Bluelinx Holdings Inc (BXC) 2009 Q4 法說會逐字稿

Good morning. My name is Shawn and I will be your conference operator today. At this time, I would like to welcome everyone to the BlueLinx fourth quarter 2009 earnings release conference call. (Operator Instructions) As a reminder, ladies and gentlemen, this conference is being recorded today, Wednesday, February 17, 2010.

Thank you, I would now like to introduce Maryon Davis with Investor Relations. Miss Davis, you may begin your conference.

Thank you, Shawn, and welcome, everyone, to the BlueLinx fourth quarter 2009 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. 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 to you 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 would 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.

Good morning, everyone. And thank you for joining us today.

For the fourth quarter 2009, we reported a net profit of $12 million or $0.37 per share on revenues with $366 million. Gross margin was 12.4% for the quarter, up from last year's 9.3% as a result of an increase in higher margin warehouse business, ongoing price discipline, a slight increase in specialty sales as the percent of total sales, and improvements in inventory management. Just up from 12.3% in the third quarter, this was the second highest quarterly rate generated by the Company since our inception.

Blue BlueLinx revenue for metal products was down approximately $30 million, or 22% of the quarterly decline. However, the gross profit generated from metal products was approximately $6 million higher when compared to the year-ago quarter when selling prices declined rapidly as a result of weakening demands. During the quarter, we used approximately $6 million in cash for operations and had $157 million in excess availability at the end of the quarter with a cash balance of $29 million.

Excess availability is down from $191 million at the end of the third quarter due to lower seasonal levels of accounts receivable and inventory. Our net debt was approximately $293 million, down $6 million from the prior quarter, and remains near historically low levels.

Our reported after tax results included a tax benefit of $23.6 million or $0.72 per diluted share. This income tax benefit is comprised of a $20.4 million benefit related to our anticipated refund on our current year taxable loss due to the extension of the net operating carry-back provision to five years and a $3.3 million non-cash benefit related to the allocation of the income tax expense to our comprehensive income, which is recorded in shareholders' equity, partially offset by other income tax expense. We filed our tax return Monday and expect to receive approximately $20 million in four to six weeks.

A deferred gain on previously sold surplus property of $3.7 million or $0.11 per diluted share. We recognized a deferred gain of $3.7 million after tax from the sale of property in the fourth quarter of 2008 as we received final payment on the outstanding note for that property.

Turning to slide 5, overall sales for the fourth quarter ended January 2 totaling $366 million, down 27% or $135 million from fourth quarter 2008. Specialty sales declined 26% and structural product sales declined 29% from the same period last year with the majority of the declines coming from lower unit volumes. Specialty products comprise of 55% of total sales, up from 54% in the fourth quarter of 2008.

BlueLinx generated approximately $45.3 million in gross profit for the quarter. Gross margin was 12.4%, which is up 3.1% from the prior year quarter as we continue to work on margin expansion, pricing discipline and inventory management.

Operating expenses for the quarter totaled $50.1 million for a decrease of $23.2 million or 32% from a year ago. The decline in operating expenses reflects decreases in payroll and payroll-related costs of $10 million related to lower head count and the previously discussed gain on surplus property. The Company reported an operating loss for the fourth quarter of $4.8 million, compared to an operating loss of $26.8 million in the prior year period, reflecting a slight decline in gross profit and a $23.2 million decline in operating expense.

our fourth quarter net profit of $12 million or $0.37 per diluted share compares with a net loss of $25.1 million or $0.81 per diluted share in the fourth quarter of 2008. Our reported net income for the period is after tax expense of $7.8 million, compared to interest expense of $11 million in the prior-year period and an after tax benefit of $24 million compared with a tax benefit of $13 million in the prior year period.

Looking at full-year results on slide 6, sales for the year ended January 2 totalled $1.65 billion, down 41% from the same period last year. Gross margin of 11.7% increased from 11.3% in the year-ago period, full-year reported operating expenses declined 35% from the same period last year generating an operating loss of $16.3 million largely driven by a housing-related drop in demand.

The full-year reported net loss of $61.5 million or $1.98 per share compares with the net loss of $31.7 million or $1.02 a year ago. The full-year loss was driven predominantly by the weak operating environment in which housing starts declined 39% and underlying structural product prices declined 15% from a year-ago period. As well as the tax valuation allowance charge and other restructuring costs offset in part by the gain on the early cancellation of the master supply agreement with Georgia-Pacific and the gain from the sales of surplus properties.

Turning to cash flow on slide 7, during the quarter, we used approximately $6.4 million in cash from operating activities, which compares to net cash generated by operations of $85.4 million in the fourth quarter of 2008. As we have discussed on prior earnings calls, we will continue to tightly manage our working capital items on an ongoing basis while ensuring we have appropriate credit policies and inventory levels. However, we expect to consume cash as our working capital grows to support a growing business. Cash provided by financing activities was $5.2 million for the quarter, driven by a $7 million increase in bank overdrafts.

For the year, we used approximately $25 million of cash -- $20 million of cash for operating activities compared to generating approximately $190 million in cash during the year-ago period. Cash used in financing activities during the year was $114 million driven by a $100 million decrease in outstanding borrowings under our revolving debt facility, a $3.2 million mortgage principle payment, a $2.5 million increase in bank overdrafts and a $10 million increase in restricted cash related to our mortgage. This compares to $57 million used in financing activities during the prior year, driven by a $28 million decrease in borrowings, a $6.1 million mortgage principle payment, a $12.4 million reduction in bank overdrafts, and a $9 million increase in restricted cash related to our mortgage.

The resulting cash balance on January 2 was $29 million compared with $150 million a year ago and reflects the use of cash to reduce outstanding debt. During the full-year period, we used cash on hand to pay down $100 million of outstanding debt on our revolving credit facility.

Moving to slide 8, we had $157 million of excess availability under our revolving credit facility as of quarter end and the combined debt balance on our mortgage and revolving credit agreement was $342 million, a decrease of $103 million from fourth quarter 2008. Net debt at the end of the fourth quarter was $293 million compared to $285 million at the end of 2008 and was down $6 million from the third quarter of 2009.

Turning to slide 9, cash cycle days for the fourth quarter totaled 49. That compares with 52 days for the third quarter of 2009 and 50 days for the same period a year ago. This strong performance reflects our efforts to manage our working capital risks by selling to the right customers, keeping the right inventory on hand, and paying our supply partnerships in a timely fashion.

Now, let me turn the call over to George.

Thanks, Doug. Good morning, everyone. The fourth quarter results shared by Doug continue to reflect a difficult housing market in which we still operate. While demand for building products did not significantly increase during the quarter, we do see signs of near-term optimism. (Inaudible) housing starts have been trending better with positive starts in both November-December, versus the prior year, building permits were positive the last two months of the quarter for the first time since early 2006. This morning's housing news was also positive. We've seen several local markets show signs of growth as starts have bottomed. Overall, our daily inquiry level has picked up. However, the overall picture of the housing market is still murky and the pace of the recovery is unclear. Third party housing forecasts for 2010 show moderate growth with housing start forecasts ranging from the 600s to the 800s.

As market -- as the markets rebound, BlueLinx is focused on increasing our share of the growing market. We have targeted growth initiatives in place, have focus on specific marks, specific products and specific customers, will grow our share while maintaining our operating discipline and maintaining our gross margin percent improvements. During the fourth quarter, we expanded our margins by adding value to our customers, we delivered quality products on time as promised.

We manage our inventories well and used our first structural products market strength of the year to our benefit. Our inventories are in the best shape they have been in, our fill rates are high, our turn days are on target, and our non-performing inventory is very low. We'll continue to manage all of our costs, our inventories, and our receivables very aggressively as the market recovers.

We are expanding our market share through our ongoing commitment to building strong alliances with strategic vendors and by providing valuable service to our customers. We'll utilize our extensive national logistics and warehousing capability to grow traditional building products business and explore opportunities outside of our traditional customers. We have expanded our customer base during this housing decline and will continue to add new customers and new product lines as the market recovers.

We continue to invest in technology to help better manage our assets. During the quarter, we initiated a project to replace our Legacy truck routing systems with a new tool from Appian Logistics. Once installed, this software will enable routing and scheduling optimization and further enhance our logistics operations allowing us to more efficiently service our customers.

We also installed new highly-efficient light fixtures in five of our facilities, covering over 1.8 million square foot of warehouse space or 22% of our capacity. As a result, we expect to achieve a greater-than-50% reduction in electrical consumption in these facilities over our 2008 baseline, resulting in approximately a $350,000 savings. This lighting initiative also supports our green program which we branded PureBlue.

BlueLinx has managed our margins, our expenses and our cash effectively during this prolonged downturn. We have improved our safety performance and many other of our branch operating metrics. I look forward to carrying these disciplines into this growing market as the industry recovers.

In summary, although the level of activity did not improve noticeably in the fourth quarter, I do believe the worst is behind us. During the quarter we remained focused on increasing gross margins, reducing outstanding borrowings, and maintaining ample liquidity to execute our business strategy. And have started to shift our focus toward market share growth. I am confident that the Company is well positioned operationally and financially to prosper as the economy improves.

With that, we'll open the call to questions. Operator?

(Operator Instructions) We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Alan Weber with Robotti & Co..

When you talk about, I guess it was in April of last year, you had the termination of the Georgia-Pacific agreement, can you talk about what that means in 2010 or 2011 for the Company?

Sure, Alan, this is George. Good morning. Well, we still do a lot of business with Georgia-Pacific and we expect to do that going forward. We have grown our product, our panels supply -- supplier list substantially since that program ended and Georgia-Pacific has expanded their direct customer list since that program's ended. Overall, our plywood business remains strong. Our oriented strand board business, OSB business, the direct portion of that business, we've lost some volume. We expected that. I guess it's performing as we planned and we're out there focused on the products that we can make a profit servicing our customers and our supply partners.

Okay, and can you talk about -- you talk about gaining market share. Can you talk about your competitive position and kind of what this downturn has -- there is -- what impact some of your customers going out of business or closing locations is having, and the same with kind of a number of vendors' products being discontinued like that. Kind of how you see yourself positioned when and if we ever stabilize end markets.

Sure. Well, we've had hundreds of customers go out of business. We have had more than 500 customer locations closed. That actually was a very large impact in the last 18 months on purchasing history, as they consolidated their inventories from one facility to the other. I believe that that, those inventory bubbles, as customers that closed stores and moved those inventories around and didn't need to purchase, I believe most of that is past us.

However, all of the major housing markets still have a vast number of building supply houses to serve the demand as it comes back, there will be fewer customers but they'll be stronger customers. And we're seeing that today. We're seeing our inquiry levels start to pick up and it's with a smaller group of customers. But we still have more than 10,000 customers.

On the supplier side, we haven't seen a lot of suppliers go out of business. We had a few. No material suppliers. And really on the competitors' side, which is the third side, we have had fewer competitors, the distribution, direct distribution competitors have weathered this storm fairly well through this downturn and with just a couple of major players leaving. But that share is -- we're targeting that. It's really, what I'm trying to get across in the call, our market share expansion is the right customers in various markets with strategic products. So, we're out there. It's not just go take share by lowering our price and giving away our value. It's let's go take some share, a share that is significant, share that matters, and share that our customers have been trying to, or working with trying to allow us to get that business for the last 18 or 24 months. So, we're -- we'll expect to grow our share and at the same time, maintain that price discipline that we've worked real hard on in the last 48 months.

I guess my final question -- and it may be hard to answer -- is, if and when the market improves, how much of your -- how should one look at your increase in operating expenses? Because we know working capital will have to go up. And you're hoping gross profit margins go up. Just wondering as you look out, your operating expenses, how much of that will go up as revenues go up if the markets come back?

Our fixed costs will go up and a very, very, very small percentage where -- we have tremendous capacity in our pipeline. Of course, as our out-of-warehouse volumes increase, we have to run more miles, and our cost per miles are just a multiple of how many miles we drive and we'll see come variable costs go up with regards to logistics and material handling and we'll see some commission increases as our salespeople start to earn back some of those gross margin dollars that have left during the decline. But, overall, we're going to work very diligently to keep those fixed costs down and keep our -- the fixed portion of even the SG&A down.

We're not planning on adding a lot of people. We have capacity, we've improved our productivity, we've invested in systems, we're managing our inventories more effectively with fewer folks and, quite honestly, as volume increases, that task becomes a little less difficult as our order sizes increase and, you know, we're able to procure product for all of our facilities across the country in a more bulk fashion. So right now, we're out there buying what we need, buying it every day. So, the transaction costs will -- or the transaction numbers won't go up. The transaction volumes, the size of the transactions will increase. So excited about that, too.

So all in all, we're optimistic that we will be able to keep a large portion of those dollars for our earnings.

Okay, great. Thank you very much.

(Operator instructions) There are no further questions at this time. I will now turn the conference over to Mr. George Judd for closing comments.

Okay, thank you, operator. Well, thank you for joining us for our call. As usual, we'll be available for one-on-one calls later during the day. Appreciate your time and we'll talk to you next quarter.

Thank you and thank you all for participating in today's conference call. You may now disconnect.