BFS To Reach Out to Small Builders; Aims To Boost Margins

Ummm, so now the price slut is after our bread n butter customers. Unless they are willing to stock a better grade of lumber and increase their service, they will not succeed for the most part.  In addition another sign of bad management and too much debt.  Glenn  Now for the article.

Execs’ comments follow report builder swung to net loss in 4Q

Source: PROSALES Information Service
Publication date: February 18, 2011

By Craig Webb

Builders FirstSource (BFS) is expanding its customer base to include smaller builders and remodelers, is looking for better margins now that some of its competitors have closed, and has increased its commodity purchases to meet commitments and avoid getting burned for a second year by price volatility, the dealer’s top two officers said today.

The comments to stock analysts by CEO Floyd Sherman and CFO Chad Crow came less than 24 hours after the Dallas-based company reported it had swung to a net loss of $24.6 million in 2010’s fourth quarter from $6.6 million net income in 2009’s fourth quarter, when it was able to claim $33.2 million worth of tax benefits. Sales fell 4.3% in the quarter to $147.1 million. On a continuing operations basis, BFS swung to a $24.5 million loss in the fourth quarter from a $6.2 million profit in the final three months of 2009. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) amounted to a $12.5 million loss in the quarter, compared with income of $6.6 million during the year-earlier period.

Amid all the red ink, Sherman told analysts the company was seeing signs its business was improving. Among other reasons: “For the current quarter, the competitive pricing pressures we had seen throughout the first nine months of 2010 were still present, but we have recently seen signs that suggest pricing discipline may be returning to the market,” he said.

BFS ranks 10th on the most recent ProSales 100, and has since moved to No. 9 because of a merger higher up. (See updated list.) It serves builders across the Southeast, from Maryland to Florida to Texas. Historically it has dealt with America’s biggest homebuilders, but today Sherman said that focus is shifting.

“We’re beginning to target and look more to smaller builders and looking to how we can get more involved in repair and remodel market,” he said. “This has been a very small part of our company’s total overall sales … [and] in our larger markets we really haven’t done a lot of business in this area. We need to look harder at that, how we can take advantage of that market segment. That should offer us better margins that what we see in new home construction.”

Crow added that the shift doesn’t imply any change in the company’s market footprint. “It’s really more setting up locations to serve that type of customer,” he said. “You get more walk-in business” serving small builders and remodelers, he said, “and some of our locations aren’t conducive to doing that.”

Gross margins in the fourth quarter shrank to 19.1% from 19.7% in the final three months of 2009, while margins for all 2010 shrank by an even greater amount, to 18.8% from 21%. The company blamed much of that drop to volatile commodity prices. In particular, oriented strand board prices shot up early last year at a time when BFS had been keeping its inventory low, thus forcing the company to pay dearer prices than it might normally.

But BFS also cited competition from other dealers as a reason behind 2010’s decline in gross margins. Now, with scores of LBM facilities in the South having closed up since January 2010, he expects that in some, unnamed markets, BFS will see less competition and more desire by builders to go with a company that it sees as surviving the housing slump.

“You don’t have as many starving people out there fighting over what small amount of business is available,” Sherman remarked. “We’ve seen the elimination of competitors in those markets,” he said, and that in turn is leading to “a supply/demand matchup that’s starting to reflect itself in the bidding process.”

Along with shrinkage in a building supply market that’s still greater than what the current market needs, Sherman also believes the improving market for new homes will help the company stand fast and be more selective in going after potential customers. In the past, he said, BFS felt constrained to pursue prices and volume for its engineered products and components operations because they need certain volumes to operate. “You did what you had to do to survive, but now I think it’s time for us to get a greater value for our products,” he said.

“There are indications that we can maybe, in a select number of markets, move those margins up,” Sherman said, declining to name those markets. “Whether it will continue remains to be seen … but we’re hopeful.”

That’s not to say that BFS will turn a net profit soon. It expects housing starts to rise to 525,000 this year from 471,000 in 2009, but Crow says BFS needs annual starts rates to reach 650,000 before it breaks even on an EBITDA basis and 725,000 before it can cover its cash-flow needs. And that’s assuming it can push current gross margins up to between 20% and 21% from 2010’s 18.8%. For all of last year, BFS’ net loss deepened to $95.5 million from $61.8 million in 2009 even as sales improved 3% to $700.3 million.

The company has borrowing covenants that can cover its needs for the foreseeable future, the BFS officials said.

One sign of BFS’ general health lies in its inventory levels. At the end of 2009, the company had roughly worth of $13.7 million worth of inventories–a lower level than the company normally would like, Crow said, but necessary because it hadn’t recapitalized itself and was having liquidity issues. Now, the situation has changed; as of last Dec. 31, it had nearly $26 million worth of inventory.

“We made a decision that we felt the commodity markets were going to be volatile, [and so in order] to protect ourselves and keep us from getting hit like the second quarter of last year, that we had to make an investment in inventory,” Sherman said. “So far, with what’s going on in the market, we’ve made some good deicison. We’re going to carry a heavier commodity inventory than we typidcally would until we see more stability in the commodity market.”

During 2010, lumber and lumber sheet goods posted the highest sales of any segment, hitting $40.8 million for the quarter and accounting for 27.7% of total sales. The window and door segment was not far behind with $36.8 million in sales (25%). prefabricated components had $26 million in sales (17.7%), and millwork took in $16.7 million (11.3%). The “other” building products segment posted sales of $26.8 million, or 18.3% of total revenue.

The lumber and lumber sheet goods segment also posted the highest sales for the year with $201.4 million, or 28.8% of the total sales. Windows and doors also finished second with $161 million in sales. Prefabricated components posted sales of $135.5 million for the year, while millwork had sales of $75.8 million and other building products and services had sales of $126.5 million.

So far this year, “It’s obviously been rough in some markets in January with the weather, and in Texas it’s been rough (this month),” Crow said. “But we’re near where we’re forecasting.”

 

Advertisements

About Republic of Texas (Conservative/Libertarian state)

Apostolic/Christian, Conservative/Libertarian, Husband & Father, Hunter, Mountain biker, hiking, camping, outdoors love em. Business man etc.
This entry was posted in Business and tagged , , , , , , , , , , , , , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s