Headwaters Inc Earnings Cheat Sheet: Higher Energy Costs Yield Challenges

Headwaters Incorporated’s (NASDAQ:HW) second quarter loss narrowed, beating estimates. Headwaters, Inc provides products, technologies and services in three industries: light building products, heavy construction materials and energy technology.

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Headwaters Incorporated Earnings Cheat Sheet for the Second Quarter

Results: Loss narrowed to $13 million (loss of 22 cents/diluted share) from $13 million (loss of 22 cents/share) in the same quarter a year earlier.

Revenue: Remained constant at $128.2 million.

Actual vs. Wall St. Expectations: HW beat the mean analyst estimate of a loss of 93 cents/share. Estimates ranged from a loss of 32 cents per share to a loss of $2.60 per share.

Quoting Management: “Headwaters’ second quarter was challenging from a couple of perspectives,” said Kirk A. Benson, Chairman and Chief Executive Officer of Headwaters. “First, higher energy costs drove increased raw materials, freight, and production costs which negatively impacted our margins. We have instituted price increases to recover some of these costs, however, there is a lag effect that will cause continued near term margin pressure. Second, adverse weather conditions in January and February affected our fly ash and siding accessories sales in the Midwest and Northeast. On a positive note, we are seeing improvements in our fly ash and light building product sales in Texas and throughout the southern part of the country. We are also experiencing improvements in our energy technology segment, primarily due to the sale of our HCAT catalyst.”

“In the latter part of 2010 and in the first half of 2011 we noted a stabilization of our business, with sales appearing to have flattened and showing signs of modest recovery,” said Don P. Newman, Headwaters’ Chief Financial Officer. “While the December and March quarters typically represent 25% – 30% of our total adjusted EBITDA for the year, our 2011 results will depend upon the continued recovery and strength of our end markets. Based on somewhat soft April sales, and particularly for our light building products segment, our end markets may have stabilized but they do not appear to have materially strengthened.” “We remain cautiously optimistic that we will meet our fiscal year 2011 EBITDA guidance range of $85 to $100 million,” said Mr. Newman, “and that conditions in our end markets will improve in the second half of the year. We also expect to see some benefit from our price increase in light building products and reduced expenses from our restructuring activities. We will continue to monitor the performance of our business closely and provide the appropriate guidance during the remainder of the year.”

Key Stats: From the first quarter, the company’s current liabilities rose to $98.3 million from $74.6 million.

Over the last five quarters, revenue has increased 3.5% on average year over year. The biggest increase came in the first quarter, when revenue rose 10.8% from the year earlier quarter.

Competitors to Watch: PGT, Inc. (NASDAQ:PGTI), NCI Building Systems, Inc. (NYSE:NCS), Apogee Enterprises, Inc. (NASDAQ:APOG), Armstrong World Industries, Inc. (NYSE:AWI), Owens Corning (NYSE:OC), Titon Holdings plc (TON), Griffon Corporation (NYSE:GFF), Patrick Industries, Inc. (NASDAQ:PATK), and Nam Lee Pressed Metal Industries Ltd. (G0I)

Stock Performance: Shares of HW are unchanged from the previous close of $4.87.


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