Looking Beyond Headwaters Inc. (NYSE: HW)’s Disappointing F3Q


The kind of earnings and revenue that Headwaters Inc. (NYSE: HW) posted in its F3Q2016 didn’t impress anyone, save for the management that tried to highlight improvements in the results from a year ago period. But beyond the missed expectations in the latest, Headwaters shared a piece of information that investors cannot afford to ignore.

The information is about the agreement to acquire Krestmark, a leading player in the windows market. Headwaters Inc. (NYSE: HW) has agreed to pay $240 million to swallow all the assets of Krestmark. The management said that the move will mark the entry of Headwaters into the potentially lucrative windows space.

The reason Headwaters sees the acquisition of Krestmark as a strategic fit is that many of its customers already purchase windows. As such, the acquisition of Krestmark should enable Headwaters to tighten grip on its existing customers by offering them a more fulsome portfolio of products.

Beyond servicing existing customers, Headwaters sees the acquisition of Krestmark as an opportunity to bring more customers on board and also diversify revenue streams.

Going into windows business is something that Headwaters Inc. (NYSE: HW) has been considering for some time, but it couldn’t see quality assets to buy. As such, getting hold of Krestmark fits into the company’s strategic plan. The management of Headwaters likes the fact that Krestmark is already a leader in its local geographic market.

What kind of business is Krestmark?

According to Headwaters Inc. (NYSE: HW), Krestmark is growing its organic revenue at a double-digit rate and that has been the case over the last eight years. On top of the topline benefit, Headwaters expects Krestmark to boost its profit margins immediately. As such, the management sees adjusted EBITDA margins expanding beyond 19.1% recorded in the trailing 12 months.

How Headwaters Inc (NYSE: HW) fared in F3Q

Headwaters Inc. (NYSE: HW) posted EPS of $0.30 on revenue of $262.5 million in its F3Q2016. Though the figures improved for a year-ago quarter, they fell short of the consensus estimates. Analysts were looking for EPS of $0.38 on revenue of $276.8 million.


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