Beacon, a leading provider of building products and services, has made a significant announcement regarding the repurchase of its Series A Cumulative Convertible Participating Preferred Stock. The company has reached an agreement with Clayton, Dubilier & Rice, LLC (CD&R) to repurchase all outstanding shares of the Series A Preferred Stock held by CD&R's affiliate. Additionally, Beacon has provided estimated preliminary results for the quarter ended June 30, 2023, and updated its full-year 2023 outlook.

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Series A Preferred Stock Repurchase

Beacon plans to repurchase the 400,000 outstanding shares of its Series A Preferred Stock from CD&R for a total amount of $804.5 million, including accrued and unpaid dividends up to the repurchase date. The company expects to finance the transaction through a combination of new and existing debt funding, as well as available cash. The closing of the repurchase is anticipated to take place no later than August 11, 2023.

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Benefits to Beacon and Shareholders

The decision to repurchase the Series A Preferred Stock is expected to bring several advantages to Beacon and its common stockholders. These benefits include:

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Diluted share count reduction

The repurchase will decrease the diluted share count by approximately 9.69 million shares on an as converted basis. This reduction can potentially enhance the value of existing shares.

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Earnings per share accretion

The transaction is projected to provide immediate accretion to Beacon's earnings per share, which can be a positive indicator for investors.

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Preferred dividend elimination

By repurchasing the Series A Preferred Stock, Beacon will eliminate annual preferred dividends of $24.0 million. This reduction in expenses can contribute to improved financial performance.

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Simplified capital structure

The repurchase will simplify Beacon's capital structure, streamlining the company's financial operations and potentially enhancing operational efficiency.

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Key Leadership Changes

Following the completion of the stock repurchase, CD&R's CEO, Nathan Sleeper, will resign from Beacon's board of directors. However, Philip Knisely, an Operating Partner of CD&R, will remain on the board but step down as the non-executive board chair. Stuart Randle, Beacon's lead independent director, will assume the role of non-executive board chair.

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CEO's Perspective

Julian Francis, Beacon's President and CEO, expressed his appreciation for CD&R's support and highlighted the significance of the stock buyback for the company's strategic priorities and financial targets under the Ambition 2025 plan. Francis emphasized Beacon's commitment to creating value for customers, stockholders, employees, and other stakeholders.

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Positive Evolution for Beacon

Nathan Sleeper, CD&R's CEO, acknowledged the role CD&R played in facilitating Beacon's acquisition of Allied Building Products in 2018 and praised the progress made by Beacon's team. Sleeper expressed his pleasure at serving on Beacon's board and his confidence in the company's continued execution of the Ambition 2025 plan.

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Enhanced Stockholder Value and Outlook Update

Stuart Randle, Beacon's lead independent director and chair-elect, highlighted the transaction as a step in Beacon's evolution that enhances stockholder value and improves corporate governance while simplifying the company's capital structure. Randle thanked Nathan Sleeper for his valuable service on the board and expressed enthusiasm for working with Philip Knisely.

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Preliminary Q2 2023 Results and Full-Year Outlook

Beacon also provided preliminary results for the second quarter of 2023. Net sales are expected to reach approximately $2.5 billion, with gross margins estimated at around 25.4%. Net income is projected to range between $147 and $154 million, resulting in diluted net income per share ranging from $1.88 to $1.97. The company's Adjusted EBITDA is estimated to range between $280 and $290 million for the same period.

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Regarding the full-year 2023 outlook, Beacon now anticipates Adjusted EBITDA results in the range of $840 to $870 million, which falls within the upper half of the previously announced guidance. The company expects to provide further updates on its guidance in connection with its second-quarter earnings release.