TopBuild (NYSE:BLD) Posts Q4 Sales In Line With Estimates But Full-Year Sales Guidance Misses Expectations Significantly

Building services and installation company TopBuild (NYSE:BLD) met Wall Street’s revenue expectations in Q4 CY2024, with sales up 2% year on year to $1.31 billion. On the other hand, the company’s full-year revenue guidance of $5.2 billion at the midpoint came in 4.8% below analysts’ estimates. Its non-GAAP profit of $5.13 per share was 1.6% above analysts’ consensus estimates.

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Company Overview

Established in 2015 following a spinoff from Masco Corporation, TopBuild (NYSE:BLD) is a distributor and installer of insulation and other building products.

Home Builders

Traditionally, homebuilders have built competitive advantages with economies of scale that lead to advantaged purchasing and brand recognition among consumers. Aesthetic trends have always been important in the space, but more recently, energy efficiency and conservation are driving innovation. However, these companies are still at the whim of the macro, specifically interest rates that heavily impact new and existing home sales. In fact, homebuilders are one of the most cyclical subsectors within industrials.

Sales Growth

A company’s long-term sales performance is one signal of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Thankfully, TopBuild’s 15.2% annualized revenue growth over the last five years was incredible. Its growth surpassed the average industrials company and shows its offerings resonate with customers, a great starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. TopBuild’s recent history shows its demand slowed significantly as its annualized revenue growth of 3.2% over the last two years is well below its five-year trend.

This quarter, TopBuild grew its revenue by 2% year on year, and its $1.31 billion of revenue was in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 2.4% over the next 12 months, similar to its two-year rate. This projection doesn't excite us and indicates its newer products and services will not catalyze better top-line performance yet. At least the company is tracking well in other measures of financial health.

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Operating Margin

TopBuild has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 15.6%. This result was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it’s a show of well-managed operations if they’re high when gross margins are low.

Looking at the trend in its profitability, TopBuild’s operating margin rose by 3.6 percentage points over the last five years, as its sales growth gave it operating leverage.

This quarter, TopBuild generated an operating profit margin of 16.6%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Earnings Per Share

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

TopBuild’s EPS grew at an astounding 30.8% compounded annual growth rate over the last five years, higher than its 15.2% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Diving into the nuances of TopBuild’s earnings can give us a better understanding of its performance. As we mentioned earlier, TopBuild’s operating margin was flat this quarter but expanded by 3.6 percentage points over the last five years. On top of that, its share count shrank by 13%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For TopBuild, its two-year annual EPS growth of 10.8% was lower than its five-year trend. We still think its growth was good and hope it can accelerate in the future.

In Q4, TopBuild reported EPS at $5.13, up from $4.69 in the same quarter last year. This print beat analysts’ estimates by 1.6%. Over the next 12 months, Wall Street expects TopBuild’s full-year EPS of $21.04 to grow 5.9%.

Key Takeaways from TopBuild’s Q4 Results

It was good to see TopBuild narrowly top analysts’ EPS and EBITDA expectations this quarter. On the other hand, its full-year revenue and EBITDA guidance fell short of Wall Street’s estimates. Overall, this quarter could have been better. The stock traded down 4% to $289.73 immediately following the results.

TopBuild underperformed this quarter, but does that create an opportunity to invest right now? We think that the latest quarter is only one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.