Why NCI Building Systems Shares Dropped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of NCI Building Systems (NYSE: NCS  ) , a nonresidential metal products manufacturer for the construction industry, shed as much as 10% after reporting its first-quarter earnings results.

So what: For the quarter, NCI Building reported a 22.2% increase in sales to $297.6 million driven by its Metl-Span acquisition last year and by mid-single-digit organic revenue growth in its components and building segments. However, NCI turned in a loss of $0.19 for the quarter, which is significantly worse than the break-even results that Wall Street had anticipated. Gross margin declined 150 basis points as well to 20.5%.

Now what: Based on management's comments, NCI Building's next move is a bit of a toss-up. Management is probably correct in forecasting slow but steady growth in the non-residential construction sector -- with growth ramping up in the second half of the year -- but they also note that sequestration concerns are still largely unknown. Simply put, unknowns are rarely taken with a grain of salt on Wall Street, and NCI is being punished today. Having doubled from its 52-week low and at 22.5 times forward earnings even after today's drop, I'm perfectly comfortable keeping my distance from NCI Building.

Craving more input? Start by adding NCI Building Systems to your free and personalized Watchlist so you can keep up on the latest news with the company. 

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