NCI Building Systems Inc. (NYSE: NCS)

NCI Building Systems Inc. (NCS) is engaged in manufacturing and supplying of metal coil coating services, metal building components and engineered metal building systems. The Company serves the low-rise, non-residential construction market. Its range of products is used in repair, retrofit and new construction activities, primarily in North America.

The Company operates in three segments: metal coil coating, metal components and engineered building systems. The metal coil coating segment, which paints steel coils, provides the Company’s entire metal coil coating requirements for its metal components and engineered building systems business segments. Its metal components segment produces parts and accessories that are sold separately or as part of a solution, the most common of which is a metal building system custom-designed and manufactured in its engineered building systems segment and self-storage building systems for commercial, industrial, agricultural, governmental and community markets. This segment sells its products to builders, general contractors, developers, private labels and end users through an in-house sales force.

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

Share Statistics Oct-23-09			2007	2008	%Chg	Q2 2008	Q2 2009	% Chg
Symbol	NCS	Revenue, Mn	1.6B	1.8B	11.1%	416.1M	224.7M	46.0%
Current price	$2.02	Gross margin	24.8%	24.9%	0.4%	26.9%	25.6%	0.0%
52wk Range:	$1.76-$21.11	Oper. margin	8.1%	8.8%	8.0%	11.7%	4.3%	63.2%
Avg Vol (3m):	2,030,360	Net margin	3.9%	4.5%	13.3%	6.7%	1.7%	N/A
Market Cap.	40.3M
Dil. Shares Outst.	20.0M	EPS, $	3.07	4.05	24.2%	0.76	-6.17	911.8%

Source: http://www.ncilp.com/investors.html , https://trading.scottrade.com/quotesresearch/ScottradeResearch.aspx?symbol=GERS , http://www.reuters.com/finance/stocks/incomeStatement?stmtType=INC&perType=ANN&symbol=NCS

Financial Summary

NCS’ sales and earnings are influenced by general economic conditions, interest rates, the price of steel relative to other building materials, the level of nonresidential construction activity, roof repair and retrofit demand, and the availability and cost of financing for construction projects. The overall decline in economic conditions beginning in the third quarter of 2008 has reduced demand for Company products and adversely affected its business. In addition, the tightening of credit in financial markets over the same period has adversely affected the ability of its customers to obtain financing for construction projects. As a result, NCS has experienced decreases in and cancellations of orders for its products, and the ability of its customers to make payments has been adversely affected. Similar factors could cause its suppliers to experience financial distress or bankruptcy, resulting in temporary raw material shortages.

Over the same period, there has been significant volatility in the price of steel, the primary raw material in the Company’s production process. In the first nine months of fiscal 2009, steel prices decreased at a precipitous rate until July 2009 when steel prices began to increase. According to the CRU North American steel price index, steel prices were 51% lower in July 2009 compared with July 2008. This unusual level of volatility has negatively impacted NCS’s business.

First, in the first two quarters of fiscal 2009, the Company has written down inventory to net realizable value given these declines because its sales volume was significantly lower than previously anticipated while raw material prices have declined more rapidly than anticipated.

Second, some customers have delayed projects, waiting to see where steel prices will bottom out. The uncertainty surrounding future economic activity levels and the tightening of credit availability have resulted in significantly decreased activity levels for our business. During the first nine months of fiscal 2009, our sales volumes were significantly below our expectations, primarily in our engineered buildings and components segments.

The corresponding decrease in the Company’s operating results has resulted in NCS violating certain debt covenants for which it has obtained a waiver from its lenders. When the Company began fiscal 2009, McGraw-Hill was predicting a 12% decline in nonresidential construction in 2009 compared to 2008. Subsequently, McGraw-Hill revised its forecast further downward and, as of July 2009, was predicting a 35% decline in nonresidential construction activity in 2009 compared to 2008. McGraw-Hill has also reported a 41.8% reduction in low-rise nonresidential (less than 5 stories) square-footage starts during the first nine months of fiscal 2009 compared with the same period in fiscal 2008.

Consolidated sales for the three months ended August 2, 2009, were $238.4 million compared with $477.6 million for the three months ended July 27, 2008. Sales were down 50.1%, or $239.2 million. This decrease resulted from a 35.7% decrease in external tonnage volumes and by lower relative sales prices in each of the Company’s three segments. Lower tonnage volumes in all three segments in the third quarter of fiscal 2009 compared with the same period in 2008 were driven by reduced demand for such products resulting from the 48.4% reduction in low-rise nonresidential (less than five stories) square-footage starts as reported by McGraw-Hill.

Consolidated cost of sales decreased by 49.2% for the three months ended August 2, 2009, to $177.3 million compared with $349.0 million for the three months ended July 27, 2008. Gross margins were 25.6% for the three months ended August 2, 2009, compared to 26.9% for the same prior year period. Although NCS has taken steps to reduce its variable costs, margins decreased in the metal coil coating and metal components segments. The decrease in margins at the metal components segment was due to the effect of fixed costs in relation to substantially reduced sales. The decrease in margin at the metal coil coating segment was due to higher material costs compared to sales prices.

Metal coil coating sales decreased $46.5 million to $44.3 million in the three months ended August 2, 2009, from $90.7 million in the prior year’s period. Sales to third parties for the three months ended August 2, 2009, decreased $11.8 million to $16.1 million from $27.9 million in the prior year’s period primarily as a result of lower sales prices and a shift in product mix from package sales of coated steel products to tolling revenue for coating services. Generally, package sales of coated steel products contribute lower margin dollars per ton compared to toll processing sales, as a percentage of revenue. However, the shift in product mix during the three-month period compared with the same prior year period was offset by higher material costs compared to sales prices. The dominant component of the price in package sales is steel, which only allows for a minimal mark-up. In addition, there was a $34.6 million decrease in intersegment sales for the three months ended August 2, 2009 compared with the prior year’s period. Metal coil coating third-party sales accounted for 6.7% of total consolidated third-party sales in the three months ended August 2, 2009, compared to 5.8% in the three months ended July 27, 2008.

Operating income of the metal coil coating segment decreased in the three months ended August 2, 2009, to $1.0 million compared to $11.4 million in the prior year’s period primarily due to a $10.8 million decrease in gross profit. The gross margins were lower primarily due to higher material costs compared to sales prices than in the prior period.

Metal components sales decreased $89.6 million to $113.2 million in the three months ended August 2, 2009, compared to $202.8 million in the prior year’s period. Sales were down due to a 30.0% decrease in external tons shipped compared to the prior year’s period and lower sales prices. Sales to third parties for the three months ended August 2, 2009, decreased $72.4 million to $96.1 million from $168.5 million in the prior year’s quarter. In addition, there was a $17.2 million decrease in intersegment sales for the three months ended August 2, 2009, compared with the prior year’s period. Metal components third-party sales accounted for 40.3% of total consolidated third-party sales in the three months ended August 2, 2009, compared to 35.3% in the three months ended July 27, 2008.

Operating income of the metal components segment decreased in the three months ended August 2, 2009, to $13.2 million compared to income of $32.2 million in the prior year’s period. This $19.0 million decrease resulted from charges related to a $23.7 million decrease in gross profit, partially offset by a $4.7 million decrease in selling and administrative expenses primarily related to a $2.0 million decrease in incentive compensation costs, a $1.4 million decrease in wages and compensation costs due to lower headcount and decreases in other various expenses. The gross margins were lower due to lower relative sales prices and a 30.0% decrease in tonnage volumes compared to the prior year’s period.

Engineered building systems sales decreased $162.3 million to $130.4 million in the three months ended August 2, 2009, compared to $292.7 million in the prior year’s period. This decrease resulted from a 54.1% decrease in external tons shipped. Sales to third parties for the three months ended August 2, 2009, decreased $155.0 million to $126.3 million from $281.2 million in the prior year’s period. In addition, there was a $7.4 million decrease in intersegment sales for the three months ended August 2, 2009. Engineered building systems third-party sales accounted for 53.0% of total consolidated third-party sales in the three months ended August 2, 2009, compared to 58.9% in the three months ended July 27, 2008.

Source: http://www.ncilp.com/investor_relations/stock_info.html?qm_page=85192

Analyst Consensus

Buy

Outperform

Hold

Underperform

Sell

No Opinion

This is the consensus forecast among 1 polled investment analysts. Against the NCI Building Systems Inc. company.

Analyst Detail	Buy	Outperform	Hold	Underperform	Sell	No Opinion
Latest	0	0	1	0	0	0
4 weeks ago	0	0	1	0	0	0
2 months ago	0	0	2	0	1	0
3 months ago	0	0	2	0	1	0
Last year	1	0	3	0	1	0

On September 09, 2009, NCS reported third-quarter 2009 earnings of 0.25 per share. The next earnings announcement is expected on December 09, 2009.

Source: Financial Times.com

No consensus estimates analysis currently.

Source: http://www.reuters.com/finance/stocks/estimates?symbol=NCS

Investment Highlights

NCS and Clayton, Dubilier & Rice Inc. recently announced the completion of the previously announced $250 million equity investment in the Company by CD&R-managed funds. The CD&R-managed funds acquired newly issued preferred stock resulting in an ownership position in the Company of approximately 68.5% on an as-converted basis. In connection with the completion of the transaction, NCS’ board of directors will be reconfigured. Among other changes, as previously reported, Sleeper will join the board and James G. Berges, a CD&R Operating Partner, will be designated chairman of the Executive Committee. Other directors are expected to be added in the near future. In addition, the board will have at least two independent directors not appointed by or affiliated with the CD&R Fund. Chambers will remain chairman, president and CEO.

NCS earlier this year announced that it has obtained an extension of the waivers granted by its senior credit facility lenders on May 20, 2009. Under the extension, the waivers of the Company’s compliance with its financial maintenance covenants and the waivers of its restrictions on entering into an agreement for a substantial equity investment in the Company continue until November 6, 2009. Previously, these waivers had been in effect through August 14, 2009, with an automatic extension to September 15, 2009, upon the signing of a definitive agreement for an equity investment.

Source: Scottrade.com, Reuters.com, http://www.ncilp.com/investor_relations/events.html

Technical Analysis

Source: www.stockcharts.com

Moving Average Price Compare

NCS is below its 50-day moving average. This bearish sign is even more significant because the moving average is also trending lower.

Bollinger Bands

NCS is trading near its lower Bollinger Band. This suggests that the stock price is low relative to its recent price action.

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.

Comparative Analysis

Company Name	Ticker	Price per	Mrkt. Cap.	P/E		P/S
Oct-23-2009	symbol	Share, $	$ Mn	2009	2010	2009	2010
Nucor Corp.	NUE	44.18	14.8B	N/A	N/M	N/A	N/M
Gibraltar Industries Inc.	ROCK	14.73	473M	N/A	N/M	1.3	N/M
Patrick Industries	PATK	2.80	27M	N/A	N/M	N/A	N/M
Simpson Manufacturing Co.	SSD	27.17	1.3B	46	N/M	N/A	N/M
Median		22.22	4.15B
NCI Building Systems Inc.	NCS	2.02	45.6M	N/M	N/M	N/A	N/M

Source: Reuter.com, Nasdaq.com

Insider Trading Activity

Net Share Purchase Activity

Insider Purchases – Last 6 Months Shares Trans Purchases N/A 0 Sales N/A 0 Net Shares Purchased (Sold) N/A 0 Total Insider Shares Held 332.08K N/A % Net Shares Purchased (Sold) 0.0% N/A

Net Institutional Purchases – Prior Qtr to Latest Qtr Shares Net Shares Purchased (Sold) (6,351,580) % Change in Institutional Shares Held (56.8%)

Data provided by Thomson Financial

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