Beacon Roofing Supply Inc (BECN) 2013 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Beacon Roofing Supply Fiscal-Year 2013 First Quarter Conference Call. My name is Anthony, 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 towards the end of the conference. At that time, I will give 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 Safe Securities Litigation Reform Act of 1995 regarding the future events of 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 a 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, February 8, 2013, 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 the certain non-GAAP measures. The reconciliation of these non-GAAP measures is set forth in today's press release.

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 a summary financial slide presentation on the Investor section of its website under Events and Presentations that will be (inaudible - technical difficulty) 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. Rick Welker, Vice President and Acting Chief Financial Officer. I would now like to turn the call over to Mr. Paul Isabella, President and CEO. Mr. Isabella, you may proceed.

Thanks, Anthony. Good morning, and welcome to our 2013 first-quarter earnings call. We started off the year by delivering $0.37 of reported EPS, versus $0.41 in Q1 of last year, on record first-quarter sales of $514 million. We feel these are very solid results and a good start to our fiscal year. For reference, last year's first quarter was impacted by strong price increases in our inorganic growth, further fueled by some very mild December weather, and carry-over storm volume from earlier in 2011. The $0.37 we delivered is close to our internal plan, which gives us confidence in our full-year estimate. We certainly recognize that quarterly fluctuations in sales and EPS occur due to a number of factors, such as demand in our markets and weather variations. This is why we continue to focus on full-year guidance.

Sales in total were up about 5%, while existing market sales were down about the same. While we aren't pleased with existing sales being at this level, it was not a surprise based on the tough sales comps from last year. As a quick reminder, last year in Q1 we had total sales growth of 21%, and organic growth of 17%, of which an estimated 8% is related to price increases. As I will speak to shortly, the largest percent sales decline occurred in the month of December for our Q1 2013.

In the quarter, overall selling prices were flat to last year, and we were able to deliver higher gross margins. We believe pricing in the quarter was impacted by lower demand for both residential and commercial products. Gross margins will continue to be influenced by a number of factors, such as mix, market demand, and of course, product cost. We're very pleased with the Q1 gross margin results.

For the quarter, our existing regions delivered 6.9% operating income, versus 7.4% in 2012, solid results given the sales leverage we enjoyed in Q1 of fiscal '12. The operating expense rate in existing markets was slightly higher, and Rick will review more details in his discussion. Our acquired markets generated $53 million of sales for the quarter, and their net results were close to our internal plan.

Our acquisition integration is on track, as we continue to use experienced corporate and field resources. We've been fortunate to acquire some very strong companies over the last two years. Most are market leaders in their respective markets. Our acquired markets in 2013 are expected to be accretive, realizing operating income of approximately 3% to 4% after purchase accounting impact and acquisition-related professional fees.

Since our last earnings call, we acquired two additional companies in the attractive northern California market -- Ford Wholesale of San Jose and Construction Material Supply of Sacramento. We'll continue to grow in that market. We continue to grow our national footprint, and over the last 12 months we have added approximately $300 million of annualized sales from acquisitions. This positions us well for 2013, as the estimated incremental impact on sales from acquisitions will be around $230 million.

Now, as I've done over the last few quarters, I'd like to give a little more information trending on sales pricing and EPS. On the sales side, as I just said, we had the 5% total sales growth for the quarter, with the existing market being down the same. A little more detail as a point of comparison, in Q1 of 2012 residential sales were up 25% organically, and commercial sales were up about 16% organically.

Q1 '13 organic sales by month were -- October was flat year over year, November was down about 4%, and December was down about 11%. There were 62 business days in Q1 this year versus 60 days last year, impacting October. December volume for sure tailed off, and winter weather in various markets impacted us; however, we did have three regions that experienced growth in the quarter.

We still see 2013 sales growing 5% organically, knowing there could be some variation by quarter, of course, with total sales being up approximately 15% due to the impact of completed acquisitions. Our internal plan does reflect a stronger second half, and we mentioned that on our Q4 call. We're very confident about the full year.

January 2013 sales versus January of last year were up in total 14%, reflecting acquisitions, and basically flat in existing markets. Considering that sales were impacted heavily during the last week of this January due to harsh weather, and also considering the fact that January sales last year were up 47% organically because of the super-mild weather, these results are encouraging. Some of this, of course, could be carry-over from the last part of December, where we were impacted by tougher winter weather and the holidays.

And to help drive future sales growth, we plan on opening approximately 10 new branches in 2013. This complements the four branches we opened in 2012, as we get back on the routine of opening up greenfields. They are an important piece of our growth strategy.

On the pricing side, as I mentioned, pricing was flat in the quarter. Resi pricing was down approximately 3%. Commercial was flat, and complementary was up 3% to 4%, which is very encouraging.

There were a number of price increases recently announced, the largest being for residential products, which was announced in early December. And our inventory build, which you can see in the Q in December, was a reaction to these announced price increases. The announced percents for February and April -- March/April -- range from approximately 5% to 8% on commercial and complementary products, and 10% to 14% on residential products. We can't predict what price increases will go through in whole, but there seems to be more optimism this year that they will hold at some level.

We believe we're well-positioned from an inventory standpoint, having bought at the proper level. It's a very good indicator of our financial strength that we can increase inventory as we did in December. It also appears that most of the distribution channel purchase ahead of the announced price increases, although there are indications at not as heavily as last year. The manufacturers believe that the new prices, especially residential, will hold.

Most of the increases, as I said, are timed for a February, March, or April effective date. Normally these take 30 to 60 days to work into the market. As always, as higher prices are passed on to us, we have -- in turn, have no choice but to pass them on to our customer base. Demand in market behavior, specifically in the April timeframe, will dictate in large part if the first increases stick in the market, although I'm very positive that they will.

EPS -- on our fourth-quarter call, we said we were comfortable with the full-year analyst estimate, which at the time was $1.81 per share. We're still confident in that estimate. Housing activity has been positive, and re-roofing is a large part of the market, with much of this replacement volume being non-discretionary. We're well-positioned in all of our markets to execute our plan, and we do have a very strong management team. Upside to this $1.81 would be positive price realization, and above-normal storm demand, as it might occur in the Spring and Summer.

The last item I want to talk about is our recent organization changes that we believe position us for future growth. We now have five very focused geographic divisions headed by key leaders, and a number of promotions. Munroe Best has been promoted to Executive Vice President of the South division. Eric Swank has been promoted to the Executive Vice President of the newly formed East division. Kent Gardner, who has been an EVP, heads up our growing West division; and Jim MacKimm, who has been an EVP, heads up our North division. Marc Allaire is SVP and President of Canada. Pat Murphy, also a current EVP, has been named Chief Supply Chain Officer. We feel very confident about this new structure and management team, and it positions us very well for future growth and execution.

Now I'm going to turn the call over to Rick, who will go over some of the financial highlights; and then we'll put it out to questions for you folks.

Thanks, Paul. Good morning. I will highlight some of the key financial results and metrics contained in our earnings press release, form 10-Q, and the first-quarter slides posted to our website this morning. Regarding sales -- total sales for the quarter, aided by our acquisitions, increased 4.9% to a record $514 million. Our fiscal-2013 first-quarter organic sales, which reflect our existing markets by excluding sales at branches acquired since the beginning of last year's first quarter, decreased 4.6%. We had 62 selling days in this quarter compared to 60 last year, as Paul said. Therefore organic sales decreased 7.7% on an average-sales-per-day basis.

Our sales by product group in existing markets were as follows -- residential roofing sales decreased 5.4%, non-residential roofing decreased 6.1%, and complementary products were up 2.9%. This was the second quarter in a row that we saw an increase in our complementary product sales, which is a more discretionary consumer category, and perhaps a positive indicator for the economy in general. We had more storm business in last year's first quarter, which is impacting the roofing sales comparison, along with slightly lower average residential prices, down about 3%. Commercial business has been softer over the last few quarters, after a previous eight consecutive quarterly gains. Overall average selling prices in comparison to Q4 were relatively unchanged.

In our geographic regions, our Southwest and Canada regions showed double-digit existing-market sales growth for the quarter. Our Southeast region had an increase of 5%, while our other regions were down, due mostly -- due to prior storm activity, the commercial roofing slow-down, and some tough comparisons to a mild December 2011.

Regarding gross margin -- gross margin increased to 24.7% from 24% last year. Our acquired companies have a higher mix of residential roofing sales, which typically have higher gross margins than our other products. We have also improved our gross margins in residential roofing, due to lower net product costs, partially offset by the impact of the lower residential selling prices. Gross margins in our other product lines were down slightly.

Regarding expenses, existing-market operating expenses, which are shown in Slide 2, were relatively unchanged. Payroll and related costs increased $0.9 million, due primarily to higher sales and delivery wages associated with the increased Southwest business, and the greater mix of complementary sales. We also had a lower percentage of direct sales this year, which have much lower service costs. In addition, in last year's expenses, we realized a reduction of $1 million, resulting from an adjustment of contingent consideration.

On the favorable side of things in expenses, bad-debt expense declined $1.6 million due primarily to a lower percentage of past-due accounts. Lastly, existing-market depreciation and amortization expense decreased $0.8 million, due to a drop-off in amortization related to intangible assets, and lower depreciation due to relatively low levels of capital expenditures in recent years.

Operating expenses as a percentage of net sales increased to 18.4% overall, and to 17.3% from 16.6% in our existing markets. The overall rate increase was mostly due to the impact from our acquired companies, including a higher rate of amortization expense on intangible assets, and certain professional fees. Existing-market expense rate increase was mainly due to the impact of the lower sales.

Regarding interest and income taxes -- interest expense was down $1.4 million in the first quarter, as we benefited from a change in the value of our older interest rate swaps this year, and from lower debt levels and lower interest rates. Income tax expense reflected an effective tax rate of 40%, compared to 38.5% last year.

Regarding net income and EBITDA, our net income was $18.2 million for the quarter, compared to $19.1 million last year, while diluted net income per share decreased to $0.37 from $0.41. However, adjusted net diluted earnings per share for last year were $0.39, as calculated in our press release and also shown in slide 3. Our earnings before interest, taxes, depreciation, amortization, adjustments of contingent consideration and stock-based compensation, or adjusted EBITDA, which is reconciled to our GAAP net income in our release, was $41.8 million for 2013, as compared to $41.1 million in 2012.

Regarding cash flows and key balance-sheet metrics, as slide 4 shows, cash flow from operations was $47.3 million, compared to $59 million last year. The lower cash from operations was principally due to the less-favorable changes in working capital this year. Of special note is the increase in inventory of $34.3 million since year end, excluding the impact from acquisitions. As Paul mentioned, we built certain key inventories ahead of announced vendor price increases. Inventory turns in existing markets slowed to 5.4 times in the quarter, from 5.8 times last year, as a result of that build-up, and because of the lower sales.

Capital expenditures in 2013 were $3.1 million, compared to $2.4 million in 2012. We currently expect capital expenditures to increase to 1.1% to 1.5% of sales for the full year, mostly to continue our fleet upgrades. Net cash used for acquisitions in the quarter was $64.5 million, compared to $44.4 million last year. Net cash provided by financing activities was $14 million this year, mostly from the proceeds of option exercises. Our current ratio at the end of the quarter was 2.0 to 1, compared to 2.1 to 1 at year end, and 2.7 to 1 at the end of last year's first quarter. The comparison to last year is impacted by the large debt pay-down we made in April of last year and the cost of our acquisitions.

Our existing-market days sales outstanding in accounts receivable were at 28.6 days, versus 32.1 days in the fourth quarter, and 28.4 days in last year's first quarter. Our net-debt-to-capital ratio was at 22.8% at the end of the quarter, compared to 23.1% at year end, and also at the end of last year's first quarter.

The results of our two bank financial covenants at the end of this year's first quarter were as follows -- total leverage ratio was 1.55 to 1, same as at year end; and our interest coverage ratio was 14.92 to 1, also virtually the same as at year end. We consider these very healthy ratios, and we believe our bank relations are excellent.

We will now respond to any questions you may have. Thank you.

(Operator Instructions)

We'll take our first question from Keith Hughes with SunTrust.

Yes. A question on the Commercial business -- can you give us any kind of feel on trends you're seeing there? There's some of the macro stuff on Commercial, continues to bounce around flat. Year down, I know there's a tough comp. Just what is your feeling on that market in the next three, six months?

Yes, Keith, it's interesting.

There's no doubt -- I'll go back a little bit into October. There was almost immediate softening in October commercially across most of our markets. A lot of it we viewed as being very weak public work that wasn't let, that was deferred; and that didn't obviously help us in the quarter. Of late, just in this last month or so -- and you heard a little bit of the January numbers -- there's been at least from a sentiment standpoint from our guys and from our customer base, backlog seems to be growing and contractors more optimistic. That being obviously a little bit impacted by the fact that Boston, for instance, is probably going to have two feet of snow in the next 20 hours. That might impact the next week in terms of that volume.

In general, I think over the next three months, six months, the view is positive. We still believe -- and I don't have any indications not to -- that we'll see this 5% growth, even with the huge growth we had seen over the eight quarters prior to these last three. So some of it we're going to bump up a bit against the comps that were negative last year in the third and fourth quarter, as we hit the second half; and we still have a heavy comp for Q2, no doubt, from last year where we saw something like over 15% organic growth. So we're more positive than we've been through the first quarter.

This is Rick.

In my discussions with the regional vice presidents there's no indication that there's a long-term trend of Commercial slow-down. I think most of them view that as temporary, and being up against unusual bump in the first quarter and first two quarters of last year. Again, it gets back to the economy, mostly, but there's no long-term concern about Commercial downward trend that we're hearing.

Yes, and we've always said, Keith, folks can defer, but they're going to have to end up repairing the roof at some point. If there were, as we believe, deferrals in Q1, they're going to come due in either Q2 depending on weather and the geographic region they're in, or the beginning in Q3.

Okay, final question. Can you give us an update on the CFO search?

Yes, it's going quite well. Rick is doing an outstanding job since the beginning of January and prior. We are very close. We feel very confident that we're going to be naming someone within the next 30 days.

Michael Rehaut, JPMorgan

Good morning. Nice quarter.

I had a question on the gross margins. Certainly it's been a nice success for you guys in the last year or two, and Resi has the higher mix, or benefits gross margins from their higher levels. How are you thinking about that in 2013 and 2014 if Residential should continue to do well, and Commercial has, I think most people feel, a more of a challenged outlook, at least for 2013?

Yes, I think naturally -- and you see it in the Q in our results for total gross margin and for existing gross margin -- and you can see the break out of the acquired markets right where they're higher by four points or so that influence the total rate by about a half a point. In the absence of any other mix change, as we do more Residential volume, our gross margin should trend up.

Again for the quarter, based on $500-million-plus of sales and $3 million of that being acquired markets, that little bit of volume, that four points higher, pulled up our gross margin by half a point. From a gross margin standpoint it's very favorable as we continue to do more Resi work. We certainly love Commercial work, and we want that to continue to grow also.

I just want to make sure I understood correctly before, when you talked about your comfort with the Street at $1.81 EPS -- that's inclusive of your expectation for 3% to 4%, I guess, is it just EPS accretion off of 2012 from your acquisitions?

Yes, there is -- if you look at our incremental sales impact from acquisitions for '13, as I said, the plan is around $230 million or so. There is purchase accounting, obviously, in that number. Not in sales, but in the net income number, of course. The impact actually in '13 -- it will be greater than $ 0.03, $0.04. It's probably going to be upward in the neighborhood of $0.10 to $0.12 of EPS for those incremental acquisitions. That takes Fowler & Peth out of the acquired and puts it back in existing in terms of that number.

But that's all again reflected in your -- or inclusive in your comfort with the $1.81?

Yes, it is. The rest of it would be that 5% organic growth on the $2 billion and change that we did in 2012. The upside to that is, of course, if we grow more organically with, let's say, improved economics, just greater demand, whether it's storm-induced or weather-induced or not, and if pricing sticks. If the Residential pricing sticks, let's say, because there's more optimism on Residential pricing sticking than Commercial, we can do the math on for every point of Resi, for the whole Resi line of business that is impacted for a number of months, we can calculate the EPS impact. For sure, if we see favorability and above-normal storm volume, let's say, better economics, and price holding -- because we don't have any price in our model -- that would mean something above the $1.81.

Appreciate it. One last one, if I could.

As you're looking at the M&A pipeline right now -- and certainly I think in the last year or two you've accelerated off of the down-turn or trough parts of the cycle -- is the current pipeline and your current appetite stronger than it was 6 or 12 months ago, or the same?

Well, to typify our appetite, it's always been strong for the right reasons. We're not going to buy bad companies and overpay for them. We've been very fortunate in the last 24 months, if you go all the way back to Enercon in April of '11, to buying very quality companies, high in Residential mix, higher gross margins, and well-performing, quite frankly. Our appetite is still high.

We believe we have an outstanding operating team. We've expanded the corporate team to assist with the integration process, the systems integration. Our appetite is high, the pipeline is strong. But again there's no guarantee of when any of these would come to fruition. But we continue to work it very hard, maintaining our relationships with these key distributors.

Right, thank you.

Thank you.

Our next question comes from Ryan Merkel with William Blair.

Thanks, good morning everyone.

My first question is on the pre-buy. Paul, could you just give us a sense of how big the pre-buy was this year in comparison to last year? Then, second part to that question -- if the pricing were to hold, does that push your gross margins from the 24%, which I think is implied in your guide, maybe closer to 24.5%? Is that the magnitude?

Yes, I can't give you the exact numbers on the pre-buy just because we don't typically disclose that, but if you looked at our change in inventory, it was in the $70 million, $80 million-range total change year-over-year. We said $30 million of that was for acquired markets, so roughly $50 million was for pre-buy, which we normally would not do in December. This would have occurred in January or February; but given that [Campo], GAF, all the majors on the Resi side announced January 4 or 5 or so, we took the opportunity to do the buy. I would have to say it's somewhat smaller than last year, but it still positions us very well, because it still gives us the opportunity to potentially do some things in January also, given our cash-debt position.

On the gross margin side, yes, if pricing holds -- and again, we can do the math on whether it holds at 15% for Resi, 10% for Resi, 7% or 5% -- we can calculate it down to an EPS level. Typically we would see during the sell-off period of the inventory a gain in gross margin rate, and then a gain of course in gross margin dollars. Then usually what happens is that gross margin rate will drop back a bit. I don't know if 24.5% is accurate enough, but we would see some type of a gain on gross margin if pricing sticks, yes.

Okay. Second question is on SG&A as a percent of sales. It was a little higher than I was thinking, and I think a little bit higher than I think you guided it last quarter, because I think we were looking for something in the 17% to 17.5% for the year. Now I know the first quarter should be a little higher, just given the sales trajectory, but -- two-part question -- was there anything in the quarter that made the SG&A as a percent of sales a little higher than you were maybe originally thinking? You mentioned higher amortization, maybe something in the base business. Then am I thinking about it right, that as the year goes on, that rate should come down, particularly as sales get better in the second half?

Yes, absolutely. I think you hit all the points. There wasn't anything unusual in the base business. The drop-off in December, that $15 million or so sales drop-off that we didn't expect would drop off quite so quick, just because of soft market, weather, holiday -- whatever you want to call it -- for sure impacted cost, as we're not going to adjust that fast and do silly things. But if you look at where we were last year with the existing market now, because if you pull out the 20%-plus cost on the acquired side -- but if you look at where we were last year --16.6%,16.7% versus the 17.3% this year, it's not anywhere out of the realm of what we thought; maybe slightly higher.

There was some higher really impact storm volume down in Texas that did impact costs, and we lined it out in the Q. That was a little unusual given, that the sales weren't that much higher; but our trending is going to be for the year in that 17% range in total for existing, maybe slightly under. That's what we're looking at internally. Acquired markets will be about 19%. We feel pretty good about, one, our ability to control costs. If, let's just say volume decided -- because of real soft demand, which we don't believe is going to happen -- dropped off, we control costs very well. We think the level that we're at in Q1 for sure fits our internal plan for the full year, which is slightly below 17%.

This is Rick.

I'll just add, on the expenses we did have the $1 million hit; and comparatively year-over-year, for the Enercon purchase adjustment. But the other thing that certainly I've heard from the field is that the greater-than-expected mix towards Complementary does have an impact, because it's more labor-intensive, smaller deliveries on average, more frequent deliveries. So the fact that Commercial and Residential had a down first quarter while Complementary was stronger and pricing was stronger on that end, that did have some impact spread among pretty much all the regions.

Okay, that's very helpful.

And just quickly, last thing -- the January trends, I view that as very positive, much better than I was thinking. I think you said maybe flat on an organic basis given a tough comp. I'm wondering, does this speak to the general improvement in re-roofing, new construction, or just organic growth initiatives working?

I think it's all of those. I think there's a little bit of what fell out from December, too. We got hit fairly hard in the last part of December where sales really dropped for a number of reasons; and I think some of that came out. But when you frame it in terms of the 46%, 47% organic growth last quarter -- now that was highly unusual, right, because the year before in Q1 in '11 the weather was horrific, so we naturally -- and then we had no -- like zero weather January last year, so we were going to have a high beat. But even -- this January wasn't pristine across all of our markets. There was some heavy rain, there was snow. There were things that affected us, but we're very encouraged.

As I said earlier to Keith, I think there's just more optimism and actually more volume coming out, which makes us feel good. If you look at the little bit of February -- we don't have much -- just for a few days in February, we're very close to our internal plan, which would put us, again, at flat, so we're pretty optimistic. Now obviously this storm, for instance, up here in the Northeast will have an impact, but that is what it is. We can't control that, two feet or three feet of snow in a blizzard.

And it will be better in the long run.

As we say, that's part of the cycle of roofing, right -- which we haven't had for the last year. So we're really pleased with January.

Very good. Thank you very much.

Thanks, Ryan.

Our next question comes from Trey Grooms with Stephens.

Hey, good morning.

On M&A, you said, Paul, that of course your appetite is still high, pipeline's still strong. When you look at the type of acquisitions, do you think that you guys will continue to focus more on the players with the higher Res exposure like you did in 2012 as you look at the pipeline today?

No, I think -- I know we look at all good acquisitions, and they could be heavier with Commercial than Residential, or they could be all Residential, or theoretically they could be all Commercial. We're not targeting higher Res companies. We have built relationships with a number of them. (inaudible)

Okay, thanks that makes sense.

On Commercial again, following up from an earlier question, are you guys -- you said it's looking like it's a little better maybe for the outlook, you're not seeing any slow-down or anticipating anything there. Can you talk specifically to what you're seeing, what the guys in the field are seeing, as far as new non-Res and what they're hearing and expectations there as they kind of look out this year?

Yes, the view that we -- and you can go to whatever index you want to go to -- there's still not any great view that there's going to be tremendous growth on the new construction side. So we're not pinning our hopes for the organic growth on that. We continue to work with all contractor base that serves both re-roof and new construction. I think it's going to be a while; but one, I don't -- as many folks don't -- have the great ability to forecast when that's going to come back. As new Resi construction continues to improve as it has, typically Commercial follows. Whether that's mid this year, later this year, next year -- at some point it will have to.

Thanks a lot for the color, and good quarter. Thanks.

It appears we only have time for a couple more questions. We will take our next question from Sam Darkatsh with Raymond James.

A couple questions, and one or two of them are housekeeping.

First off -- Rick what was the approximate gross margin spread between Resi and non-Resi in the quarter?

We don't usually talk about the difference between the product group gross margins.

We've said historically that it's -- as we said on our Q4 call, Sam -- 1,100 to 1,200 basis points.

And that's what you found in the quarter was 1,100 to 1,200 -- the spread hasn't changed?

Yes, there wasn't any great shift or change.

It was better improvement in the Resi gross margins.

Okay, and then let me make sure I understand. Your guidance of 5% organic growth for the Company -- is that both 5% hold true both Resi and non-Resi also? Because you have different compares, obviously. Just trying to get a sense of how you're looking at the two segments compared to each other?

Yes, we have said, even with the deltas in these per-quarter comps, that we've said both 5% on Resi -- for really all three -- no, there could be some variation -- Resi, Commercial, and Complementary.

Okay, and then last question. Trying to understand the pricing that you're assuming in your model -- you mentioned that no price is assumed, but if price is down in the first half, I guess that does implicitly mean that you're assuming that some price does stick in the second half. First off, am I accurate in saying that? And if I am, if price doesn't stick then in the back half, wouldn't gross margins then be under some risk, potentially, versus the 24%?

No, because -- well, let's face it. Gross margins are always at risk, right, if we don't execute properly, if the market shifts; but if you look at our total price for the quarter it's basically flat. The down-side with some Resi -- I think that's more timing and just the fact that the quarter was softer. I won't get into the quarters, but if you assume flat, which I think is going to happen in the first half, then to get the back half when any potential increases, whether it's Commercial or Resi, it's going to take hold. So no, I'm not --

By definition, then, you're not assuming incremental price, then, in the second half within your guidance -- is that how I understand it?

That is correct. You can do the math on our 40% Residential volume and the sales, and then any break point of price increase you want to, based on, let's say, the hit in April -- which could or couldn't happen, it just depends on when the inventory's going to get bled off -- to get an impact on gross margin, which typically 70% of the gross margin falls through.

Okay, thank you much.

Our next question comes from David Manthey with Robert W. Baird.

A couple things here.

First off, on the inventory and how that process is being managed by the manufacturers this year. Is it true the shingle manufacturers put in a hard stop at year-end? So potentially the increase you saw here this quarter, in prior quarters would have been spread over a couple of quarters in the off-season, and it just sort of concentrated this year? Is that a true statement?

Yes, for sure they announced early. They've been fairly firm on not extending price if orders aren't placed, et cetera; so it's a little different behavior. It could have, Dave, in the past. Last year it was spread out over more time. Now the Residential folks also announced the second price increase in for April. If there's a belief that this first one for February -- really now mid-February, March -- holds, there could be another round of distribution believing they have to buy at the new price before the second price goes into effect. But this is, yes, a little different, a little tighter than previous years.

Okay, but safe to say if you went -- anything is possible, I guess -- but if you went back to them, the assumption is that you'd be paying the 10% to 14% higher today, versus what you would have prior to year-end?

Yes, if we were purchasing now, yes.

Okay. All right, when you talk about pricing --

Hello?

It appears that participant has stepped away. We'll take our next question from Jim Barrett with CL King & Associates.

Paul, could you talk about Ford Wholesale and Construction Materials Supply? Can you tell me how those purchases came about? Was it an auction process or a long-standing relationship?

Yes, I think both were -- we typically don't divulge too much information about the workings of these acquisitions and how we ended up acquiring them. For a majority of the acquisitions we're involved in, it's relationship-based and it's trusting. Now whether or not the Ford or CMS were talking to other folks, that's not something I'm going to divulge, but it wasn't a straight auction. It's based on excellent relationships we have with the owners, and their belief that Beacon is the best choice in terms of who they want to grow with, and who they want their folks to work for over the next couple of decades-plus.

Understood. As for new home building, I realize it's off a very small base, but are you starting to see any pick-up from the new home builders in your specific regions?

Yes, we see them on the East Coast, whether it's Maryland, Northern Virginia, Carolinas, and of course in Texas, even some up in Eastern Pennsylvania. The activity has increased, and that is very encouraging for us. It's a very competitive part of our line of business, but we've played fairly effective in it. Given that historically it's 20% of our total sales, of late its been more like 10% to 15%, and in some areas even lower. It will help our sales as housing continues to come back, and especially as spring hits, and in the northern markets there's more construction.

Okay, well thank you, and good luck in '13.

Thanks.

We'll take our next question from Jack Kasprzak with BB&T.

The decline in Residential prices in the quarter of 3% -- I was hoping you could talk a little bit more about that. Was it expected? Were you surprised at all? What were the factors around that? Mix? Region?

Yes, I think it impacted most of the regions; and I think some of it, Jack, was due to -- we've had a lot of back side, we're on a lot of the back side of storm activity in a number of our markets, whether it's in the Midwest or in the Carolinas. And for sure as a result of that natural pull-forward that occurs when there's weather events, there's competitive pressure, because there's just less work that occurs. For sure, we saw some pressure there on market pricing.

In general, I think that the main causation across all of our markets was that there was just less work in general. That softening causes -- as we've said in the past -- causes more competitive activity in all of the areas, and we certainly aren't going to lose share at any great extent at all, unless it really compromises our margins. We sometimes follow that a bit.

I don't -- that number, I won't say it's noise, but it has fluctuated. If you look at our history at some of the price ups and downs, whether it's Resi or Complementary, could be up a point or two, down a point or two, I'm not -- given this time of the year and given the softness in Q1 -- I'm not concerned at all about it; because at the same time, Commercial was flat and Complementary was up.

This is Rick. Fortunately, our product costs in Resi went down a little bit more, so we had favorable gross margin impact. One other thing I'll add is that, sequentially from Q4, it was up. Pricing and Resi was up slightly, so not unexpected to have the year-over-year decrease.

That's actually a very good point that Rick makes, because if you look at all three of our major lines of businesses sequentially, there hasn't been much movement; which is encouraging, considering the fact that our Q4 was fairly robust. We are just bumping up against some pretty heavy comps last year in terms of price increases we saw in the market place.

That's fair, great color, thank you.

Second question -- on Hurricane Sandy -- I know you don't have many branches in the area that was directly affected, but do you see any impact there in terms of rebuilds soaking up demand? How do you view that from where you guys sit?

Yes; we're seeing a couple of impact items. One was the first impact, which you have to -- I guess you have to think about how much of a lasting impact it had in Q1 -- but when that event occurred through the week, that really shut down a lot of work that we were doing. Given that market was a tad softer in Q1, I don't know how much of that we really gained back, so that was an impact that wasn't positive. It's hard to quantify that. Second, we are seeing some volume from Sandy. Not an awful lot, and again, it's been somewhat hard to figure out.

I think we'll probably see $5 million to $10 million through the course of this year. It's happening in Eastern Pennsylvania, our Southern Jersey branches, and then on the south shore of Connecticut. I also think it's going to play out longer term, just because of the number of structures that were totally destroyed and have to be rebuilt. So we're probably talking more than a year-plus to see some of this trickle volume for us. Now if we had a huge amount of branches in Northern Jersey and Long Island it might be a different story, but we don't.

The more important impact might be what does it do for the shingle market in total.

Right, soaking up some demand. Absolutely.

Yes, exactly -- maybe firming up pricing, demand, et cetera.

That's great. Thank you very much, guys.

Thank you.

It appears we have time for one last question. We will take our last question from Brent Rakers with Wunderlich.

Yes, good morning.

I was hoping, first, maybe Rick, since there are a lot of questions on pricing, if you could maybe remind us exactly how you're calculating that price increase or price decrease number here?

Sure. It's just an estimate, but we basically look at taking the gross margin on the incremental price increase effect, but then also taking about 30% of the incremental gross margin for other expenses, commissions, credit card fees, additional bad debt, bonuses -- things like that. But overall, about 70% of the gross margin dollars would fall to operating income, and then you'd take the tax effect. It's just an estimate that we say, roughly $0.02 maybe per share can come from every percentage increase in pricing.

Rick, I'm sorry -- I must have maybe didn't ask it as direct as I should have -- but I am actually referring to the 3% disclosed or estimated price decline in Residential in the quarter? How exactly is that number calculated?

Oh, okay. Taking same items that are on hand year-over-year and looking at how they sell through for the period versus last year.

Okay -- so it's a reflection of the price of the (inaudible - multiple speakers)?

At selling price, not purchase cost.

Okay, great. Okay, thanks.

Then maybe a question -- I think it's been asked a couple different ways -- but there obviously are price increases in the channel. Do you have a sense of when the distribution as industry as a whole would actually have to go meaningfully back into the market, given the pre-buy and demand and all that, and actually have to start purchasing at those higher-price levels? Are we talking March -- as early as March -- or are we talking more April and May?

Yes, my view, based on the intelligence reconnaissance I've done -- intelligence gathered -- is that it'd be more in the April, late April time frame to even early May. There's been some indications that some distributors have already committed to purchases at the new pricing, but I can't quantify that -- which is something new; we typically don't hear that. The hope is that, as they burn through -- given if weather continues to be relatively mild, worse than last year second quarter for us, but relatively mild -- but burn through that shingle inventory, yes in this April-May time frame they'll actually have to purchase, or possibly even closer.

One final question -- and again, it's been a question asked, but I wanted to maybe re-address it. On the gross margin side, you talked about the impact going forward of some of the acquired operations carrying higher gross margins, I guess predominantly because of mix. Could you maybe address, though, there's still some lingering benefit, I believe, in this December quarter from some of the previous pre-buys and discounts you've been able to get on purchases. Could you maybe normalize that effect for us, and how much more gross margin basis points, if you will, need to come off before as you reach normalization on that front?

No, I don't think to any great degree it's going to impact it. We tend to buy very consistently and I think very effectively. We partner very well with the manufacturers, so I just don't think there's any normalization that's going to occur as a result of pre-buys, post-buys, mid-year buys.

Okay, great. Paul, thanks a lot. I appreciate it.

Okay, thank you.

That concludes the questions. Now I'd like to turn the call back over to Mr. Isabella for closing remarks.

Great, thank you.

Let me just go over a couple of highlights, repeats, but worth going over. For the quarter we ended up at $0.37, versus an adjusted $0.39 in the first quarter of 2012. As I said, for the full year we still feel comfortable with $1.81. There's no price built into that, and there's no above-normal storm activity sales volume built into that. So we view that there's upside if those things occur.

Overall, gross margins ended very strong at 24.7%. As we talked through that, some of the impact, of course, is the acquisitions; but some of it is just disciplined pricing in our market place, and also continued effective buying by our purchasing group. We talked about Residential and Commercial sales being down for the quarter. Again, not entirely surprising, given the strong comparisons that we were up against from last year; and as I said a number of times, the overall softer market we viewed Q1 as.

We believe organic sales growth will be in the 5% range, as I said, for the full year. We're real happy about the January sales results year over year, and also the beginning of February. I talked about our incremental sales from acquisitions being around $230 million for 2013, and the fact that our pipeline is still very active. We're confident we're going to make additional investments this year. Our corporate strategy's going to continue to focus on growth through acquisitions, new branch openings as same-branch sales increases. We continue to work on all three of these.

As always, as I do every quarter, I'd like to thank the employees at Beacon and the support of our investor and customer base. We're working very hard to execute our business plan every day. Thank you for interest in our Company. Rick and I are available for any other questions you might have, although access might be difficult, given the pending storm up here in Boston, and the fact that we have some travel requirements that have to occur.

Thank you and this concludes the call.