Shares of Cornerstone Building Brands (NYSE:CNR), the nation's largest manufacturer of exterior building products, fell today after the company's third-quarter earnings report came up short on the top line and the company hinted that the construction market was slowing. The stock finished down 11.8% on the day.
Cornerstone, the name of the company that resulted from the merger between NCI Building Systems and Ply Gem, said sales reached $1.29 billion, more than double the $548.5 million when the company was just NCI. But that missed analyst estimates at $1.32 billion.
Pro forma gross margin improved 240 basis points to 24.1%, and management said that the merger was delivering the expected synergies with $72 million in savings already realized.
Earnings per share under generally accepted accounting principles (GAAP) fell from $0.54 to $0.20 as the company took on more than $3 billion in debt from the merger and significant interest expense, which totaled $56.5 million in the quarter. On a non-GAAP (adjusted) basis, EPS fell from $0.51 to $0.30. Analysts had expected the company to report a profit of $0.23 per share.
CEO James Metcalf summed up the performance: "During the third quarter, our operational initiatives including procurement, continuous improvement, cost initiatives, and merger savings drove significant margin expansion across our windows, siding, and commercial businesses, despite lower year-over-year market volumes. With a concentration on pricing discipline and cost management, we were able to successfully deliver a strong quarter at the upper end of our adjusted EBITDA guidance range."
In its fourth-quarter guidance, management also said that demand was weakening, noting that its key economic indicators are tracking toward low growth in residential markets and moderate contraction in commercial markets. Therefore, the company called for adjusted EBITDA of $135 million to $150 million for the fourth quarter, which is down from $180.8 million in the third quarter, though the end of the year tends to be a seasonally slower period.
Though management is executing on its strategy following the merger, the slowdown in the construction market seems to be causing investors to back off from the stock.