Stock Preacher

NCI Building Systems Inc. (NYSE: NCS)

NCI Building Systems Inc. (NCS) is a group of recognized brands and companies engaged in manufacturing and supplying of metal coil coating services, metal building components and engineered metal building systems. The Company is comprised of a family of companies with 39 operational manufacturing facilities across the United States and Mexico with additional sales and distribution offices throughout the United States and Canada. Its customers include designers, contractors and building owners in a wide range of markets. It sells its products under brand names such as A & S Building Systems, Ceco Building Systems and Mid-West Steel Building Company. The Company has three distinct business segments: metal coil coating, metal components and custom metal building.

NCS was founded in 1984 and is headquartered in Houston, Texas.

Source: Reuters.com, SEC Filings, FY ending December

Financial Summary

Despite continued difficult market conditions marked by a significant year-over-year decline in nonresidential construction activity in its commercial and industrial sectors, the Company reported third-quarter sales of $238.4 million, a 6.1% sequential improvement from sales of $224.7 million in the 2009 second quarter, but down 50.1% from the $477.6 million reported for last year’s third quarter.

For the third quarter ended August 2, 2009, net income was $4.0 million, or $0.20 per diluted share, which included a $1.2 million restructuring charge related to severance and plant closings. Excluding the charge, the Company would have earned net income of $4.8 million, or $0.25 per diluted share. On the same basis, exclusive of all special charges, the Company incurred a net loss for the 2009 second quarter of $7.2 million, or $0.37 per diluted share. For last year’s third quarter, the Company reported net income of $31.9 million, or $1.63 per diluted share.

The Company reported a sequential decline of 21.4% to $75.9 million in its inventory levels, compared to $96.6 million in the prior quarter. Its inventory on hand at the end of the third quarter was approximately 21% lower than the end of the prior quarter, while annualized inventory turnover was 8.3 turns for the third quarter, compared to 5.3 turns in the prior quarter and 7.4 turns in the year-ago quarter.

NCS has invested $3.7 million in property and equipment during the third quarter, while its year-to-date capital spending already amounted to $17.9 million.

FINANCIAL STRENGTH

Source: Reuters.com

Analyst Consensus

This is the consensus forecast amongst 1 polled investment analysts.

Source: FinancialTimes.com

Investment Highlights

Overview

Since its founding in 1984, NCS has grown to become one of North America’s largest integrated manufacturer of metal products for the nonresidential building industry. NCS is comprised of a family of companies operating manufacturing facilities across the United States and Mexico, with additional sales and distribution offices throughout the United States and Canada.

The Company has three distinct business segments: metal coil coating, which offers full-service coating capabilities; metal components, which serves architects; small, medium and large contractors, specialty roofers, and metal building fabricators with metal building component products, including pre-formed metal roof and wall systems, insulated metal panels, secondary structural members, flashings and accessories, roll-up and sectional doors and interior partition systems; and custom metal building systems, which accommodates dealers, general contractors, developers and architects with custom-designed metal building system for all markets.

NCS’ industry wide recognized companies service designers, contractors and building owners in a wide number of markets including government and institutional, such as schools, churches and libraries; commercial and industrial applications, such as warehouses, office buildings, self-storage facilities, manufacturing and distribution centers, hangars, auto dealerships and sports arenas; as well as, agricultural needs including storage and arenas. NCS has also extended its reach in the green market, serving environmentally-friendly, nonresidential construction projects seeking LEED or other certification by incorporating environmentally friendly and energy saving products.

The Company has established itself as one of the largest producer and distributor of metal components for building construction, including roof and wall panels, in North America, earning more than $1.5 billion in revenue annually.

News

The recent market environment continued to be challenging for NCS, as reflected by a significant year-over-year decline in nonresidential construction activity in its commercial and industrial sectors. But thanks to lower costs combined with pricing discipline, NCS reported sequential improvement in its operating results for the third quarter of 2009.

“Cost reduction programs that have been implemented over the past 10 months resulted in sequential declines in the non-material component of cost of goods sold and SG&A of 17% and 9.2%, respectively. Year-over-year, these expenses were down 49.7% and 31.9%, respectively,” Norman Chambers, NCS president and CEO stated in the Company’s press release.

On October 9, the Company reported further progress on its refinancing plan after finalizing with its lenders the form of agreement for a $125 million asset-based revolving credit facility (ABL) with an additional $50 million accordion feature, and that the Company has confirmed participation from lenders for the full availability under the facility.

NCS previously disclosed that it entered into a definitive investment agreement with Clayton, Dubilier & Rice Fund VIII L.P. (the CD&R Fund), a fund managed by Clayton, Dubilier & Ric Inc., under which the CD&R Fund would invest $250 million in the Company through the purchase of newly issued Convertible Participating Preferred Shares. The investment is part of a comprehensive solution to address NCI’s near-term debt repayment obligations, reduce debt by $323 million and position the Company for future growth.

According to the Company’s report, ABL Facility, which is a condition of the CD&R investment, has a maturity of the earlier of five years or the scheduled maturity of the Company’s term loan after giving effect to the refinancing of its existing credit facility and includes borrowing capacity of up to $25 million for letters of credit and of up to $10 million for swing-line borrowings.

In addition, the Company said it has received approvals from more than two-thirds of the noteholders that are party to a prior lock-up agreement to modify the proposed terms of the refinancing of its existing credit facility

“We appreciate the cooperation we have received from our convertible noteholders and the vast majority of our bank lenders, as well as their recognition of our strong market position and our ability to benefit from improved business conditions over the next several years,” said Chambers.

Market Outlook

NCS expects continued weakness in nonresidential construction activity, as industry reports indicate no meaningful near-term improvement. As reported by the Company, McGraw Hill’s findings showed that new construction activity was down 48% calendar year to date through July compared to 2008 levels, and the Company’s traditionally strong commercial and industrial markets were off approximately 60% as reflected in McGraw-Hill’s July report. “McGraw-Hill is now forecasting that nonresidential construction activity measured in square feet will be 35% lower in calendar 2009 compared to calendar 2008. Steel prices have increased from trough levels in June, but were 51% lower than the comparable period in July 2008 according to the CRU North American steel price index,” the report continued.

“Within this challenging environment, we remain cautious, working to align our resources with demand levels while addressing new market opportunities and broadening our geographic reach,” said Chambers. “Our recently-announced transaction with CD&R will give us the flexibility to ride out the current economic crisis and benefit from our strong market position and industry-leading efficiencies once market conditions improve.”

Technical Analysis

Source: http://stockcharts.com/h-sc/ui

As of last close on October 12, 2009, NCS closed at $3.32, 88.64% above the 52-week low of $1.76 set on March 30, 2009.

Moving Average

NCS is currently above its 13-day moving average. This is generally considered to an indication of a bullish trend.

MACD

The MACD for NCS currently indicates a strong bearish signal for two reasons. First, the MACD is below the signal line, a 9-day moving average. Second, the MACD is below the critical level of 0, which implies that the underlying moving averages are trending lower.

Bollinger Bands

NCS is trading within its Bollinger Bands. This is a normal condition and suggests that the stock is neither overbought nor oversold relative to the recent price action.

Source: http://www.scottrade.com

Comparative Analysis

Source: Yahoo! Finance, Analyst Estimates.

Insider Trading Activity

NET SHARE PURCHASE ACTIVITY

Data provided by Thomson Financial

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