Bluelinx Holdings Inc (BXC) 2008 Q4 法說會逐字稿

Good morning, my name is Christy, and I will be your conference operator today. At this time I would like to welcome everyone to the BlueLinx fourth quarter earnings release conference call. (Operator Instructions). As a reminder, ladies and gentlemen, this conference is being recorded today, Tuesday, February 17, 2009.

Thank you. I would now like to introduce Mr. Russ Zukowski with Investor Relations.

Welcome everyone to the BlueLinx fourth quarter 2008 conference call. With us this morning are 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 website, www.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 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 would like to remind our listeners that we have posted slides on our website. We will be referring to these slides during the 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 CEO, George Judd.

And thank you everyone for joining us this morning for the BlueLinx fourth quarter earnings conference call. The housing and building products markets continue to be very difficult in the fourth quarter. However, as I stated in our earnings pre-release last month, we continue to focus on those items which we can control -- operating expenses, working capital, margin and serving the needs of our customers.

BlueLinx's fourth quarter performance reflects the challenging environment we are operating in today, as well as our focus on cash management. For the fourth quarter we reported a net loss at $0.81 per diluted share, which includes restructuring and other charges, which Doug will discuss later in the call.

Our results for the first quarter were impacted by the continued weakening demand environment, with housing starts declining by 44% from the prior year period. Underlying wood-based product prices decreased 24% from the end of the third quarter of 2008, and structural metal prices, which had increased earlier in the year, declined rapidly during the quarter.

We continue to be highly focused on managing cash flow by aggressively managing inventories, receivables, and spending, while always focusing on serving the needs of our customers, suppliers, and shareholders.

We ended the fourth quarter with a cash balance of $150 million, and reduced our net debt. We're working with many strategic customers, not only to expand our product penetration and provide reliable just-in-time service, but also to develop new and additional ways to enhance our services to them. And we're working with key vendors to become their distributor of choice.

I'm excited by our new and extended supplier agreement with Georgia-Pacific on Georgia-Pacific brand Engineered Lumber products. We continue to work on the other key Georgia-Pacific productlines, plywood and OSB, regarding our supply agreement also.

Even in these difficult market conditions, there are many opportunities to grow our share. BlueLinx is focused on doing just that in 2009. While it is difficult to predict when the market will rebound, it will rebound. I'm confident that we will emerge from this downturn in a much stronger competitive position than we were when the downturn began almost three years ago.

Now I would like to turn the call over to Doug Goforth, our Chief Financial Officer, who will walk you through our financial results for the quarter and for the full year periods.

Good morning everyone, and thank you for joining us today. As George mentioned earlier, and it as noted in our press release this morning, our results included the following restructuring and other charges. Facility consolidations and severance expense of $0.10 per diluted share related to combining nearby facilities into a single location, and an increase in our reserve for the 2007 headquarters consolidation. Mortgage interest prepayment penalty of $0.04 per diluted share related to the principal reduction of approximately $6 million on our mortgage. Valuation allowance on deferred tax assets of $0.04 per diluted share, and goodwill impairment related to our BlueLinx Hardwoods business of $0.02 per diluted share.

We also recorded a gain from sell of estate of $0.04 per diluted share related to the sale of certain facilities. The gain recorded in the fourth quarter represents a portion of the total gain on the real estate sale. The majority of the gain is expected to be recorded in fiscal 2009.

Turning to slide 7. Overall sales for the fourth quarter ended January totaled $501.5 million, down 35.6% or $277 million from the fourth quarter of 2007. Specialty sales declined 27% from the same period last year, with the majority of the decline coming from lower unit volume, offset by slight increases in prices. Structural product sales declined 41%, in-line with a 42% reduction in unit volumes.

Specialty products comprise 54% of total sales, up from 48% in the fourth quarter of 2007.

BlueLinx generated approximately $46.4 million in gross profit for the quarter. We generated gross margins of 9.3% in the quarter. Specialty gross margin of 13.7% compares with 10.6% a year ago. Structural gross margin of 5.3% compares to 7.1% margin generated in the prior year period. Structural margins were negatively impacted during the quarter as a result of the rapid decline in prices on metal-based products.

The 9.3% gross margin for the quarter compares to 8.5% in the year ago quarter, which was negatively impacted by approximately 1.3% related to the inventory cleanup in that period.

Operating expenses for the quarter totaled $73 million, a decrease of $38 million or 34% from a year ago. This includes $3.7 million in net operating expenses related to the charges described earlier. The decline in operating expenses primarily reflects decreases in payroll costs related to lower headcount. The year ago period included approximately $17 million of restructuring and related costs.

The Company's operating loss in the fourth quarter totaled $26.8 million compared to an operating loss of $45.1 million in the prior year period, reflecting the decline in gross profit that was more than offset by the $37.9 million decline in operating expense.

We reported a fourth quarter loss of $25.1 million or $0.81 per diluted share compared with a net loss of $34.1 million or $1.10 per diluted share in the fourth quarter of 2007. The net loss is after interest expense of $11 million, which increased by $1.1 million from the prior year, and includes the approximate $1.9 million mortgage prepayment penalty, and a tax benefit of $13 million, which is net of evaluation allowance of $1.2 million, compared with a tax benefit of $21.1 million a year ago.

Looking at full year results on slide 8, sales for the 12 months ended January 3 totaled $2.8 billion, down 28% from the same period last year. Gross margin of 11.3% showed a 1.1% improvement over a year ago, reflecting an increase in specialty sales relative to structural sales and margin improvement activities. Fiscal 2007 full year gross margins were impacted by approximately 0.3% by the aforementioned inventory cleanup.

Full year operating expenses declined 18% from the same period last year, while operating loss declined $7.3 million, largely driven by a drop in demand. The full year net loss of $31.7 million compares with a net loss of $27.9 million a year ago.

Fiscal 2007 net loss included approximately $10.3 million in restructuring related charges, the estimated $6 million post tax impact of the loss margin from the inventory cleanup activities described earlier, and approximate [$1.] million gain on sale of real estate. The 2008 full year net loss includes approximately $7.7 million in restructuring and other charges.

Turning to cash flow on slide nine, during the quarter receivables decreased by $114 million in accordance with the decline in quarter-over-quarter sales. We decreased inventories by $72 million in the quarter as we continue to manage inventory to the demand environment.

The cash generated from the above items was partially offset by a $51 million decrease in Accounts Payable. Fourth quarter net cash provided by operations of $82 million compares with net cash provided by operations of $98 million in the fourth quarter of 2007.

As noted in our earnings pre-release, we made a $7.5 million discretionary contribution to our hourly pension plan in the quarter, which we believe will satisfy fiscal 2009 funding requirements.

Cash used in financing activities was $5.2 million for the quarter, primarily driven by the principal pay down on our mortgage related to the sale of real estate. As noted in our earlier release on January 14, we used $55 million of cash on hand to reduce our outstanding borrowings under our revolving credit facility.

During 2008 we generated approximately $181 million in cash from operating activities, primarily driven by decreases in accounts receivable, inventory and Accounts Payable compared to $80 million during fiscal 2007.

Cash used in financing activities during the year was $48 million, driven by a $28 million decrease in outstanding borrowings under our revolving debt facility, and a $12 million decrease in bank overdrafts. This compares to $82 million used by financing activities, driven by a $54 million decrease in borrowings and a $13 million decrease in bank overdrafts for fiscal 2007. The resulting cash balance at January 3 was $150 million compared with $16 million a year ago.

Moving to slide 10, we had $192 million of excess availability under our revolving credit facility as of quarter end. The combined debt balance on our mortgage and revolving credit agreement was $445 million, a decrease of $6 million from September 27, and down $34 million from a year ago, reflecting an ongoing focus on managing our working capital, combined with our cash balance of $150 million.

Net debt at the end of the fourth quarter was $285 million compared to $374 million at September 27, and was down $177 million from a year ago. As I have discussed previously, we have ample liquidity, which allows us to pursue our business plan through an extended downturn.

Turning to slide 11, cash cycle days for the fourth quarter totaled 50. That compares with 52 days for the third quarter and 51 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 still -- as we continued to actively manage inventory levels across the Company, while still increasing the mix of specialty products versus structural products in inventory over the prior year period.

In summary, we are highly focused on cash management through tightly managing the inventory, accounts receivable, capital spending and operating expenses. We remain focused on increasing gross margin. We ended the year with $150 million in cash and cash equivalents. And as discussed earlier in my remarks, our flexible debt structure allows us to continue to pursue our business plan through an extended downturn.

Now let me turn the call back over to George for some additional comments.

While we continue to operate in a weak economy, and in the worst housing market on record, our primary focus remains on managing cash flow, and are working with our customers to ensure we are satisfying their needs. 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 once this housing correction has run its course.

While there is difficult to predict when the turnaround will occur, I believe our efforts will position BlueLinx to participate in that rebound as the leading building products distributor in the US.

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

Finally, I would like to thank our best in the industry employees, customers and vendors, who have worked so hard in this difficult environment. BlueLinx is well-positioned to win in the building products industry now and in the future when the industry recovers from this unprecedented downturn.

With that, we will open the call to questions for Doug and myself. Operator?

(Operator Instructions). Steve Chercover, D.A. Davidson.

Two quick questions please. First of all, with respect to real estate, you told us that the gain was $8.3 million. Can you tell us how much cash that is going to provide you with?

The cash was last year, and we used the majority of that to pay down the mortgage.

Okay, but --

We actually closed -- the actual transactions closed in fiscal 2008. It is the gain that gets recognized in 2009.

I see. So what was the sales price? If you get $20 million and it was on the books for (multiple speakers)?

It was a couple of pieces of property. I don't really want to get into the individual sales prices for those properties, but it generated enough cash to pay down the debt.

I was looking at the statement of cash flows and didn't see it. Do you contemplate additional sales perhaps this year?

Yes.

If I recall, when BlueLinx came out of the gates you were around a 10% market share in general. Can you give us a sense of where you think your market share is today?

We don't think that has materially changed. We believe we're still in the 10% to 11% market share.

But there has got to be a great number of competitors, private -- mainly private -- but some public as well, that are hemorrhaging. Do you expect to see a lot of attrition in the next year or so?

It is hard to predict what our competitors will do. The building products industry has traditionally had a lot of wherewithal to maintain their business operations in any market condition. BlueLinx is focused on the things that are important to BlueLinx, and I'm sure our competitors are doing those same things.

I'm sure they are. Last question with respect to your truck fleet. Are you doing anything there? Is that coming down in size?

Yes, the truck fleet is coming down with volumes. We have not actually sold a lot of equipment just because the market is so weak for used trucks today. We have moved off to real old tractors that were part of our regular schedule. But we need fewer tractors, so thus the reduced CapEx, quite frankly.

So basically you are not buying any new ones. Is there any difficulty in maintaining the ones that you have?

No, with the miles that we're driving today our fleet is properly sized.

There are no further questions at this time. Gentlemen, are there any closing remarks?

Thank you all for joining us on the fourth quarter earnings call.

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