Gibraltar Announces Second Quarter Results

Sales Grow 18%; Drives EPS Up 166%

BUFFALO, N.Y.--(BUSINESS WIRE)--Gibraltar Industries, Inc. (Nasdaq: ROCK), a leading manufacturer and distributor of products for building and industrial markets, today reported its financial results for the three and six months ended June 30, 2011.

Net sales for the second quarter of 2011 increased $32 million or 18% to $208.8 million, from $176.9 million for the second quarter of 2010, including $22 million in revenues from two second quarter acquisitions. GAAP income from continuing operations was $7.2 million, or $0.24 per diluted share, an increase of 166% from $0.09 per diluted share for the second quarter last year. Results from the second quarter of 2011 included after-tax special charges of $2.1 million, resulting from acquisition-related costs and exit activity costs related to business restructuring. Results from the second quarter of 2010 include $0.3 million of after-tax restructuring charges. Adjusting for these items, Gibraltar’s second-quarter 2011 adjusted income from continuing operations increased 233% to $9.3 million, or $0.30 per diluted share, from $2.9 million, or $0.09 per diluted share, in the second quarter of 2010.

Adjusted gross margin increased to 23% in the second quarter of 2011 from 19% in the second quarter of 2010. The increase was primarily due to a more favorable alignment of raw material costs and customer selling prices, cost reductions, and the impact of the recent higher margin acquisitions. Adjusted selling, general and administrative expense increased 11% to $27.3 million for the second quarter of 2011 from $24.5 million a year earlier, primarily reflecting the Company’s acquisitions this quarter. Adjusted selling, general, and administrative expenses were 13.1% of sales, 70 basis points lower than the second quarter of 2010.

Management Comments

“Gibraltar performed well in the second quarter, especially in light of the limited improvements in our major end markets,” said Gibraltar Chairman and Chief Executive Officer Brian Lipke. “We entered the year confident, given our progress in cost cutting and strategically repositioning the business, the Company could attain profitability in a lackluster demand environment. In line with these expectations, this was the second quarter in a row that we have been able to generate significant year-over-year improvements in sales and profitability, and we expect to generate favorable year-over-year comparisons in the second half of the year.”

“Capitalizing on our broad, competitive product lines, our nationwide manufacturing and distribution footprint, and our available manufacturing capacity, we have been focused on capturing additional share in the residential market, focused primarily on the repair and remodel segment,” Lipke said. “We also are continuing to expand Gibraltar’s position in the industrial sector, as well as in the nonresidential building market. Our efforts in these areas have been successful, as evidenced by the good organic growth we achieved this quarter despite continued weak conditions in the housing market.”

“At the same time, leveraging the strength of our balance sheet and our favorable liquidity position, we were successful in finding new avenues for expanding the business in addition to organic growth,” said Gibraltar President and Chief Operating Officer Henning Kornbrekke. “Our two recent acquisitions not only contributed to our double-digit top-line growth, but also improved Gibraltar’s profitability and operating performance characteristics.”

“In addition to these acquisitions, earlier this year we took another step in our long-term effort to strategically reposition the Company by divesting our structural connectors business,” Kornbrekke said. “This has allowed us to focus our attention strictly on higher-margin building product opportunities, and invest in operating systems which, among other things, have enabled us to more effectively manage the volatility in raw material prices. With these initiatives, along with our lower cost structure, we have successfully positioned Gibraltar to be profitable even at today’s subdued levels of end-market activity.”

For the six months ended June 30, total net sales increased 15% in 2011 to $372.4 million from $323.6 million in 2010. The Company’s GAAP income from continuing operations for the first half of 2011 was $8.7 million, or $0.28 per diluted share, compared with $0.2 million, or $0.01 per diluted share, in 2010. Results from the first half of 2011 included after-tax special charges of $3.9 million for acquisition-related costs, exit activity costs related to business restructuring, and equity compensation declined by Mr. Lipke. After-tax special charges for the first half of 2010 included $1.1 million largely for an ineffective interest rate swap.

Adjusting for these items, Gibraltar’s first half 2011 adjusted income from continuing operations was $12.6 million, or $0.41 per diluted share, compared with adjusted income from continuing operations of $1.3 million, or $0.04 per diluted share, in 2010.

Liquidity and Capital Resources

• Gibraltar’s liquidity was $129 million as of June 30, 2011, including cash on hand of $21 million.
• The Company invested $29 million in working capital since December 31, 2010, as 15% sales growth in the first six months of 2011 increased the investment in accounts receivable and inventories. Days of net working capital, which consists of accounts receivable, inventory and accounts payable, were 61 for the second quarter of 2011, sustaining the Company’s improvement in managing working capital.
• The Company used cash and debt available under its revolver to finance the D.S. Brown and Pacific Award Metals acquisitions this quarter. As of June 30, 2011, the Company had $20 million outstanding under the revolver.

Outlook

“Gibraltar has encouraging prospects for organic growth,” said Lipke. “However, seasonal cyclicality in the second half of the year can be challenging, and we expect moderating demand levels in the second half of 2011, including new housing starts which are likely to remain a headwind at least through the end of the year, if not longer. However, we have been successful in shifting our business mix toward the industrial and, more recently, the infrastructure markets, where there is clearly greater propensity to spend on deferred repair and maintenance and invest in new production capacity as the economic outlook improves.”

“We believe that Gibraltar is well-positioned to capitalize on the pockets of opportunity that appear in our markets through both acquisitions and internally generated growth,” Lipke said. “At the same time, our reduced cost structure and improving operational efficiency provide us with significant ability to leverage future top-line growth. As a result, we believe that Gibraltar will continue to deliver improved sales and profitability in the second half of 2011 compared to the comparable periods of 2010.”

Second Quarter Conference Call Details

Gibraltar has scheduled a conference call to review its results for the second quarter of 2011 tomorrow, August 4, 2011, starting at 9:00 a.m. ET. Interested parties may access the call by dialing [phone] or [phone]. The presentation slides that will be discussed in the conference call are expected to be available this evening, August 3, 2011. The slides may be downloaded from the Gibraltar website: http://www.gibraltar1.com. A web cast replay of the conference call and a copy of the transcript will be available on the website following the call.

About Gibraltar

Gibraltar Industries is a leading manufacturer and distributor of building products, focused on residential and nonresidential repair and remodeling, as well as construction of industrial facilities and public infrastructure. The company generates more than 80% of its sales from products that hold the #1 or #2 positions in their markets, and serves customers across the U.S. and throughout the world from 42 facilities in 20 states, Canada, England and Germany. Gibraltar’s strategy is to grow organically by expanding its product portfolio and penetration of existing customer accounts, while broadening its market and geographic coverage through the acquisition of companies with leadership positions in adjacent product categories. Comprehensive information about Gibraltar can be found on its website, at http://www.gibraltar1.com.

Safe Harbor Statement

Information contained in this news release, other than historical information, contains forward-looking statements and is subject to a number of risk factors, uncertainties, and assumptions. Risk factors that could affect these statements include, but are not limited to, the following: the availability of raw materials and the effects of changing raw material prices on the Company’s results of operations; energy prices and usage; changing demand for the Company’s products and services; changes in the liquidity of the capital and credit markets; risks associated with the integration of acquisitions; and changes in interest and tax rates. In addition, such forward-looking statements could also be affected by general industry and market conditions, as well as general economic and political conditions. The Company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable law or regulation.

Non-GAAP Financial Data

To supplement Gibraltar’s consolidated financial statements presented on a GAAP basis, Gibraltar also presented certain adjusted financial data in this news release. Adjusted financial data excluded special charges consisting of intangible asset impairment, restructuring primarily associated with the closing and consolidation of our facilities, acquisition-related costs, surrendered equity compensation, deferred tax valuation allowances, and interest expense recognized as a result of our interest rate swap becoming ineffective. These adjusted adjustments are shown in the adjusted reconciliation of results excluding special charges provided in the financial statements that accompany this news release. We believe that the presentation of results excluding special charges provides meaningful supplemental data to investors, as well as management, that are indicative of the Company’s core operating results and facilitates comparison of operating results across reporting periods as well as comparison with other companies. Special charges are excluded since they may not be considered directly related to our ongoing business operations. These adjusted measures should not be viewed as a substitute for our GAAP results, and may be different than adjusted measures used by other companies.

Next Earnings Announcement

Gibraltar expects to release its financial results for the three months ending September 30, 2011, on November 2, 2011, and hold its earnings conference call on November 3, 2011, starting at 9:00 a.m. ET.

GIBRALTAR INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (unaudited)
	Three Months Ended June 30,				Six Months Ended June 30,
		2011		2010		2011		2010
Net sales	$	208,807	$	176,924	$	372,370	$	323,598
Cost of sales		163,379		142,943		296,897		263,160
Gross profit		45,428		33,981		75,473		60,438
Selling, general, and administrative expense		28,038		24,544		50,861		48,816
Income from operations		17,390		9,437		24,612		11,622
Interest expense		(4,998)		(4,352)		(9,452)		(10,922)
Other income		38		60		61		131
Income before taxes		12,430		5,145		15,221		831
Provision for income taxes		5,184		2,552		6,534		630
Income from continuing operations		7,246		2,593		8,687		201
Discontinued operations:
Income (loss) before taxes		951		1,459		13,897		(28,626)
Provision for (benefit of) income taxes		392		571		6,370		(10,675)
Income (loss) from discontinued operations		559		888		7,527		(17,951)
Net income (loss)	$	7,805	$	3,481	$	16,214	$	(17,750)
Net income (loss) per share – Basic:
Income from continuing operations	$	0.24	$	0.09	$	0.29	$	0.01
Income (loss) from discontinued operations		0.02		0.02		0.25		(0.60)
Net income (loss)	$	0.26	$	0.11	$	0.54	$	(0.59)
Weighted average shares outstanding – Basic		30,441		30,297		30,433		30,279
Net income (loss) per share – Diluted:
Income from continuing operations	$	0.24	$	0.09	$	0.28	$	0.01
Income (loss) from discontinued operations		0.01		0.02		0.25		(0.59)
Net income (loss)	$	0.25	$	0.11	$	0.53	$	(0.58)
Weighted average shares outstanding – Diluted		30,626		30,459		30,610		30,442

GIBRALTAR INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data) (unaudited)
		June 30,		December 31,
		2011		2010
Assets
Current assets:
Cash and cash equivalents	$	21,093	$	60,866
Accounts receivable, net of reserve of $4,017 and $3,504 in   2011 and 2010, respectively		124,753		70,371
Inventories		115,742		77,848
Other current assets		24,746		20,229
Assets of discontinued operations		2,501		13,063
Total current assets		288,835		242,377
Property, plant, and equipment, net		157,529		145,783
Goodwill		350,363		298,346
Acquired intangibles		99,308		66,301
Equity method investment		—		1,345
Other assets		7,570		16,766
Assets of discontinued operations		—		39,972
	$	903,605	$	810,890
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable	$	84,181	$	56,775
Accrued expenses		55,280		36,785
Current maturities of long-term debt		408		408
Liabilities of discontinued operations		31		6,150
Total current liabilities		139,900		100,118
Long-term debt		226,590		206,789
Deferred income taxes		51,661		37,119
Other non-current liabilities		22,877		23,221
Liabilities of discontinued operations		—		2,790
Shareholders’ equity:
Preferred stock, $0.01 par value; authorized: 10,000,000
shares; none outstanding		—		—
Common stock, $0.01 par value; authorized 50,000,000 shares;   30,696,662 and 30,516,197 shares issued at
June 30, 2011 and December 31, 2010, respectively		307		305
Additional paid-in capital		235,139		231,999
Retained earnings		229,128		212,914
Accumulated other comprehensive income (loss)		1,127		(2,060)
Cost of 280,157 and 218,894 common shares held in treasury   at June 30, 2011 and December 31, 2010, respectively		(3,124)		(2,305)
Total shareholders’ equity		462,577		440,853
	$	903,605	$	810,890

GIBRALTAR INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
	Six Months Ended June 30,
		2011		2010
Cash Flows from Operating Activities
Net income (loss)	$	16,214	$	(17,750)
Income (loss) from discontinued operations		7,527		(17,951)
Income from continuing operations		8,687		201
Adjustments to reconcile net income to net cash (used in) provided by   operating activities:
Depreciation and amortization		12,737		12,070
Stock compensation expense		3,132		2,681
Non-cash charges to interest expense		1,129		3,146
Other non-cash adjustments		1,120		1,112
Increase (decrease) in cash resulting from changes in the following (excluding the effects of acquisitions):
Accounts receivable		(40,186)		(30,610)
Inventories		(15,791)		(5,777)
Other current assets and other assets		8,333		7,105
Accounts payable		17,534		24,603
Accrued expenses and other non-current liabilities		774		(2,536)
Net cash (used in) provided by operating activities of continuing   operations		(2,531)		11,995
Net cash (used in) provided by operating activities of discontinued   operations		(3,134)		18,797
Net cash (used in) provided by operating activities		(5,665)		30,792
Cash Flows from Investing Activities
Cash paid for acquisitions, net of cash acquired		(107,605)		—
Purchases of property, plant, and equipment		(4,547)		(4,356)
Purchase of equity method investment		(250)		(750)
Net proceeds from sale of property and equipment		474		68
Net proceeds from sale of businesses		59,029		29,164
Net cash (used in) provided by investing activities of continuing   operations		(52,899)		24,126
Net cash used in investing activities of discontinued operations		—		(458)
Net cash (used in) provided by investing activities		(52,899)		23,668
Cash Flows from Financing Activities
Proceeds from long-term debt		62,558		8,559
Long-term debt payments		(42,958)		(58,959)
Net proceeds from issuance of common stock		10		270
Excess tax benefit from stock compensation		—		63
Payment of deferred financing fees		—		(64)
Purchase of treasury stock at market prices		(819)		(1,108)
Net cash provided by (used in) financing activities		18,791		(51,239)
Net (decrease) increase in cash and cash equivalents		(39,773)		3,221
Cash and cash equivalents at beginning of year		60,866		23,596
Cash and cash equivalents at end of period	$	21,093	$	26,817

GIBRALTAR INDUSTRIES, INC. Non-GAAP Reconciliation of Adjusted Statement of Operations (unaudited) (in thousands, except per share data)
		Three Months Ended June 30, 2011
		As
		Reported				Exit		Surrendered		Adjusted
		In GAAP Statements		Acquisition- Related Costs		Activity Costs		Equity Compensation		Statement of Operations
Net sales	$	208,807	$	—	$	—	$	—	$	208,807
Cost of sales		163,379		(2,467)		(317)		—		160,595
Gross profit		45,428		2,467		317		—		48,212
Selling, general, and administrative expense		28,038		(224)		(473)		—		27,341
Income from operations		17,390		2,691		790		—		20,871
Operating margin		8.3%		1.3%		0.4%		0.0%		10.0%
Interest expense		(4,998)		—		—		—		(4,998)
Other income		38		—		—		—		38
Income before income taxes		12,430		2,691		790		—		15,911
Provision for income taxes		5,184		1,054		338		—		6,576
Income from continuing operations	$	7,246	$	1,637	$	452	$	—	$	9,335
Income from continuing operations per share   – diluted	$	0.24	$	0.05	$	0.01	$	0.00	$	0.30

GIBRALTAR INDUSTRIES, INC. Non-GAAP Reconciliation of Adjusted Statement of Operations (unaudited) (in thousands, except per share data)
		Three Months Ended June 30, 2010
		As
		Reported		Exit		Ineffective		Intangible		Adjusted
		In GAAP Statements		Activity Costs		Interest Rate Swap		Asset Impairment		Statement of Operations
Net sales	$	176,924	$	—	$	—	$	—	$	176,924
Cost of sales		142,943		(417)		—		—		142,526
Gross profit		33,981		417		—		—		34,398
Selling, general, and administrative expense		24,544		(77)		—		—		24,467
Income from operations		9,437		494		—		—		9,931
Operating margin		5.3%		0.3%		0.0%		0.0%		5.6%
Interest expense		(4,352)		—		—		—		(4,352)
Other income		60		—		—		—		60
Income before income taxes		5,145		494		—		—		5,639
Provision for income taxes		2,552		229		—		—		2,781
Income from continuing operations	$	2,593	$	265	$	—	$	—	$	2,858
Income from continuing operations per share   – diluted	$	0.09	$	0.00	$	0.00	$	0.00	$	0.09

GIBRALTAR INDUSTRIES, INC. Non-GAAP Reconciliation of Adjusted Statement of Operations (unaudited) (in thousands, except per share data)
		Six Months Ended June 30, 2011
		As
		Reported				Surrendered		Exit		Adjusted
		In GAAP Statements		Acquisition- Related Costs		Equity Compensation		Activity Costs		Statement of Operations
Net sales	$	372,370	$	—	$	—	$	—	$	372,370
Cost of sales		296,897		(2,467)		—		(1,175)		293,255
Gross profit		75,473		2,467		—		1,175		79,115
Selling, general, and administrative expense		50,861		(614)		(885)		(483)		48,879
Income from operations		24,612		3,081		885		1,658		30,236
Operating margin		6.6%		0.8%		0.2%		0.5%		8.1%
Interest expense		(9,452)		—		—		—		(9,452)
Other income		61		—		—		—		61
Income before income taxes		15,221		3,081		885		1,658		20,845
Provision for income taxes		6,534		1,054		—		686		8,274
Income from continuing operations	$	8,687	$	2,027	$	885	$	972	$	12,571
Income from continuing operations per share   – diluted	$	0.28	$	0.07	$	0.03	$	0.03	$	0.41

GIBRALTAR INDUSTRIES, INC. Non-GAAP Reconciliation of Adjusted Statement of Operations (unaudited) (in thousands, except per share data)
		Six Months Ended June 30, 2010
		As
		Reported		Exit		Ineffective		Intangible		Adjusted
		In GAAP Statements		Activity Costs		Interest Rate Swap		Asset Impairment		Statement of Operations
Net sales	$	323,598	$	—	$	—	$	—	$	323,598
Cost of sales		263,160		(464)		—		—		262,696
Gross profit		60,438		464		—		—		60,902
Selling, general, and administrative expense		48,816		(77)		—		177		48,916
Income from operations		11,622		541		—		(177)		11,986
Operating margin		3.6%		0.2%		0.0%		(0.1)%		3.7%
Interest expense		(10,922)		—		1,424		—		(9,498)
Other income		131		—		—		—		131
Income before income taxes		831		541		1,424		(177)		2,619
Provision for income taxes		630		248		520		(73)		1,325
Income from continuing operations	$	201	$	293	$	904	$	$ (104)	$	1,294
Income from continuing operations per share   – diluted	$	0.01	$	0.00	$	0.03	$	(0.00)	$	0.04

GIBRALTAR INDUSTRIES, INC. Non-GAAP Reconciliation of Adjusted Statement of Operations (unaudited) (in thousands, except per share data)
		Three Months Ended March 31, 2011
		As
		Reported				Exit		Surrendered		Adjusted
		In GAAP Statements		Acquisition- Related Costs		Activity Costs		Equity Compensation		Statement of Operations
Net sales	$	163,563	$	—	$	—	$	—	$	163,563
Cost of sales		133,518		—		(858)		—		132,660
Gross profit		30,045		—		858		—		30,903
Selling, general, and administrative expense		22,823		(390)		(10)		(885)		21,538
Income from operations		7,222		390		868		885		9,365
Operating margin		4.4%		0.2%		0.6%		0.5%		5.7%
Interest expense		(4,454)		—		—		—		(4,454)
Other income		23		—		—		—		23
Income before income taxes		2,791		390		868		885		4,934
Provision for income taxes		1,350		—		348		—		1,698
Income from continuing operations	$	1,441	$	390	$	520	$	885	$	3,236
Income from continuing operations per share   – diluted	$	0.05	$	0.01	$	0.02	$	0.03	$	0.11

GIBRALTAR INDUSTRIES, INC. Non-GAAP Reconciliation of Adjusted Statement of Operations (unaudited) (in thousands, except per share data)
		Three Months Ended September 30, 2010
		As
		Reported		Exit		Ineffective		Intangible		Adjusted
		In GAAP Statements		Activity Costs		Interest Rate Swap		Asset Impairment		Statement of Operations
Net sales	$	169,741	$	—	$	—	$	—	$	169,741
Cost of sales		142,243		(438)		—		—		141,805
Gross profit		27,498		438		—		—		27,936
Selling, general, and administrative expense		23,262		—		—		—		23,262
Income from operations		4,236		438		—		—		4,674
Operating margin		2.5%		0.3%		0.0%		0.0%		2.8%
Interest expense		(4,429)		—		—		—		(4,429)
Other income		30		—		—		—		30
(Loss) income before income taxes		(163)		438		—		—		275
Benefit of income taxes		(944)		12		—		—		(932)
Income from continuing operations	$	781	$	426	$	—	$	—	$	1,207
Income from continuing operations per share   – diluted	$	0.03	$	0.01	$	0.00	$	0.00	$	0.04

GIBRALTAR INDUSTRIES, INC. Non-GAAP Reconciliation of Adjusted Statement of Operations (unaudited) (in thousands, except per share data)
		Three Months Ended December 31, 2010
		As				Deferred
		Reported		Exit		Tax		Intangible		Adjusted
		In GAAP Statements		Activity Costs		Valuation Allowance		Asset Impairment		Statement of Operations
Net sales	$	144,115	$	—	$	—	$	—	$	144,115
Cost of sales		128,183		(5,459)		—		—		122,724
Gross profit		15,932		5,459		—		—		21,391
Selling, general, and administrative expense		27,291		(647)		—		—		26,644
Intangible asset impairment		77,141		—		—		(77,141)		—
Loss from operations		(88,500)		6,106		—		77,141		(5,253)
Operating margin		(61.4)%		4.3%		0.0%		53.5%		(3.6)%
Interest expense		(4,363)		—		—		—		(4,363)
Other expense		(84)		—		—		—		(84)
Loss before income taxes		(92,947)		6,106		—		77,141		(9,700)
Benefit of income taxes		(16,609)		1,374		(2,400)		14,485		(3,150)
Loss from continuing operations	$	(76,338)	$	4,732	$	2,400	$	62,656	$	(6,550)
Loss from continuing operations per share   – diluted	$	(2.52)	$	0.15	$	0.08	$	2.07	$	(0.22)

GIBRALTAR INDUSTRIES, INC. Non-GAAP Reconciliation of Adjusted Statement of Operations (unaudited) (in thousands, except per share data)
		Year Ended December 31, 2010
		As
		Reported				Adjusted
		In GAAP Statements		Special Charges		Statement of Operations
Net sales	$	637,454	$	—	$	637,454
Cost of sales		533,586		(6,361)		527,225
Gross profit		103,868		6,361		110,229
Selling, general, and administrative expense		99,546		(724)		98,822
Intangible asset impairment		76,964		(76,964)		—
(Loss) income from operations		(72,642)		84,049		11,407
Operating margin		(11.4)%		13.2%		1.8%
Interest expense		(19,714)		1,424		(18,290)
Other income		77		—		77
Loss before income taxes		(92,279)		85,473		(6,806)
Benefit of income taxes		(16,923)		14,166		(2,757)
Loss from continuing operations	$	(75,356)	$	71,307	$	(4,049)
Loss from continuing operations per share   – diluted	$	(2.49)	$	2.36	$	(0.13)