An increase in operating expenses led Beacon Roofing Supply, the No. 3 company on the ProSales 100, to report today its net income slipped 13.7% to $12.9 million in its fiscal first quarter ended Dec. 31 despite an 8% rise in sales to a record $596 million.

Gross profit climbed 8.4% to $137.6 million, giving the Herndon, Va.-based dealer a gross profit margin for the quarter of 23.1%. But operating expenses increased almost 14% to $113.7 million, depressing operating income to $23.8 million; that's 12.1% less than it did in 2013's October-to-December quarter. Six branches acquired last October--the deals involved Wholesale Roofing Supply of Dallas and Applicator Sales and Service of Portland, Maine--contributed $19.7 million of the total sales, while greenfield branches opened throughout all of fiscal 2014 (which ended Sept. 30, 2014), provided another $23 million to the total sales figure.

"We are particularly pleased with the growth of our residential product line, which was up 11.2% over the prior year, aided by the 26 new branches opened in the prior fiscal year," Paul Isabella, Beacon's president and CEO, said in a press release. "Complementary sales were also a bright spot in the quarter, up 18.5%. The sales gains in these two particular product lines as well as stronger warehouse sales led to higher gross margins over prior year and over prior quarter."

Residential roofing products accounted for 46.9% of sales in the quarter ended Dec. 31, up from 45.5% a year earlier. Non-residential roofing products accounted for 36.7% of total sales, nearly 3 points lower than the year before, while sales of complementary building products rose to 16.4% of the total from 14.9%. As of Dec. 31, Beacon operated 268 branches in 42 U.S. states and six Canadian provinces.

Later, during a briefing with analysts, Isabella said:

  • "We feel good about our organic growth against these numbers even more so when you factoring the pricing loss we had in the quarter," Isabella said, according to a transcript of his conference call. "Our continued growth positions us to take full advantage of an upswing in reroofing and new construction as both segments are expected to grow in calendar year 2015.
  • The increase in operating expenses went largely to support the company's strategy of adding new greenfield branches and acquiring operations. "We believe these investments are critical to our future growth and margin expansion," he said.
  • Sales in January rose 15% at stores that had been in operation a year earlier, and company-wide sales--i.e., including operations started or acquired in 2014--were up 19% for the month.
  • "For the balance of 2015 we are positive about our ability to grow sales," he said. "I already mentioned the data on new construction, which is optimistic. There is also optimism on existing home sales and remodeling. Without combination of acquisitions and organic growth, we believe we can grow in the high single-digit range for the full year."
  • Beacon expects to open 10 new branches this year. As for mergers and acquisitions, "Our pipeline is full and we are optimistic on future deals."
  • "I just don’t see the manufacturers taking price down because they have lower input costs," Isabella said. "So, I think in my mind, there is a view that it could stabilize."