Maryon Davis - Director Finance & IR
George Judd - CEO
Doug Goforth - CFO
Alan Weber - Robotti & Company
BlueLinx Holdings, Inc. (BXC) Q4 2011 Earnings Call February 15, 2012 10:00 AM ET
Good morning. My name is David and I’ll be your conference operator today. At this time, I would like to welcome everyone to the BlueLinx’s Fourth Quarter 2011 Earnings Release Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer period. (Operator Instructions) As a reminder, ladies and gentlemen, this conference is being recorded, today, February 15th, 2012. Thank you.
I would now like to introduce Maryon Davis. Ma’am, you may begin your conference.
Thank you, David, and welcome everyone to the BlueLinx’s fourth quarter 2011 conference call. Our speakers this morning are George Judd, Chief Executive Officer and Doug Goforth, Chief Financial Officer. Our press release was issued earlier this morning. A copy of the release is available in the Investor Relations section of the Company’s website at bluelinxco.com.
Before starting the call, I need to refer you to our Safe Harbor statement. I would like to remind everyone that on today’s call, management may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including all statements concerning future or unexpected events or results. Actual results could differ materially from those projected in the Company’s forward-looking statements due to known and unknown risks and uncertainties.
A discussion of factors that may affect future results is provided in the Company’s filings with the Securities and Exchange Commission. BlueLinx undertakes no obligation to publicly update or revise any forward-looking statements contained in these presentations based on new information or otherwise, except as required by law. With that requirement completed, I’d like to remind our listeners that we have posted slides on our website. We will be referring to these slides during this call and we encourage you to view them during our remarks. Additionally, the slide package contains an appendix of supplementary tables available for your review.
Now, let me turn the call over to our Chief Financial Officer, Doug Goforth.
Thank you, Maryon. I will start with the discussion of fourth quarter and full year financial results, then George will provide some additional commentary and closed with the final perspective.
BlueLinx’s financial performance for the fourth quarter of 2011 improved compared to a year ago as we continue to make strides growing our Specialty Products business. Although the housing market and overall economy remained very challenging, we did experience small improvements in business demand in certain markets during the quarter.
For the fourth quarter actual US single family housing starts were up 2.4% compared to the fourth quarter of 2010, the first rise in single family starts this year. Actual total U.S. housing starts increased 22.6% for the fourth quarter 2011 compared to the same period last year.
Against this backdrop we worked hard to achieve our objectives continuing to cultivate new customers and strengthen supplier relationships. We focused on profitable long-term relationships and profitable transactions. And as we have said before we continue to use this environment to invest in people, processes and program improvement that will help ensure our success as we move forward in 2012 and beyond. Last, but certainly not least, we continue to aggressively manage cost and working capital.
Today, we reported a GAAP net loss of $10.3 million or $0.17 per deluded share on revenue of $391.1 million. That compares to a GAAP net loss of $20.2 million or $0.66 per diluted share on revenue of $367.9 million in the fourth quarter of last year.
Now, let’s review the results in more detail. For those of you following along with the slides posted on the investor relations section of the BlueLinx website, I will begin with slide 5. Overall sales for the fourth quarter in the December 31 totaled $391.1 million up 6.3% or approximately $23 million from the fourth quarter 2010. Both Specialty and Structural product groups experienced increases in unit volumes and product selling prices for the fourth quarter of 2011 compared to the year ago period.
With BlueLinx’s end-use market is more closely tied to single family housing we believe the 6.3% increase in revenue for the quarter driven by our specialty products growth represents expanded market share. Specialty sale increased 8.7% year over year reflecting a 6.6% increase in unit volume and a 2.1% increase in product selling prices. Both warehouse and direct channel business experienced strong growth for the quarter.
Structural products sale increased 7% from the same period last year. This increase was driven by 2.8% increase in volume, and 4.2% year-over-year increase in product selling prices.
Specialty products comprised 59% of total sales consistent with the third quarter of 2010. Overall our unit volume rose 5% compared to the year ago period.
BlueLinx’s generated approximately $48 million in gross profit for the quarter, which is $3.6 million increase over the same period last year. Overall gross margin was 12.3% for the quarter, up from 12.1% in the same period last year, and reflects our ongoing initiative to increase margins across all product categories combined with increases in underlying product prices.
Structural margins of 9.3% were down slightly compared to the prior year quarter with margins were 9.5%. We benefitted some less from the selling prices for key grades of wood-based structural products during the quarter. Average fourth quarter 2011 benchmark wood-based structural prices were up approximately 1.5% compared to the fourth quarter of 2010.
Specialty gross margins for the quarter 14.9% compared with 14.7% a year ago, a result of strong unit volume, and a mix of higher product selling prices. Specialty gross profit increased $3.2 million or approximately 10.10% and represented 89% of the gross profit increase in the quarter.
We believe our gross margin performance is one of the key indications that BlueLinx is operating effectively in a difficult environment.
Fourth quarter operating expenses of $50.5 million were down $6 million compared to $56.5 million a year ago, and included special items of $3.9 million in real estate related gains, and $0.7 million in severance costs respectively.
We have been managing our cost tightly and we will continue to do so. The company reported an operating loss for the fourth quarter of $2.6 million compared to an operating loss of $12.2 million in the prior year period, reflecting $3.6 million increase in gross profit, and $6 million decrease in total operating expenses.
EBITDA improved $9.1 million over the prior year period and reflects the increased gross profit, the net gains from significant special items recorded during the quarter, and our ongoing commitment to cost management and operational efficiency.
Our fourth quarter net loss was $10.3 million or $0.17 per diluted share compares with a net loss of $20.2 million or $0.66 per diluted share in the fourth quarter of 2010. Our reported net loss for the period is after interest expenses of $6.8 compared to interest expense of $7.8 million in the prior year period, which included $1.4 million in pretax non-cash interest income associated with our interest rate swap. The current year net loss is after a tax provision of $0.8 million compared to a tax provision of $0.1 million in the prior year period.
Looking at full year results on slide 6. Sales for the year ended December 31st, totaled $1.76 billion, down 2.7% from the same period last year. Gross margin of 12% increased from 11.7% in the year ago period. Full year reported operating expenses, which included $12.6 million in net gains from significant special items, decreased 6.9% from the same period last year, which included $1.1 million in net gains from significant special items. The resulting operating loss of $8.3 million was largely driven by the continued low level of housing related demand. The operating loss improved $15.6 million compared to the year ago period.
EBITDA increased $12.9 million over the prior year period due to a decrease in gross profit, offset by net gains on significant special items. The full year reported net loss of $38.6 million or $0.89 million per share compares with a net loss of $53.2 million or $1.73 a year ago.
Turning to cash flow on slide 7. During the quarter receivables decreased by $45.9 million in accordance with the normal seasonal slowdown, and inventories decreased $18.2 million. These decreases were partially offset by a $20.7 million decrease in accounts payable. Fourth quarter net cash provided by operations was $33.9 million. This compares with net cash provided by operations of $18 million in the fourth quarter of 2010.
Cash provided by investing activities was $8.2 million and included $9.4 million in proceeds from the sale of certain surplus real estate, and $1.2 million from the investment in property, plant and equipment.
Cash used in financing activities was $43.1 million for the quarter driven by $24 million reduction in outstanding borrowings under our revolving credit facility, and $8 million decrease in bank overdraft, and $3.7 million principal repayment on the mortgage, $7.1 million increase in restricted cash related to the mortgage, and $0.3 million usage from other items. The resulting cash balance at December 31st, was $4.9 million compared with $14.3 million a year ago.
Moving to slide 8. We had approximately $118 million of excess availability under our revolving credit facilities as of quarter end. While this is up from $103 million at the end of 2010, this number will likely tighten throughout the year similar to the pattern we experienced in 2011. But we believe the amounts available from our revolving credit facilities and other sources will be sufficient to fund our operations and capital requirements for the next twelve months.
The combined debt balance on our mortgage and revolving credit agreements was $337.7 million, a decrease of $27.7 million from the third quarter 2011.
Net debt at the end of the fourth quarter was approximately $323 million compared to approximately $357 million at October 1, and was down approximately $15 million from a year ago.
Turning to slide nine, cash cycle days for the fourth quarter totalled 56. That compares with 58 days for the third quarter 2011 and 52 days compared to the same period a year ago.
We continue to balance inventory levels with the demand environment while also continuing to support strategic products and vendors as part of our ongoing focus on specialty product growth.
That concludes my prepared remarks. Now, let me turn the call over to George.
Thank you, Doug, and good morning. Keeping our focus on specialty products, today I am pleased to tell you about two exciting developments in our specialty business. Last quarter we announced our plan to launch a complete line of privately branded engineered products. Today, I am pleased to report that this week we’d launched our engineered product line branded onCENTER. The onCENTER branded engineered products were made available to dealer and lumber customers across the country on February 13.
All onCENTER BLI Joists and LVL are backed by limited life time warranty and supported by our full service cross functional team of engineers, technicians, software developers, inside sales and field based market managers. We are excited to introduce the onCENTER brand to the market and to present our customers with a superior engineered product solution.
Secondly, subsequent to the quarter end, we entered into a new distribution agreement with a Weyerhaeuser to become the independent distributor of Weyerhaeuser's engineered wood products in the New England area effective February 13, 2012.
BlueLinx won this distribution agreement after rigorous process in which we emerged as the best fit for the New England market based on our operational capabilities alignment with Weyerhaeuser local strategies and our strong reputation and relationship with the same New England customer base.
We are excited about the opportunity to work in New England with a great partner like Weyerhaeuser. They have a long standing presence in the forest products industry and distribution is an important part of their success. As we moved to the selection process, it became clear that we share a lot in common, including a deep commitment to New England and taking care of our customers, which makes Weyerhaeuser and BlueLinx a great fit.
The agreement applies to the New England market and does not impact BlueLinx's strategy or approach in other markets. The New England market is defined as Connecticut, Rhode Island, Massachusetts, Maine, New Hampshire, Vermont and upstate New York. As a distributor of building products in many regions across North America, BlueLinx currently operates four facilities in the New England market with distribution centers in Bellingham, Massachusetts; Portland, Maine; Burlington, Vermont, and Buffalo, New York.
Our new onCENTER branded engineered products line and new distribution agreement with Weyerhaeuser are examples with specific strategies that will leverage our powerful sales and distribution assets.
Before turning the call over to operator, let me make a few closing remarks. Home builders ended 2011 with the third straight year of weak activity and the worst on record for single family home construction, despite modest improvement at the end of the year. For the entire year, builders started just 606,000 homes, up 3.4% over the 2010 figure that was roughly half of $1.2 million that economists equate with the healthy housing markets.
Builders started just 428,000 single family homes all year, the fewest on record being back more than half a century. So challenges continue for industry and for BlueLinx. Nevertheless, we are encouraged by the modest improvement in housing starts late in the year and believe it indicates a real housing recovery is getting started.
Most third party housing forecasters for 2012 show moderate growth with housing start forecast with ranging from 630,000 to 730,000 starts. We remain focused on returning BlueLinx to profitability. We continue to believe that our operating initiatives carried out by our skilled, dedicated workforce will create increasing levels of growth.
In summary, for the fourth quarter, we grew sales compared to the year ago quarter driven by our focus on specialty products. We maintain a historical high gross margin rate and generated increased gross profit. We controlled cost and working capital by providing our customers and vendors with high-quality products and services they expect from BlueLinx. We generated approximately $16 million more in operating cash flows when compared to a year ago period.
For the full year, we delivered a positive EBITDA and narrowed our net loss compared to the year ago period. As we move into 2012, we look forward to aggressively confronting the challenge and maximizing the potential opportunities to again deliver improved financial results and positive returns for our shareholders.
On behalf of all of leadership team of BlueLinx, I would like to thank all of our employees for their hard work and ongoing commitment, and dedication to BlueLinx. We navigated through a challenging year. Our annual housing starts were once again weaker than expected.
Nevertheless, I am pleased; we were able to narrow our operating loss for the year by approximately $16 million. A lot of work remains in order for us to return to profitability but I am confident that we are up to the task.
With that, we will open the call to questions. Operator, will you please instruct everyone in how to ask a question.
(Operator Instructions) Your first question comes from the line of Alan Weber with Robotti & Company.
Alan Weber - Robotti & Company
First question is you made a comment about -- I forgot the exact quote but something in the press release that there is still -- you still have a lot of work to do to return to profitability. When you kind of say that, can you kind of talk about how you think it’s really in terms of end markets are somewhat out of your control but internally I guess kind of what are some of the major -- is there anything different that you expect to do in 2012 kind of or it’s a just a continuation of what you’ve been doing to get towards profitability?
Yeah, really what we’re referring to is that as soon as this long wait begins and much steeper housing contraction, then we certainly expected and that everybody that I ever talked to had expected that five years ago. We talked about housing the bubble bursting. We’ve made a lot of adjustments to BlueLinx that we did not expect. And we did present again in 2011, where we consolidated some markets, well we closed our Sacramento, California facility and sold the property and serviced those customers from our Fremont facility, and we’ve retained the large percentage of the business. So we’re constantly looking at models on how we can serve our customers in a more effective and cost efficient way.
And secondly on product line expansion. We expanded our metal product line significantly in the end of 2009 and we grew that business. So now, it’s a major part of our revenue and gross profit dollars. So, in 2011, we have a few things in the pipeline for 2012. We haven’t announced them. We’re working on them. That we’re hoping will also provide that type of revenue and gross profit growth.
And thirdly, the thing we did announce in the first quarter with -- within engineered lumber. In the last three years our engineered lumber margins has declined and so we worked for 18 months frankly to come up with a new plan and new options on how we could take a business that was underperforming, and return it to the top tiers of product performance, which started about five years ago. We’re excited about what we’re now.
So those types of things we’re constantly adjusting and working. We agree we can’t control how many houses get build, we’re excited what we feel in the markets right now. In the first quarter we saw some activity and that seems to be continuing. And we had a large team down at the International Builder Show last week in Orlando and activity was better, and large builders that we met with, and customers that we met with down there were much more optimistic about 2012. So we’re excited about that. We can control it. But we constantly have to be making adjustments to make sure that we capitalize on it.
Alan Weber - Robotti & Company
And I guess as a follow-up question just, kind of the announcements that you made this week regarding, the Weyerhaeuser engineered products. Any idea what that means in terms of volume or revenue?
Yes, we did adjust, not anything we’re prepared to disclose.
Alan Weber - Robotti & Company
Right, I guess I’m right, I guess really okay. I just wasn’t sure, okay. That’s fine. And I guess my last question is kind of a general question, when you think it through for arbitrarily I’m not really asking for projections, but if revenues were up say 10% next year, is I mean is the idea that you expect to overgrow this profit margin to improve while SG&A is relatively flat or SG&A start to go up in absolute dollars if you start to get some increase in revenue?
Well we certainly work real hard and are pushing our organization to manage expenses as business returns and as volumes start to grow. But we will have to grow, we’ll have to add some more drivers and we’ll have to add some more material handlers to fixed cost that go with our -- in our bucket. But we’re going to manage aggressively our corporate overhead and our sales expansion.
Alan Weber - Robotti & Company
Okay great. Thank you very much.
Thanks for your questions thanks.
There are no further questions. Mr. Judd, do you have any closing remarks?
Yes, thanks everybody for joining us today for our call, and I look forward to speaking with everybody again next quarter.
This concludes today’s conference call. You may now disconnect.