Bearish stock to watch: Foundation Building Materials Inc (NYSE: FBM)

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Foundation Building Materials Inc (NYSE: FBM) stock fell 7.76% on September 19th, 2019 and fell over 1.2% on 20th September, 2019 (as of 10:53 am GMT-4; Source: Google finance) after the company announced the pricing of an underwritten secondary offering of 4,750,000 shares of common share of the Company. This is by the company’s largest shareholder, who is an affiliate of Lone Star Fund IX (U.S.), L.P. at a price to the public of $17 per share. Further, the Selling Stockholder has also granted the underwriters a 30-day option to purchase up to an additional 712,500 shares of common shares of the company. However, the Company will not get any of the proceeds from this offering, but will have to incur the costs associated with the sale of the shares, other than underwriting discounts and commissions. No stocks will be sold by the Company. The offering is anticipated to close on September 24, 2019, after the fulfilment of customary closing conditions. BofA Merrill Lynch and RBC Capital Markets are acting as joint book-running managers and representatives of the underwriters, and Barclays is acting as a book-running manager for this offering. Baird, Raymond James, Stephens Inc. and SunTrust Robinson Humphrey are acting as co-managers for the offering.

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On the other hand, the net sales for the second quarter 2019, were $559.9 million compared to $522.2 million for the second quarter 2018, which represents an increase of 7.2%. Average daily base business net sales during the period increased 3.4% due to strong commercial activity and product expansion into new geographic markets. The company has reported adjusted net income for the second quarter 2019, of $15.8 million, which is an increase of $12.4 million compared to adjusted net income of $3.4 million for the three months ended June 30, 2018. Adjusted EBITDA was $50.3 million and adjusted EBITDA margin was 9% for the second quarter 2019, compared to adjusted EBITDA of $38.8 million and adjusted EBITDA margin of 7.4% for the second quarter 2018.

Gross profit for the second quarter 2019, was $171.5 million compared to $146.3 million for the three months ended June 30, 2018, representing an increase of 17.3%. The growth in gross profit was mainly due to an expansion of the gross margin and the rise in sales from acquisitions and base business growth. Gross margin for the second quarter 2019 was 30.6% compared to 28.0% for the second quarter 2018. The increase in gross margin was mainly due to improved profitability across our product lines due to the ongoing pricing and purchasing initiatives.

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