Beacon Roofing Supply Inc (BECN) 2013 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Beacon Roofing Supply FY13 fourth-quarter and year-end conference call. My name is Lexi, and I will be your coordinator for today.

(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 future financial performance of this 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, November 26, 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 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 referenced during management review of the financial results.

On the call today for Beacon Roofing Supply will be Mr. Paul Isabella, President and CEO; and Mr. Joe Nowicki, 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.

Thank you. Good morning, and welcome to our fourth-quarter and full-year earnings call. We have made progress on a number of business deliverables, most notably sales growth.

Total sales growth for the quarter was strong at 14.3%, fueled by organic growth of 6%. The sales results are a record for a quarter and a full year. Our team did a great job with growth.

Earnings for the quarter ended at $0.56 versus $0.60 last year. This was below our expectations, but considering the competitive price pressure we felt, we feel good about our progress. The Q4 gross margin ended at 23.1% versus 25% in 2012.

The Mid-Atlantic and West regions continue to deal with lower demand, being on the back side of storm volume they enjoyed in 2012. Those markets are beginning to recover. In the near term, however, the lack of normal demand creates a much more competitive environment, as we have said, as there's less work because of pull-forward, as contractors and distributors compete for the same work.

Cost control was another strong point. We had very solid results in the quarter, with our existing market costs ending below 16% of sales, over 1 full point lower than last year's rate. Costs were flat year over year on a dollar basis, with a 6% organic growth in the quarter: good leverage and good performance.

We continued integrating the recently acquired companies, and are making good progress, focusing on customer service and operational improvement. We will continue this effort in 2014 and beyond. As we have said in the past, we typically view the new acquisition integration process as a three- to five-year time frame.

We're still very active in the acquisition market. We continue to talk to numerous companies. We had a very successful year last year, acquiring McClure-Johnston of Pittsburgh; Ford and CMS of northern California. It is difficult to predict when sellers will sell. We have the capital structure and operational strength to do multiple deals, and we'll continue to work on executing these, as we have in the past.

In addition to the acquired markets, we continue to make progress with our growth strategy related to greenfields, as we opened up seven new branches in Q4, which brings the 2013 total to 10, as we talked about on the last call.

Another bright spot was operating cash flow, which came in at $76 million versus last year's $85 million. All of our debt measures are in excellent shape, and position us well for growth in the future.

Now, as I've done in the past, I'll give a little more color on sales, gross margin, and EPS. With regard to sales, by month, Q3 organic sales were as follows: July was up 14.3%; August was up 7.6%; and September was up 5.7%. These are all on a same-days basis.

For the quarter, resi sales were up 4.8%, commercial sales were up a strong 8.3%, and complementary was up 3.4%. This marks two consecutive quarters where all three product lines have seen positive organic growth: 1.2% last quarter and the 6% this quarter.

In the quarter we saw five of our seven reported regions growing organically, with four seeing greater than 7%. The Southeast and Southwest led the way, with big, double-digit gains. These results were fueled by storm repair and general market strength, including new construction.

For the start of the year, October sales were very strong, with total growth of 18.3% and organic growth of around 11% on a same-days basis: positive result to start out the year.

For the full year, I expect organic sales growth to be in the 5% to 10% range. Industry data suggests average roofing market growth of 6% per year through 2017. As we've said in the past, this growth number could be impacted by many factors, such as market strength and weather. Of course, as we move through the year, we'll have more information to share.

Gross margins: Existing-market gross margins for the quarter were at the low end of what we estimated, 23%; and 25% versus in 2012. For the year, existing gross margins were 23.4% versus the 24.4% in 2012. As I have stated, distribution has not passed the increased input costs from manufacturers into the market. For sure, we are focused on improving gross margins in 2014, and market pricing is a big piece of this.

Our market pricing for the fourth quarter was down approximately 0.5 points; and for the full year, pricing was up about the same amount. At present, it appears the Fall manufacturer price increases, mainly for shingles, will not be passed to distribution.

We do believe that some of the price pressure our end market continues to see is normal for this time of year, as we approach Winter and as distribution reduces inventory. However, there are indications of a firming pricing environment versus an eroding pricing environment. This, of course, varies by region. If true, we could see price appreciation to our end markets as we go through Q2 and beyond.

As we look at the full year, our stated range for gross margins has not changed. We've been talking about this for a number of years, at 22.5% to 24%. EPS: For 2014, at this early point in the year, we believe full-year EPS will be towards the lower end of the current published range.

It's very difficult to say, as we sit here in November, how much pricing will improve, how severe the Winter will be, and how much storm volume will impact the year. We'll continue to focus on maximizing sales and controlling costs. As volume grows, we'll leverage costs and maximize operating income.

As I've said, the industry estimates for growth are positive, so we should be able to capitalize on this. And our goal is to exceed those estimates.

Now I'm going to turn the call over to Joe, and he can go over into a little more detail the financial highlights of the quarter and the year. Joe?

Thanks, Paul, and good morning, everyone. Now I'll highlight a little more in detail on a few key financial results and metrics that are contained in our earnings press release, the fourth-quarter slides that were posted to our website this morning, and the 10-K that will be filed later today. Traditionally, we like to file the 10-K with the press release, but we moved up the press release date and this conference call to accommodate the short holiday week.

Total sales for the quarter increased 14.3% to a fourth-quarter record of $684 million. Half of that growth came from acquisitions that added $43 million to our revenue for the quarter. The other half came from organic growth. Our fiscal-2013 fourth-quarter organic sales increased 7.6%.

By product group, the increase was as follows: Residential roofing sales up 10.1%; non-residential roofing up 6.5%; and complementary product sales up 5.1%. Looking at it from a same-day basis as 2012 -- we did have one more day in 2013 -- the growth rate is 6%. Sales rebounded nicely from a challenging third quarter that was marked by unfavorable weather conditions.

On a positive note, all three of our lines of business demonstrated solid organic growth this quarter. In fact, the residential business posted its highest growth rate in six quarters. The commercial business drove positive organic growth for the second quarter in a row after four straight quarters of decline. And complementary sales trends continue to be encouraging, as this helps us further expand on our product diversification.

In our geographic regions, our Southeast region achieved the highest organic sales growth of more than 36% for the quarter, while Southwest region had an increase of nearly 20%. In both these, there were favorable impacts from storms.

Our biggest challenge this quarter was gross margin, which decreased to 23.1% from 25% last year. This drove the majority of the unfavorable impact on our year-over-year financial performance. The lower gross margins in 2013 were due primarily to an increase in net product costs of our residential roofing sales not consistently passed through to customers.

In fact, overall average selling prices in comparison to last year's Q4 were down slightly, approximately 0.5%, due to the challenging pricing environment. The largest declines from the prior year were in our residential roofing product gross margins, due primarily to the cost increase that I mentioned, while our average commercial roofing margin was flat year over year, and our complementary product gross margin was up slightly.

Existing-market operating expenses, which are shown in slide 2, were up less than $1 million, but decreased to 15.8% of sales from 16.9% in the prior year. It demonstrates our continued focus on cost control, and the leverage we get from the incremental volume.

Our overall payroll and benefits increased to handle the additional volume and the new greenfields, but were mostly offset by bad-debt-expense reductions and a lower G&A cost. Our improvements in bad-debt expense reflect the improved AR processes that are driving a better aging and quality of our AR.

Overall operating expenses for the quarter as a percentage of net sales decreased to 16.1% from 16.9%, mostly due to the leverage from higher sales, offset by increased operating expenses from our recent acquisitions which result, by the way, in higher purchase accounting amortization. In fact, we had $3.8 million this quarter -- also, higher integration costs.

Interest expense and other financing costs were down $0.8 million in the fourth quarter, as a result of our lower debt balances. Our effective tax rate was 40.3% for the current quarter, as compared to 39.2% last year.

Our net income: $27.4 million for the quarter compared to $27.9 million last year. Diluted net income per share was $0.55 compared to $0.58 for the same period last year. The adjusted diluted income per share was $0.56 in the current year versus $0.60 in the prior year.

Our adjusted EBITDA, or earnings before interest, taxes, depreciation and amortization, adjusted for stock-based compensation, was $58.9 million, or 8.6% of sales for 2013. This compared to $57.1 million, or 9.5% of sales, in 2012.

Now I'm going to spend just a couple moments on the full-year results, which start on slide 4. Total sales, aided, again, by our acquisitions, increased 9.6% to a sales record of $2.24 billion. Our fiscal-2013 organic sales, which excluded sales at branches acquired since the beginning of last year, increased 1.2%. Important to note that we were up against a very strong organic sales increase of 6.3% last year, when we had some storm business in the first quarter, and unusually warm weather in the second quarter.

Organic growth by product group was as follows: Residential roofing sales up 1.3%; non-residential roofing down 0.4%; and complementary products up 5.2%. In almost all areas, improved demand in the second half of the year offset declines in the first half of the year.

We had 253 selling days in 2013, compared to 251 days last year. As a result, our organic market average sales per day were up 0.4%.

In our geographic regions for the year, our Southeast and Southwest regions both showed double-digit organic sales growth, while our Canadian regions achieved an increase of 5%. The Northeast, Mid-Atlantic, Midwest, and West all experienced mid-single-digit declines year over year.

Overall gross margins decreased for the year to 23.7% from 24.5% in 2012. In existing markets, it declined to 23.4% from 24.4%. Our margins declined in the second half of the year primarily as a result of the increased net product costs in our residential roofing product sales that were not able to be consistently passed through to customers.

Existing-market operating expenses for 2013, which are shown in slide 5, were up slightly by $1 million from last year. This was due primarily to higher payroll and warehouse expenses, partially offset by a lower bad-debt expense.

Operating expenses as a percentage of net sales increased to 17.9% overall, from 17.5% last year. In existing markets, the percentage declined, 16.9% versus the 17% in the prior year. The overall rate increase was mostly due to the acquired markets impact, which have higher purchase accounting amortization and integration costs.

Interest expense and other financing costs were down $9 million, as we benefited from the change in the value of our older interest rate swaps in the first half of this year, and also from lower total debt outstanding. The prior year included $4.9 million of charges associated with last year's refinancing.

Our income tax expense reflected an effective tax rate of 40.2% for the year, compared to 40.3% last year. Our net income was $72.6 million, compared to $75.6 million last year, while the diluted net income per share was $1.47, compared to $1.58 for 2012.

Adjusted diluted net income per share was $1.45, compared to an adjusted $1.67 last year, as calculated in our press release, and also shown on slide 6. Our adjusted EBITDA was $170.4 million, 7.6% of sales for 2013, compared to $176.1 million or 8.6% of sales in 2012. The lower adjusted EBITDA was primarily due to lower net income in 2013.

As slide 7 shows, the cash flow from operations was a strong $78.4 million, compared to $85 million last year -- both years driven by the strength of our net income.

Capital expenditures, excluding acquisitions, in 2013 were $26.1 million, compared to $17.4 million in 2012. The increase there was primarily the result of our fleet upgrades. We expect capital expenditures to be approximately 1% to 1.5% of sales for the full year, slightly higher than in the past, as a result of continued fleet upgrades, and also investments into the greenfields to continue to fuel our growth strategy.

Net cash used for acquisitions was $64.6 million, compared to $141 million last year. Net cash provided by financing activities was $18 million this year, mostly from the proceeds of option exercises. Our current ratio was a strong 2.3:1 versus 2.1:1 at the end of last year. Our net-debt-to-capital ratio, 19.1% at the end of 2013, compared to 23.1% at the end of 2012.

The results of our two bank financial covenants at the end of this year were as follows: Our total leverage ratio was a very low 1.6:1, compared to 1.5:1 at the end of 2012. Our interest coverage ratio was 15.9:1, compared to 15.8:1 at the end of 2012. These metrics demonstrate the strength of our balance sheet, which provides us with the capability to continue to execute on our growth strategy of new branch openings and acquisitions.

With that, we will now respond to any questions you may have. Thank you.

(Operator Instructions)

David Manthey, Robert W. Baird.

First question: In terms of the current quarter, could you break down -- so we're 100% clear on the price versus units by res, non-res, and complementary -- if you could do that for us? Then if you're looking at say 6% growth next year, could you give us a rough break-down of your expectations on how that would break down between the three segments?

Yes, Dave. In terms of the quarterly splits on the mix, we don't have that. The price mix impact was, in the quarter, in this $3-million to $4-million range. More the impact came on the input cost side as you measure year over year.

Okay. You mentioned that the gross margin was most impacted by shingles, so I guess that the residential side was the one that was mostly impacted by negative price?

Yes. It sure was. Yes.

Okay.

Again though, the price was mostly that half of that half a point, but we still have obviously COGS being impacted, some of it being the hangover from Q3 of the material we took in that was at a higher level; hence, we weren't able to get pricing out. For next year we don't have the splits, although we view commercial as potentially being above 5% -- I do, in this 7% to 8% range.

It's interesting, the October splits on growth were pretty interesting. Resi was up 8%, commercial was up 15%, and complementary was up 9%. I do think some of the commercial growth in October could have been spill-over from September. We had a little lower growth, organic growth rate, in September. We were hoping to get closer to $700 million for the quarter in total sales. We ended up at that 6%. So Dave, I don't have the splits broken out definitively for next year by line of business.

Okay. Just to follow up, in terms of the difficulty you had passing price increases through to the channel, I'm wondering if you'd talk about how much you think that is a temporary issue, and if there's anything that's structural that might be an issue there? As it relates to that, current levels of inventory that you see out in the channel, and then what might affect the Company's gross margin to be either on the low end or the high end of the 22.5% to 24% next year, as you think about the gross margin into next year?

Yes, good questions, Dave. I think -- no, there's nothing structurally that has changed at all in the market place. If you look at our gross margins through the years they fluctuate. They'll fluctuate this winter as volume dries up because of the weather, especially obviously in the northern climates. I think the inventory right now is being bled by -- that's my view -- by most at distribution, and I think that's why the competitive pressure has continued from Q3 into Q4. I wouldn't expect it to necessarily subside. Here we've got what, five, six weeks left in the year, and the weather's going to start. Folks are trying to burn inventory. I didn't mention our inventory, but we ended up at 250 versus or so versus the 220 last year. 14 of the 250 and change was acquired markets, so we did quite well ourselves burning inventory off.

I don't -- I made also comments that we're seeing more firming than erosion as we do our own checks. I'm hopeful that as has normally happened as we go through the winter, and all distribution does somewhat of a winter buy, that prices will firm as we get through our Q2 and we'll actually see price appreciation. We're going to be very focused, as you can imagine, on input costs, and then on measuring our folks to obtain price, just because of the fact we took in costs during the year that we weren't able to translate into price out the door.

Ryan Merkel, William Blair.

Just wanted to start with the quarter. You missed your guidance by about $0.01 for the quarter. It looked like that was on the OpEx line. Was that the reason? Could you explain why operating expenses are up so much sequentially? It just seemed a little out of line versus history?

Yes, no as -- our -- as we looked at the quarter, I had said that if we were closer to the 23% gross margin, we'd be at that quote lower range which I had at the $1.50, and hence the quarterly number. Obviously, we ended up right in that range. Part of the pain continued just on I thought sales were going to be a little bit higher, but it really, the pain that we saw still is a result of the gross margin being just less than what we needed it to be to get above $1.50. I don't think from an existing market cost standpoint year over year we did quite well. Total, we still are impacted by the acquired markets; but in the quarter the acquired markets actually improved from where we were year to date at the end of the third quarter, probably in the 22% range of costs against sales.

There's nothing structurally that occurred in the quarter that would change any of that other than timing, other than the acquisitions -- although, as I said, the acquisition cost piece improved as we went through the year, and it will continue to improve as we go through 2014. We did the two -- well third smaller -- but two big acquisitions just about at the beginning of the winter, especially McClure-Johnston, as we took them in in November. We incurred an awful lot of cost with very little sales up front, and then we worked through the year to work down and integrate the teams.

Okay. So from your standpoint, it was more of a sales at the lower end and gross margins at the lower end. It wasn't really an OpEx issue. That was in line with what you were thinking?

Yes. We had -- remember, some of our regions had some hyper volume too, where we saw growth. Obviously, we fueled 6% organic growth for the quarter -- the same cost, dollar cost year over year, which we feel pretty good about. There's always room, as you know Ryan, as we've talked, to improve on the cost side. We will continue to look for ways, we'll continue to drive down wasteful overtime, and reduce costs, cut costs wherever we can, to be as efficient as possible; but nothing structurally changed at all on the cost line.

Okay. Moving to gross margin, can you talk about the trend during the quarter, because I think it started a little lower, and I think you were hopeful that it would rise as the quarter progressed. Some of my checks indicated that prices have actually inched up seven of the last eight months on shingles, while COGS has remained flat. I was hopeful there would be a little bit of progress there, but just talk through what you saw in terms of the trends the last couple months, and then if you could, even into October?

Yes, I think in general it's been flat. We thought the same thing, we would see a bit of an up-tick. I can't get too deep, obviously, into our Q1, because we don't talk at that level of detail. But as we went through Q4, that margin was relatively flat. It did not show a pop.

I think your comments about pricing now, we would tend to lean towards agreeing with you, because a lot of our checks -- at this point now, not necessarily in the past -- we're starting to see more optimism that market is firming, and that could be as a result of so many factors, many we can't see, such as inventory in the channel, any late-year buys that are being made by competitors to reach gauge, things like that, right? But there's more optimism now for sure then there was a month ago, there was four months ago, there was six months ago, as we got through the April-May time frame, and we realized we weren't seeing price. So it's flattish. Right through the quarter.

Ken Zener, KeyBanc.

Paul, Joe, I'm doing well. I guess you talked about this $3 million or $4 million mix. I'm trying to understand, we're talking about price and input cost, and it sounds like price is kind of flat sequentially. Do you think -- the gross margin erosion first, what in the quarter was the spread between res and commercial, if you would? Second, was the compression you saw, if prices were flat, really because of the higher prices you took in? Why do you think that wasn't reflected? It's normal for people to raise cash for Christmas as we get into the slower selling season. Why don't you think pricing pressure was happening to your smaller distributors?

I'll take at least the spread piece. That hasn't changed. We've talked about 1,100 basis points between res and commercial, and it moves, it floats -- the one going up, the other going up or down. So we don't see -- haven't seen any huge change there. Then the last part of your question, I really can't talk to our competitors. One logical answer would be that maybe there isn't as much margin sensitivity, but that would be speculation on my part. For some of the other elements of the mix, price, I'll let Joe talk through that for the quarter.

I'll try to unpack your first question, which I think was trying to get for quarter, just giving it -- trying to understand a little bit of what drove that quarter-over-quarter decline in gross margin, right? Yes, it was down roughly around two points of gross margin. Three key elements in there: Mix, price, and cost, right? Those are the three.

The mix piece of it a little bit unfavorable to us -- not a big impact, maybe $1 million -- not a significant impact on the mix part to it. As Paul talked about price, it's about price perspective, actually the slight decline in prices, that 0.5%. That's the number that Paul and I have described at $3 million to $4 million. The balance of the decrease in gross margin year over year really had to do with the product cost piece of it. So that actually was our product costs increasing. That was the balance of it, which is in that $8-million to $10-million range. Those are the key three items that make up and get you to reconcile the quarter-over-quarter gross margin piece. Does that help you?

That does. That was very good. I appreciate it. Did you -- where you saw -- because you're in different regions, was the gross margin, or do you see a correlation between markets where it was more demand; therefore it wasn't slower, and you didn't see as much margin pressure specifically on the res side related to inventory? Is that a function of demand, or is that really more seasonal in all your markets?

I think it's more seasonal. Of course there are little micro-pockets where we'll see hyper-demand and then hyper gross margins. I think in general it's more seasonally affected. We certainly have areas that are growing strong, and it doesn't mean any of us in distribution can name our price. There still are competitive factors. We still have very informed and bright contractors, our customers. Our whole advantage, right, is the value add. So no, I think it's more seasonal than necessarily volume related.

On the sequential piece, if you look from Q3, whether it's overall or existing in the quarter, our margins went down -- I'll say slightly overall, 23.5% to 23.1%, and existing 23.2% to 23%. So the same forces that were at work in Q3 carried through in Q4, even with the stronger volume, which just points to a competitive market, which isn't unusual for us.

Sam Darkatsh, Raymond James.

Two questions. First off, the October residential being up 8% is really encouraging, particularly in light of the fact I think Owens Corning was mentioning that they were expecting the industry to be down in the mid-single digits in the December quarter. Is there a really onerous year-over-year comparison in November and December because of Sandy last year, or are you picking up a disproportionate amount of share at least near term? How do we reconcile what you're seeing versus what your supplier said?

Good question, Sam. I wish we could measure share more definitively. We're trying to -- we're going to dig in deeper as we go through time, to see if there's some measure we can get at that would allow us to talk about that. No, our Sandy volume was virtually nil. I think I said at the outset I had estimated $5 million to $10 million. I think it's in that range that we realized, $10 million, maybe a little higher; so there's nothing there.

Then on -- I don't have the exact splits from last year, but I think we were down in November and December organically. But again Sam, that can -- any of the numbers fluctuate from month to month, just based on what work is being let. Of course now, especially as we get closer into one, the holidays, and then winter. Depending on what happens with the weather, that can also influence sales.

Last question. I think one of the other questioners was mentioning this, too, the wide gross margin spread expectation for 2014. At least for 2013 you're already at the higher end of that range, and you're talking about trying to work gross margins higher. What would have to happen and how realistic is it for you to actually come in around that 22.5%, 23% range? The low end of that range, it seems pretty onerous at this point, and then I would think, somewhat unlikely. Just get a sense of that?

I wouldn't use the word onerous, because I think it really depends on the health of the economy. I think it depends on, of course, how aggressive our competitors want to be. I think the bigger piece for us is will we execute on gaining price as we normally do throughout the year? So I'm not being negative, but I wouldn't use the word onerous.

If you look historically at our gross margins, we have ran in that range. The winter, as I said earlier, for sure we could definitely tick towards the lower end, just because of pressure on less demand, the more severe weather, which happened what -- two years ago, or three years ago now. We're going to stay focused on driving price, driving proper buying practices as we always do, and of course I think most importantly, providing great value to the customer base, so we're the logical choice, therefore price becomes less of a discussion.

Should we assume then that first-half --

The other piece, Sam, that I would add to the discussion -- as you know, one of the biggest drivers of our gross margin is always mix, as well too, because of the big shift between residential and commercial. That's another big driver which could have an impact.

Should we figure then that the first fiscal half your gross margins might be at the lower end of the range, and then your expectation is to have pricing firm by the back half, so gross margins would be closer to the higher end in the back half, would be the plan?

I don't think that that's unreasonable. If you look back four -- three, four, five years, 2012 was somewhat as an anomaly as you went through the quarterly splits of 24%, close to 24%, 25%, 25%. That was an anomaly, but in 2011 we did 23.4%, 22% in that winter quarter. So it isn't unusual for us to have those fluctuations of lower 23%s, higher 22%s, during the -- especially if winter starts early in our Q1, and then if it's harsh as we go through Q2. That's somewhat of our pattern.

(Operator Instructions)

Kathryn Thompson, Thompson Research Group.

Two questions for you, the first revisiting the guidance that you gave. First, if you clarify interest expense guidance for the full year fiscal 2014? Also, you had noted that it would be on the lower end of the current analyst EPS range, and there's quite a wide range currently. There's a grouping around $1.80, but there's also another at around $1.70, and that's a pretty big delta. Were you referencing the $1.80 or the $1.70?

I was referencing that lower end of -- at the $1.70.

Okay, and interest expense for the year?

That gets to a pretty granular piece of detail that we don't usually forecast out that way. But if you look at what are the big factors to it, the amount of our debt -- which we've done a great job of continuing to lower that debt level, and that helped us this year. Absent of any acquisitions, that's always a difficult one to put in play here. But without any acquisitions, obviously you'd see us continue to work down that debt structure, so the interest expense would continue to go down next year versus the current year. (multiple speakers)

More broadly speaking, IKO has been making plans to open a new plant in Alabama. Our checks are showing more that is more than likely won't happen in early 2014, but possibly in the latter part of the year. What is the potential impact of that new plant from your perspective, not only in a market where it's opening in the Southeast, but also in the markets where it's currently shipping -- so in the Midwest and the mid-Atlantic. What's the potential ripple effect there, or is there not much affect at all? Thank you.

Good question, Kathryn. I think it's a tough question to predict what that IKO opening will do. We already have enough shingle players that can certainly take care of every market in this country, whether it be GAF, Owens Corning, CertainTeed, Tamko, Atlas. IKO already ships to a lot of locations in the US. The Southeast is certainly a good region for them to open up to, so I think it will just be -- we'll have to wait and see if there's going to be pricing pressure, but there's pricing pressure now that's occurred anyway without them. I wouldn't think -- my opinion right now that there wouldn't be a huge impact on what's already happening in the Southeast, where it always has been for a number of years very competitive. I just think it's going to be another opportunity for the contractors to have a choice in a shingle line as they do across the rest of the country, even in the west where we sell -- the distribution sells more Malarkey and more PABCO.

Brent Rakers, Wunderlich Securities.

First, I was hoping to have a quick clarification. I think you guys said the July month organic was up 14.3%. Was that supposed to be 4.3%?

Which month, Brent?

Did you give a July month organic sales number earlier?

In your script.

Yes, I could've could have given the splits. Yes.

Okay. Maybe as you're looking for that, I'll just move forward as well. I think in the past, you have talked about both the October November months in terms of revenues, so I was hoping you could give even a flavor. I know November's not done, but a flavor of the trend in November. I think in the past, also, you've given an idea of what the gross margin trend was at the first part of the December quarter, as well. I was hoping you could maybe provide some insight there, as well?

Yes. I think per Sam's -- I think it was Sam who asked about -- or Ryan, maybe, who asked about GM through the quarter would have looked like. It's still at that same flattish level that we saw in Q4. November, at this point, is trending not quite as good as October. I guess I'll leave it at that, because we're obviously not finished with the month, and I don't want to get too granular on intra-quarter type of numbers. The number I recited in my piece for July was 14.3%.

Okay. I'll have to address that off line. I guess the follow-up question, you've had a lot of talk about gross margins and I guess the moving challenges of some of the price deflation and some of the COGS increasing, as well. In the event that you had typical pass-through effects within distribution from the manufacturer side in the quarter, do you have a sense of where that gross margin would have been under that type of environment in the quarter?

Again are you -- say it again, Brent. Are you talking about the pass-through to our end market?

Yes, if distribution pricing was able to pass through the supplier price increase cleanly as they typically do, what would've the gross margins been in the quarter?

Well, we ended up at negative half a point. As we started well before the beginning of the quarter, we had expected and hoped to see 2 to 3 points of price -- positive price in the quarter. I mean I didn't have any illusions that we'd see 5% or 6% in the quarter, but 2% or 3% to us at that time seemed reasonable.

At this time we have time for one or two more questions. We will take our next question from Michael Rehaut with JPMorgan.

This is actually Jason Marcus in for Mike. My first question was hoping you could talk a little bit more about your acquisition pipeline. I think you made almost $300 million of acquisitions in calendar 2012, but we haven't seen any major announcements yet this year. I was hoping maybe you could comment on what you're seeing in the acquisition front, what the current multiples you're seeing in the market place, and how we should think about acquisitions going into 2014?

Yes. We obviously in the calendar year, we did very well. Towards the end in our fiscal year we did very well, as I talked about with McClure-Johnston and Ford and CMS. I think what we're seeing now is no different than what we've seen in past years, where we have very robust years of acquisitions. Then there's a lull. That's just a function of the fact that these independent distributors have their -- really their own time frame. We're certainly not going to necessarily induce it any quicker via price, because we're prudent on that front.

I'm not concerned at all. The activity level is the same as it was a year and a half ago before we did -- started to do the bigger pieces of the deal with Cassady Pierce and Structural -- prior to that, Fowler & Peth. At that time there had been a little bit of a lull just because of the recession, et cetera. I think we're in the same point we've been at any period where there's a little bit of a lull, and that's a function of these very solid distributors getting ready to pass the torch in terms of their transition plans. I would expect, as we said 18 months ago, 20 months ago, that we're going to see at some point in the future that same, the same elements at work that will have folks selling, whether it's us buying them or our competitors buying them, I think it's -- we'll see that continue. That's not going to change.

From a multiple standpoint, we don't talk about it. We value these companies based on the power of their earnings and their strategic fit. I think that's the appropriate way for us to look at it. We pay what we believe we can bear in our -- on our balance sheet and in the P&L going forward, knowing that there's going to be some synergies.

This concludes the question-and-answer session. Now I would like to turn the call back over to Mr. Isabella for his closing comments.

Great, thanks. Let me go over a few highlights of today's call. Sales were a record $684 million for the quarter, with strong organic growth of 6%. Adjusted EPS, as we said for the quarter ended at $0.56 versus $0.60 last year. For the year, that adjusted EPS was $1.45 versus $1.67. Cash flow was strong at $76 million, as I said.

Our growth strategy continues to be executed on the green field piece, as we opened up 7 in the quarter, 10 for the full year, and we plan to open up 15 to 20 in 2014. We started out October very strong, and we're pleased with sales growing 18.3% in total, and 11% organically. As I just said, the acquisition pipeline is still full. We're confident in the future we'll be able to make additional investments. We have not stopped working on this important piece of our strategy.

As I've said on previous calls, our business model has not changed. The market and market dynamics have not changed. We're very focused on being the best service provider to our customer base. We're focused on growing profitably, and we'll continue to focus on cost control and gross-margin growth. Our market is large and growing and serves mostly replacement business. New construction is also growing, and we are participating in this. Key for us is to continue executing our strategic plan, and provide compelling shareholder and customer value, and we know we'll do this.

As always, I'd like to thank the employees of Beacon and the support of our investor base. We'll continue to work on executing both our short-term and long-term plans. Thank you for your interest in our Company. Joe and I are available here in Herndon for any other questions you might have. Have a safe and happy holiday. Thank you, and this concludes the call.

That concludes today's conference call. We thank you for your participation.