Roof Falls In at ElkCorp

The stock sells off after a weak outlook.
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ElkCorp (ELK) fell 7% after warning that rising costs will hit the third quarter.

The Dallas-based roofer made $11 million, or 54 cents a share, for the second quarter ended Dec. 31, down from $14.3 million, or 71 cents a share, a year earlier. Revenue rose 18% from a year ago to $229 million. Analysts surveyed by Thomson First Call were looking for a 52-cent profit on sales of $231 million.

Revenue for premium roofing products rose 14% from a year ago to $205.6 million, due to sales from ElkCorp's recently acquired subsidiary RGM Products and small improvements in both pricing and volume for Elk's existing roofing products. Operating income fell to $26.2 million from $32 million a year ago and operating margin contracted to 12.7% from 17.8%, due to higher raw material and freight costs and significantly lower shipment volume into the Florida storm areas.

"We are pleased with the second quarter results and our ability to exceed guidance in light of continued high raw material and transportation costs in our roofing business," said CEO Thomas Karol. "As we had anticipated, rising raw material costs outpaced our price increases in the quarter and created short-term margin erosion for this business. However, we believe that margins should return to a more normalized level in the near future as we begin to realize more of our announced price increases. Additionally, RGM continued to be a great asset to the company, contributing $0.02 per diluted share for the quarter. We are pleased with the excitement that the RGM products have generated in the market and we expect continued success as we roll these products out nationwide."

ElkCorp forecast a third-quarter profit of 50 cents to 53 cents a share and a 2006 profit of $2.25 to $2.40 a share. Analysts were looking for 69 cents for the quarter and $2.39 for the year. Elk blamed "volatile and uncertain" costs for margin erosion in the short term. The company said fourth-quarter results "are expected to reflect a significant increase in profitability due to improved seasonal volume and pricing in all major product platforms."

On Friday, Elk fell $2.72 to $34.16.