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A name which has not received much coverage on this platform is Gibraltar Industries, Inc. (NASDAQ:ROCK) which is surprising as the company appears positioned in an interesting manner, and its shares have certainly seen some interesting moves as of late.
The Business
Gibraltar generated more than $1.3 billion in sales in 2021, a more than 30% increase from the year before. The company consists out of four major segments of which the residential markets is the largest, with construction, protection, comfort and communication products and services for homes and adjacent markets. This segment generated some $635 million in sales, thereby responsible for nearly half of sales with adjusted operating margins seen close to 17% of sales.
The renewable segment is the second-largest business and saw spectacular growth to $432 million in revenues in 2021, driven by the acquisition of Terrasmart. Operating margins fell nearly five points to 8% of sales, driven by inflationary impacts on these projects.
The same inflationary headwinds hurt the small agricultural business as well as its margins fell more than two points to 4% and change on a $200 million revenue base. The infrastructure segment saw modest growth and solid margins at 12%, yet with revenues of $73 million, this is a relatively small business.
Weighing it all together, Gibraltar saw strong growth in 2021, yet two points of margin pressure to 9.3% of sales made that earnings were flattish. Adjusted earnings per share in 2021 were up five cents to $2.78 per share, albeit that earnings fell in the final quarter of the year already with inflationary pressures mounting.
The company guided for growth in 2022, on the back of this positioning, which includes some real long term tailwinds for the renewable segment, but to a lesser extent the other segments as well. Amidst all this, the company guided for 2022 sales to come in between $1.38 and $1.43 billion. Adjusted operating margins for 2022 were expected to recover to 10.6-10.9%, which once achieved would translate into adjusted earnings around $3.30 per share.
Some Perspective
Gibraltar has seen solid share price appreciation over time, with shares trading at $50 ahead of the outbreak of the pandemic. After an initial move lower, shares rose to the $100 mark early in 2021 as investors were pricing in anticipated benefits of increased (infrastructure) spending. Given the earnings power close to $3 per share, these were very demanding valuations, despite a flattish net cash position.
As inflationary pressure hurt fourth quarter results a bit already shares were trading at $65 at the start of 2022 and even since have come down to a low of $40 in recent weeks, now trading hands at $45 per share.
In May of this year, the company announced a $200 million share buyback programs to take advantage of the decline in the share price. Alongside the earnings report, Gibraltar posted a strong first quarter earnings report with sales up 11% to $318 million as adjusted earnings rose a similar percentage to $0.60 per share despite real woes in the renewables segment, as the company reiterated the full year guidance.
Early in August, second quarter sales rose just 5% to $367 million, yet strong pricing action made that adjusted earnings per share rose 18% to $0.96 per share, notably driven by strength in the residential business, as the company again reiterated the revenue and profit guidance. Net debt rose to $76 million amidst some early buybacks, still a very modest amount given that adjusted EBITDA came in at $86 million in the first half of the year.
With a current $1.47 billion equity valuation at $45 per share, or $1.54 billion enterprise valuation, the valuation comes in at just over 1 times sales and at a reasonable 13-14 times adjusted earnings multiple, the gap with GAAP earnings is very modest.
Gibraltar furthermore announced the next bolt-on deal with a $54 million deal for Quality Aluminum Products. The company is a manufacturer of residential building products, including aluminum and steel products for soffit, fascia, trim coil and related products. With a $93 million revenue contribution and $11.5 million EBITDA addition, the deal multiples are very modest, and look very accretive. This deal should boost sales and EBITDA by around 7%, as the valuation comes in at just 4% of the own valuation, indicating that the deal is attractively valued.
Concluding Remarks
Weighing everything together, I think that the momentum run higher in 2021 is far too upbeat, yet the reversal in the momentum has been perhaps a bit overdone as well. Trading at $45, the valuation multiple has come down quite a bit, as shares trade at just 13-14 times earnings, ahead of a deal which will boost earnings and sales by about 7%, all while pro forma net debt will increase to $130 million, still reasonably below the EBITDA contribution of the business here.
Very modest leverage, non-demanding earnings multiple and reasonably positioned business activities make that the risk-reward looks quite compelling here at $45. As all of this looks quite good, I have to learn a bit more about Gibraltar before making up my mind to initiate a position here, as the first glance looks rather upbeat.
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