the new construction, does that at all help to smooth out industry demand and maybe lead to less of that sort of front end loading of inventory and working it off throughout the year? Anything you have to offer there?

Yes, I don't necessarily see any drastic change, Dave, to the methodology. OC made a number of comments on their call, Mike did, referring to the -- what they went through last winter. But typically, just because it is winter, there are going to be seasonal buys and then price, usually prices are adjusted up by the manufacturer. So, I don't see a change in that.

I think on the new construction, from a new construction standpoint, if it holds and we continue to see the gains, as modest as they are, although they made great progress over the last three years, you would think it would have an impact on demand. Sandy for Long Island and Northern Jersey, et cetera, is going to have some impact. I don't know what right now and I don't know what the price impact would be as we go through the end of the year. Again, a lot of those places are going to freeze up pretty soon. But I don't see anything unusual.

And, Mike and David, I would just add that the manufacturers expected more volume for the entire year for 2012. So if that volume had come, they wouldn't have been that far off. I think the biggest difference between 2010, which was a similar year where the buying was pretty deep, is that distribution saw enough activity in the marketplace, so they didn't dive down on price. And we were able to maintain margins and improve them a little bit.

Okay and second, are there any issues locally, regionally, with new capacity coming on stream that concerns you at all over the next 12 months?

Well, I mean ICO's going to be, if you're talking about manufacturer capacity, ICO's going to be opening up sometime in '13 down in the southeast. That's going to have an impact. I don't know if it's 3 million or 5 million squares, once they start getting running, get running, but we're not overly concerned about it. We have great relationships with all the manufacturers and there's no great concern.

Good, good. All right, guys. Thanks again and, Dave, best of luck.

Thank you.

Thanks, David.

Ken Zener with KeyBanc.

David, I wonder if you could comment. The drop in roofing prices of 4% year over year, I believe that, David, you also said that it was up sequentially. Is that correct?

Yes, it's up low single digits, 1% to 2% sequentially.

So does that mean you're basically selling squares at around, call it, $84, $85?

We wouldn't talk in that level of detail. But, as I had mentioned actually for the last couple of quarters, we've seen modest single-digit or below increases on residential pricing, sequentially.

And I think the thing that really points out is that last year prices increased in Q4.

Right.

And then the volume, obviously, you said Sandy or not, you guys are conservative I think generally. I guess if I'm thinking about the M&A pipeline, which you have already have some nice growth built in, is there something -- our view has been basically you are willing to pay a higher multiple, but more people are earning money, so they are growing into your multiple. Is there something that would put a ceiling on the deals that you would potentially do? So, Paul, you've been speaking to these people for a long time, all of a sudden five of them show up on your doorstep, are you going to turn away three of them if it results in a certain ceiling in terms of the dollar expenditure?

Well, I mean, obviously, we have a current debt facility that would allow us to do so much. And then if it was that much larger, which would have to be pretty big, we would have to look at additional financing. But, I mean, there's nothing that I see right now in the immediate horizon that would prevent us -- other than the fact, obviously, of bad pricing or the wrong Company, of course, if five showed up and they were all the wrong companies, from us doing those type of multiple transactions.

Thank you very much.

Okay, Ken.

Brent Rakers with Wunderlich Securities.

I was hoping if you could reclarify the comments about October and November. I believe the October disclosure was on a per-day basis. Is that correct?

Yes. Both of them were. October had two extra days this year compared to last year. November has the same days. So, it was down 9 for October on a same-days basis. It was actually about flat compared to last year overall for the month. And, as you know, we look more towards month to month than we do day to day because the shipping days aren't as important for some of the stuff that goes direct and things like that.

So, David, as we go through the year to look towards this, the 5% organic target, you've talked a little bit in the March quarter about the mild weather and comping against that. Could you maybe give us a sense then for how you're kind of playing out some of the quarters, because you're comping modestly. Well, mid single digits down now, it looks like the March quarter comps are going to be, possibly, even more challenging. And then it opens up from there. Is that kind of the way to think about the process of the quarters?

No, that's not how we did our budget. And remember, the one month doesn't make a quarter. And two months really doesn't. It depends on how it ends up. To us, October, because of the storms that went through and stuff like that, we didn't lose -- we lost days of selling because we were closed.

So it's hard to just look at it year over year when you're on that basis. We are expecting pretty much the growth throughout the year. It's a little bit back loaded because, again, with expecting the economy to get a little better and new construction, but in general it's pretty consistent throughout the year.

So you would expect, Dave, roughly a 5% organic growth rate in the March quarter as well?

That's what we have budgeted, yes.

And then just last question, on the -- you guys talk a lot in terms of price. I guess there's always some disconnect between your price versus the manufacturer price. Any early readings on what sort of winter discounting that might be in place this year? Are we looking at a normal year from the manufacturers, or possibly a bit more or a bit less going into the winter?

It's impossible to predict, so I'll just say I think it's going to be a, and not being flip, but it will be more of a normal year. There's no indication that anything is going to change. Again, OC made comments about maybe they thought they went too deep, but until we get into the winter and we look at what the volume is, what the demand they are seeing, our position of inventory, it's very difficult to say. I don't think there's anything that's out of the ordinary right now.

Paul, just real quick on that, how soon do you get a read on something like that typically.

Well, typically, yes, another couple of months.

Okay, great. Okay. Thanks a lot, guys.

End of December through January. Thank you.

And our final question today comes from Keith Hughes with SunTrust.

Thanks. Actually, this is Judy for Keith and all of our questions have been asked. Thanks.

That concludes the -- I'm sorry. That does conclude our questions and I would like to turn the call over to Mr. Isabella for his closing comments.

Yes, let me just make a few comments here. Again, we're very proud of the full-year EPS we delivered and look forward to another strong year in 2013. As I said, we're confident we can meet or beat the consensus EPS estimates. Overall gross margins were strong.

It's worth repeating, ending at the 25% for the quarter, up 190 basis points versus last year, and as I said, we'll most likely see gross margins in the 24% range for 2013. We ended the year with strong overall growth at 12% and organic growth of 7%, much as we expected. Overall growth for 2013 is expected to be well over 10%.

And as we've said, sales from our recent acquisition should total approximately $275 million in 2013. Our integration process of acquisitions is moving along very well and our teams are working very hard to accomplish this. And as I said, our pipeline's very active and we're confident we'll make additional investments this year.

As always, I want to thank the employees and customers of Beacon and the support of our investor base. We'll remain extremely focused on continuous improvement in every aspect of our business. We're all working very hard to execute our business plan.

Lastly, I would like to thank David Grace for his dedicated, hard work that he's contributed over a long career. He has been one of the key executives who has contributed to our Company's growth and success. I wish him all the best in the future. Beacon has had and will always have a very strong finance team and I'm confident that our team and the next CFO will continue our path of success. Thank you for your interest in our Company. David and I are available in Herndon for any other questions you might have. Thank you and this concludes the call.

That does conclude today's call. We thank you all for your participation today.