It's all about credit.
On Builders FirstSource, Inc. Q3’08 Conference Call: CEO Floyd Sherman said B-FS drew upon their credit line in September. He said it wasn't due to a cash crunch but rather fear of their lead bank, Wachovia (NASDAQ:WB), going under. CFO Charles Horn said once the merger with Wells Fargo (NYSE:WFC) goes through, B-FS plans to repay the debt.
Later on in the call, B-FS noted a rise in defaults and customer writeoffs and late payments. CFO Charles Horn attributed it to mainly smaller builders. The big ones seem to be fine, according to Horn. B-FS also said it was gaining market share as smaller suppliers fold.
More evidence that just as the building supply industry consolidates, smaller builders are leaving the homebuilding industry. Major builders are growing market share and positioning themselves well for an eventual housing rebound.
Our cash balance was $131.2 million at the end of September after we borrowed $60 million on our $350 million revolving credit facility at the end of September... [Our lead bank is Wachovia.] We initiated the borrowings… to make certain we would have ample cash liquidity for our long-term needs.
FS: We are seeing [capacity closures] taking place now on an accelerated basis… We’re also seeing it with a lot of smaller operations.
Bad debt expense and other customer write-offs were essentially consistent between quarters at $1.5 million. Credit is becoming increasingly difficult for our builder customers to access… Our bad debt expense and other customer write-offs may reflect these difficult conditions in future quarters.
You mentioned that 7% of your accounts receivable was greater than 60 days past due. I just wanted to see what’s a comparative figure for this during more normalized times?
CH: In normalized time it’s running 3.5% or 4%. So during good times it would be about 4% and at this point it’s about 7%.
FS: We definitely are increasing our involvement with the national builders… as the competitors pull out of the markets… About 50% of our revenues are to the Builder 100 group so we do think that will be beneficial for us.
CH: The smaller builders who are having their credit lines pulled away from them. We’re seeing some fairly large regional builders who are losing their credit lines. Once that happened they have to wait until they sell homes. Then they try to pay off their suppliers. I think the credit crisis we’re seeing that’s going on is really affecting your smaller builders. I can’t tell you that we’re seeing any issues with our top customers.