Bluelinx Holdings Inc (BXC) 2011 Q1 法說會逐字稿

Good morning. My name is Carly, and I will be your conference operator today. At this time I would like to welcome everyone to the BlueLinx first-quarter earnings release conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer period (Operator Instructions).

As a reminder, ladies and gentlemen, this call is being recorded today, May 5th, 2011. Thank you. I would like to now introduce Ms. Maryon Davis. You may begin your call.

Thank you, Carly, and welcome, ladies and gentleman, to the BlueLinx first-quarter 2011 conference call. With us this morning are George Judd, Chief Executive Officer, and Doug Goforth, Chief Financial Officer. Our press release which 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 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 Executive Officer, George Judd.

Thanks Maryon. Good morning. Thank you for joining us today.

Before beginning our remarks regarding the first-quarter 2011 results, I would like to comment on our press release issued April 26th, 2011 announcing the $60 million planned rights offering. We filed the registration statement with the Securities and Exchange Commission which contains a preliminary prospectus. As the rights offering process proceeds, we will not have any comments or take any questions regarding the offering. We will take questions at the conclusion of this call regarding our first-quarter results.

I thank you for your understanding of this matter. And with that, I will turn the call over to Doug Goforth, our Chief Financial Officer, to review the first quarter.

Thanks, George. Good morning everyone. I will start with an overview of the quarterly results, then George will provide an operations review of the quarter and close with the final perspective.

For those of you following along with the slides posted on the investor relations section of the BlueLinx website, I will begin with slide five.

Overall sales for the first quarter ended April 2nd totaled $390.6 million down 9.4% or approximately $40.4 million from the first quarter 2010, which benefited from the first-time homebuyer tax credit. Specialty sales increased slightly year-over-year reflecting a 1% increase in product selling prices offset by a small decline in volumes.

Structural product sales decreased 20.8% from the same period last year. This decrease was driven by a 25.2% decrease in units sold and reflects a 4.4% year-over-year increase in product selling prices as demand for these products softened during the quarter.

Specialty products comprised 59% of total sales, up from 53% in the first quarter of 2010 as we continued to focus on value-added products and services. Overall, unit volume declined 11.8% compared to the year-ago period.

Housing continues to underperform. Actual total US housing starts declined 9.9% for the first quarter of 2011 compared to the same period last year, with single-family starts, which our business is closely tied to, down 21.3%. The environment for home building and home remodeling continues to face substantial headwinds with an overhang of inventory, low consumer confidence and high unemployment. These conditions, combined with the loss of the first-time homebuyer tax credit and extreme winter weather conditions, negatively impacted our first-quarter financial results.

Turning to slide six, BlueLinx generated approximately $46 million in gross profit for the quarter. Overall gross margin was 11.8% which is down 0.3% from prior-year quarter. Structural margins were flat with the prior-year quarter at 10.7% and improved 1.2% from the fourth quarter due to our emphasis on price discipline and margin improvement. We consider 10.7% a strong structural margin performance considering the price and demand challenges that we face in our markets.

Specialty gross margin for the quarter was 13.8% compared with 14.4% in the year-ago quarter. The specialty margin decline is largely a result of a shift to the lower margin channel for certain specialty products in a highly competitive pricing environment.

Total operating expenses decreased to $51.4 million from $60.3 million a year ago and included $7.2 million in real estate gains. We've been +*+ managing our cost diligently and will continue to manage our cost structure relative to business conditions as we move forward in 2011.

The Company reported an operating loss for the first quarter of $5.1 million compared to an operating loss of $8 million in the prior-year period, reflecting a $6 million decrease in gross profit and an $8.9 million decrease in operating expense. EBITDA improved $2.3 million over the prior-year period, and reflects the real estate gains recorded during the quarter and our ongoing commitment to cost management and operational efficiency.

Our first-quarter net loss of $12.3 million or $0.40 per diluted share compares with a net loss of $14.7 million or $0.48 per diluted share in the first quarter of 2010. Our reported net loss for the period is after interest expense of $7.3 million, which includes $1.8 million in pretax non-cash interest income related to our interest rate swap, compared to interest expense of $6.5 million in the prior-year period, which included $0.8 million in pretax non-cash interest income associated with our interest rate swap. The current year net loss is after a tax benefit of $114,000 compared to an immaterial tax provision in the year-ago quarter.

Turning to cash flow on slide seven, during the quarter we used approximately $63 million in cash from operating activities primarily reflecting seasonal increases in accounts receivable and inventories of $50.7 million and $32.1 million respectively, which were partially offset by a corresponding increase in accounts payable and other current items. This compares with net cash used by operations of $46.6 million in the first quarter of 2010 which benefited from a $20.2 million tax refund.

Cash provided by investing activities was approximately $5.1 million and included $8.8 million in proceeds from the sale of certain surplus properties and a $3.7 million from the investment in property, plant and equipment which includes our new facility in Tennessee.

Cash provided by financing activities was $49.6 million for the quarter driven by a $43.3 million increase in outstanding borrowings under our revolving credit facility, a $12.6 million increase in bank overdraft and a $6.2 million increase in restricted cash related to the mortgage. The resulting cash balance at April 2nd was $6.2 million compared with $13.4 million a year ago.

Moving to slide eight, we had approximately $119 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 $426.1 million, an increase of approximately $43 million from fourth-quarter 2010. Net debt at the end of the first quarter was $383 million compared to $338 million at January 1st, and was up approximately $53 million from a year ago.

Turning to slide nine, cash cycle days for the first quarter totaled 55. That compares to with 52 days for the fourth of quarter 2010 and 49 days compared to the same period a year ago. The increase in cash cycle days is a result of strategic inventory investments and support of national program business. We continued to balance inventory levels with the weakening demand environment, while also continuing to support new products and vendors as part of our focus on specialty product growth.

That concludes my prepared remarks. Now let me turn the call back over to George.

Thanks, Doug. BlueLinx's first-quarter operational performance was impacted by the continued difficult conditions of the housing and construction markets, discontinuation of the first-time homebuyer tax credit which benefited the prior-year quarter and extreme winter weather conditions.

In the first three months of 2011, unadjusted starts totaled just 121,000, which were 13,300 starts below last year, a decline of 9.9%. Single-family starts totaled just 89,900 units compared to 114,300 last year, a decline of 21.3%.

Both total starts and single-family starts for March are up over February, but still well below March 2010. March 2011 was the second slowest March on record. Only March 2009 with its pace of 520,000 starts was slower in terms of residential construction. The first-time homebuyer tax credit artificially stimulated homebuying and renovation in the first quarter 2010.

The first quarter 2011 started very slowly and was significantly impacted by the severe winter weather. While we often face challenging weather conditions in the first quarter, this year the weather was more severe and affected us in markets where it is usually not an issue.

Against this backdrop, our structural businesses -- or our structural business unit volume -- declined 25.2%. Our lower margin OSB declined more than our other wood-based structural business as we focused our selling efforts on more profitable product lines.

Our framing lumber volumes were down more than we expected as we were overly aggressive in managing for positive contribution dollars. We sacrificed volume for margins during the quarter to achieve 10.7% overall structural margins, consistent with prior-year quarter when prices were increasing and margins were expanding.

In our specialty business, we saw unit volume growth in the product lines where we had strategic growth initiatives. We grew our outdoor living product category which includes decking and railing products, our metal business, insulation and siding and trim businesses also expanded during the quarter.

Gross margins for specialty products were pressured during the quarter as a result of channel mix and a highly competitive market. Gross margins of 13.8% were down over the prior-year quarter by 60 basis points.

Looking at our operation -- our operating expenses, I'm on a quarter-over-quarter comparative basis -- we again demonstrated our ability to control costs as total operating expenses were down, excluding the impact of real estate gains.

As we move forward in 2011 we remain focused on providing dependable high-quality service to our customers as the home construction industry works its way back to a more normalized level. We expect our business-related new home construction will remain challenging for much of 2011 as housing slowly recovers. We will continue to aggressively pursue our long-term strategic objectives to profitably grow specialty product revenues, to effectively manage our structural business and to profitably outgrow the market over the long-term.

While the industry works its way through this historic housing correction, we're encouraged by certain economic forecasters who point to a favorable longer-term outlook for household creation and new home construction. Strategically, our shift to specialty products remains our number one strategic initiative as we move forward during 2011.

We intend to proceed as the market leader operating a national, nationwide business platform that we believe is unique and compelling.

With that, I would like to open the call to questions. Operator, would you please instruct everyone on how to ask questions.

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

Morning everyone. I just -- three quick questions, please, since I can't ask the questions I really want to ask. So, with your revenues down 9% versus single-family homes, which were down 21%, do you believe you're gaining any share, George?

Yes, first of all, good morning, Steve. And thanks for understanding on the questions that you really want to ask. But yes, I mean, it's small share growth, and it is regional. So there's markets are -- that we were performing better. You know, and it's -- one quarter doesn't tell the story. So 21%, and revenues down 9%, does that mean we grew 12% market share? I wouldn't be so bold to say that. But it means we are expanding our share.

Could you tell us which markets were performing really well, and which ones disappointed you?

We're performing stronger in the Northeast. The North, kind of Pittsburgh, Ohio -- those kind of markets. We're outgrowing the market substantially there. We're outgrowing the market in the Carolinas. I'd say that California continues to be a struggle for us, and the Pacific Northwest, although recently we have made inroads during -- certainly January and February we didn't gain any share.

Great. And then, are there any specialty product lines that particularly excite you for the long-term?

Yes -- global source products. So we have a focus on growing products that have shifted their production from North America to Asia and South America. And we have invested a lot of time and money through the last few years on expanding our abilities to source those products and move them across the oceans and through the ports and across our distribution network. And we're starting to see great results in those. And products like that would be real high-end specialty products like railing components and kits. And our metal business is expanding. A lot of our exterior trims and siding products. So as products have migrated offshore we are seeing our growth accelerating.

And, finally, you indicated at one stage that you thought you could leverage your distribution network and your fleet of trucks to service, I guess, external businesses but -- that were similar and needed the same kind of logistics services. Any progress report on that front?

Yes, we've got in some businesses that are starting to show some traction. And a lot of those are tangent space to us. And really our strategy is, we have this -- the business that we're in, the products that we're in, and the customers that we serve, and then to grow our -- spend our growth time in growing our share in those products, and then to grow in tangent customers and tangent space.

So an example of tangent space of product would be outdoor living. We used to do decking, wood decking and some railings and things. But we have really expanded that product line. And now we're doing things like fire pits, and the metal that goes inside the fire pits, and the stone that's used to build fire pits. And things like that that go along with an expanding outdoor living strategy that we used to not sell.

And when we get into that business, it gets us into tangent customers, because we didn't use to sell, you know, the landscape kind of supply yards. Now we're opening up landscape supply yards. So the two strategies both to expand customers and product lines end up connecting back together again. And we're seeing some good traction there.

Another area of focus on us, for us, has been what we call specialty distributors. They're folks that supply roofing contractors or siding contractors. And they're a group of customers that are different than -- traditionally, back in 2005 our core customer was lumber yards. So we've spent a lot of time and resources on developing relationships and product offerings that allow us to penetrate that specialty distributor class of customer. And we have made great progress there. And that gets us into some new product lines, that they will say, "well, you are coming to us, can you do this?" And a lot of that is that exterior trim and expanded siding offerings. And we're seeing some good growth there.

Very good. Well, I guess I will wish you good luck in both your financing and to your Boston Bruins.

There you go, how about that. I hope we don't have a replay of last year.

Yes, let's hope. Thanks.

At this time there are no further questions. I would like to turn the call back over to Mr. Judd for any closing remarks.

I thank you all for joining us this morning. And we look forward to speaking with you next quarter.

That does conclude today's conference call. You may now disconnect.