Bluelinx Holdings Inc (BXC) 2008 Q3 法說會逐字稿

My name is Rachel and I will be your conference operator today. At this time, I would like to welcome everyone to the BlueLinx Third Quarter 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, Thursday, October 30, 2008. Thank you. I would now like to introduce Mr. Russ Zukowski for Investor Relations. Mr. Zukowski, you may begin your conference.

Thank you, operator, and welcome everyone to the BlueLinx Third Quarter 2008 Conference Call. With us this morning are Howard Cohen, Chairman of the Board; George Judd, Chief Executive Officer; and Doug Goforth, Chief Financial Officer. Our press release was issued earlier this morning. For those of you who do not have a copy, it is available on the Investor Relations section of the Company's Web site, www.blulinxco.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.

The discussion of these 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 posted slides on our website. We will be referring to these slides during this call and encourage you to view them during our remarks. Additionally, the slide package contains an appendix or supplementary tables available for your review. Now, let me turn the call over to our Executive Chairman, Howard Cohen.

Thanks, Russ, and thank you everyone for joining us this morning for the BlueLinx Third Quarter Earnings Conference Call. For those that may have missed the release this morning, I am truly pleased to announce that the Board of Directors has appointed George Judd the new CEO of BlueLinx.

We always believe that George was a strong internal candidate for the role of CEO. And after conducting our search, it became evident that George was the right choice for candidate for this job. He brings a perfect combination of vision and execution to the role of CEO.

BlueLinx will benefit tremendously from his industry experience and his proven leadership ability. I would like to publicly congratulate George and say that I look forward to working with him in the future. And with that I like to turn over to our new CEO, George Judd, George?

Thanks, Howard. I'm excited about being appointed CEO and look forward to serve our Company, customers, vendors and shareholders in this new role. BlueLinx's performance was in line with our expectations for the Third quarter. We reported a net loss of $0.08 per diluted share which include the restructuring charge of approximately $0.06 per share. We made it to the previously announced closing of the Metal manufacturing operations of LSV and a lower of cost or market charge of $0.05 related to the declining prices for metal products inventory.

The Company's results for the third quarter were impacted by the continued weakening demand environment, with housing starts declining by 33% from the prior year period. Also, underlying wood-based product prices decreased 2% from the second quarter of 2008. As we discussed on our prior earnings call, during the third quarter, we made a decision to restructure our LSV operations.

Based on the market conditions in California, we decided to exit the Custom Billings business of LSV. We included post-tax charge of approximately $2 million in the third quarter related to this restructuring. During this difficult economic period, we continued to be highly focused on managing cash flow by aggressively managing our inventories, receivables and spending are always focusing on serving the needs of our customers, suppliers and shareholders.

Our third quarter results reflect these efforts. We ended the third quarter with a cash balance of $71 million without drawing down our revolver during the quarter. And as I mentioned earlier, we will continue to manage our business tightly going forward. I am confident that we will emerge from this downturn well positioned to capitalize on our industry's rebound. I'd now like to turn the call to Doug Goforth, our Chief Financial Officer who will walk you through our financial results for the quarter and year-to-date periods.

Thanks and congratulations, George. Starting on slide seven overall sales for the third quarter ended September 27 totaled $727 million, down 29% or $289 million from third quarter 2007. Specialty sales declined 19% from the same period last year, with the majority of the decline coming from lower unit volume. Structural product sales declined 36% also largely results of lower unit volumes. Specialty products comprised 51% of total sales up from 45% in 2007.

BlueLinx generated approximately $83.2 million in gross profit for the quarter. We generated gross margins of 11.5% versus 10.1% in the third quarter of 2007. Specialty gross margin of 14.3% compares to 13.8% a year ago. Structural gross margin of 9.9% compares to 7.6% margin generated on the prior year period benefiting from the increase in margin on metal-based products.

Operating expenses for the quarter totaled $78.7 million, a decrease of $11.2 million or 12.5% from a year ago. This includes $3.3 million or 4.1% in operating expenses related to LSV restructuring costs. The decline in operating expenses primarily [looked like] decreases in payroll cost and in other expenses not directly related to head count. However, fuel costs which increased by approximately 20% over the prior-year period continued to have an unfavorable impact on operating expense.

The Company's operating profit for the third quarter totaled $4.5 million, compared to $12.9 million in the prior-year period reflecting the decline in gross profit that was partially offset by the $11.2 million improvement in operating expense.

We reported the third quarter net loss of $2.6 million or net loss of $0.08 per share compared with a year ago net income of $890,000 or $0.03 per share. The net loss is after interest expense of $8.8 million, which decreased by $2.6 million from the prior year and tax of $1.7 million, compared with a tax expense of $600,000 a year ago.

Looking at year-to-date results on slide eight, sales for the nine months ended September 27th totaled $2.3 billion, down 0.5% from the same period last year. Gross margin of 11.8% improved from 10.7% a year ago, reflecting the increase in underlying product prices in the year-to-date period and an increase in specialty sales relative to structural sales.

Year-to-date operating expenses declined 11% from the same period last year, while operating income declined 59%, largely driven by the housing-related drop in demand as well as approximately a 24% increase in fuel cost. The year-to-date net loss of $6.6 million compares with net income of $6.1 million a year ago. The year-to-date net loss includes the third quarter $2 million LSV after cash restructuring charge.

Turning to cash flow on slide nine. During the quarter receivables decreased by $51 million in accordance with the decline in quarter-over-quarter sales. Inventories decreased about $54 million, offset by $48 million decrease in accounts payable.

Third-quarter net cash provided by operations of $69 million compares with net cash provided by operations of $45 million in the third quarter of 2007. Cash used in financing activities was $26.4 million for the quarter, driven by a $10 million decrease in outstanding borrowings under our revolving credit facility and a $16 million reduction in bank overdrafts.

For the first nine months of 2008, we generated approximately $100 million in cash from operating activities compared to a use of approximately $19 million during the year ago period. Cash used in financing activities during the first nine months of 2008 was $43 million, driven by a $28 million decrease in outstanding borrowings under our revolving credit facility. This compares to $24 million provided by financing activities, driven by a $48 million increase in borrowings for the year ago period. The resulting cash balance at September 27 was $71.1 million, compared with $25 million a year ago.

Moving to slide 10, we had $227 million in excess borrowing availability on our revolving credit facility as of quarter-end. We combined debt balance on our mortgage and revolving credit agreement was $451 million, a decrease of $10 million from June 28th and down $130 million from a year ago, largely reflecting an ongoing focus on managing our working capital.

Net debt at the end of the third quarter was $380 million compared to $431 million on June 28 and $556 million a year ago. Given the recent events in the credit markets, I want to take a moment and discuss our debt structure in more detail. Our debt consists of an asset-backed revolving credit facility in a mortgage on our Company-owned distribution facilities. Our revolving credit facility is in place through May 7, 2011. It has no financial performance covenants, provided excess availability remains greater than $40 million.

In the event that availability falls below $40 million, the Company is subject to 1.1 to 1 fixed charge coverage ratio and certain capital spending restrictions. Our $227 million of excess borrowing availability gives us substantial flexibility. The other component of our debt structure is our $295 million mortgage, back by 58 of our Company-owned facilities. The mortgage has interest only to July 2011 and matures on July 2016.

As noted on slide 10, the mortgage has a lease covered ratio which currently requires us to deposit approximately $900,000 of the operating company's monthly rent into an interest-bearing escrow account. This escrow account is recorded on our balance sheet as other non-current assets and totaled $5.5 million as of the end of the third quarter.

Now, let's look at inventory on slide 11. Our third quarter inventory position of $261 million declined 17% from the second quarter and 39% from a year ago as we continue to balance inventory levels with the current demand environment.

Turning to slide 12, cash cycle days for the third quarter totaled 52 days. That compares with 52 days for the second quarter and 52 days for the same period a year ago. We continue to focus on tightly managing our AR portfolio and our credit approvals to ensure we are selling to customers who pay us in a timely manner. Inventory days improved as we continue to actively manage inventory levels across the Company while also increasing the next specialty products versus structural products.

In summary, we are highly focused on cash management through tightly managing inventory, accounts receivable, capital spending, and operating expenses. We remain focused on gross margin. We ended the quarter with $71 million in cash and cash equivalent and as discussed earlier in my remarks about flexible based structure allows us to continue to pursue our business plan through an extended downturn. Now, let me turn this call back over to George for some additional comments.

Thanks, Doug. Before turning the call over to the operator, let me make a few closing remarks. We continue to operate in one of the work housing markets on record. Our primary focus is on managing cash flow. We have a flexible capital structure that provides us the liquidity necessary to continue to execute in an extended cyclical downturn while positioning the Company to be the supply chain solution of choice.

Most third-party housing forecasters still point in the future to a strong, prolonged rebound of the housing market based on the population demographics and other factors. We are in this position to participate in that rebound as a leading building products distributor in the US.

I certainly believe there are ongoing focus in tightly managing all aspects of our Company in this environment combined with a highly dedicated employee base has allowed us to separate ourselves from our competitors.

Finally, I would like to thank Howard and the Board on selecting me to serve us CEO of BlueLinx. I'm honored to be appointed Chief Executive Officer and when we started to leave BlueLinx and our deputy industry people, customers, and vendors. BlueLinx is well positioned to win in the building products industry down in the future and as the industry recovers from this unprecedented downturn. With that, I'd like to open the call to questions. Operator?

(Operator Instructions). Your first question comes from the line of Robert Trout with Goldman Sachs.

Thanks. Good morning and congratulations, George. I'm wondering if you could talk a little bit about where you see us in the housing cycle right now because the latest figures that were reported I think last week show that inventories of existing homes declined, I think now for the second month in a row and prices for existing homes has fallen to the level where they are back like April of 2004 prices. And I realize obviously that it doesn't mean that we don't have long way to go. But I'm wondering if you think that those kind of data points mean we are at sort of inflection point.

Well, it's certainly those points of data are encouraging as we have seen declines for really three years now in all those segments. However, we don't know if we're at the bottom. There are signs that show that there is still room to go and housing pricing and inventories is certainly in many markets, going over supply of available homes to purchase.

I think that overall the home building supply chain is acting responsibly by keeping construction down. We certainly have through the quarter seen very, very little new housing activity and we don't -- we're not predicting a strong rebound in the near future.

Okay, thanks. And one just a question on bad debt. Are you raising your bad debt expense at all? Are you having to write off anymore AR because of customer bankruptcies or anything like that?

Bob, it's Doug. Our bad debt expense has been running all year about twice the normal levels particularly last year. But so far this year, we have had no surprises, no material surprises in bankruptcies, et cetera.

Okay, thank you.

(Operator Instructions). There are no further questions at this time.

Okay. Well, thank you all for joining the third quarter earnings call and we look forward to talking to you all on our next quarter. Thank you.

This concludes today's conference call. You may now disconnect.