Bluelinx Holdings Inc (BXC) 2011 Q4 法說會逐字稿

Good morning. My name is David and I will be your conference operator today. At this time I would like to welcome everyone to the BlueLinx 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 15, 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 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 this presentation 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 slides package contains an appendix and supplementary tables available for your review.

Now let me turn the call over to our Chief Financial Officer, Doug Goforth.

Thank you, Marion. I will start with a discussion of the fourth-quarter and full-year financial results. Then George will provide some additional commentary and close with a 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 remain 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 US 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 improvements that will help ensure our success as we move forward in 2012 and beyond.

Last, but certainly not least, we continue to aggressively manage costs and working capital. Today we reported a GAAP net loss of $10.3 million, or $0.17 per share diluted 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 five.

Overall, sales for the fourth quarter ended December 31 totaled $391.1 million, up 6.3% or approximately $23 million from the fourth quarter of 2010. Both Specialty and Structural product groups experienced increases in unit volumes and products selling prices for the fourth quarter of 2011 compared to the year-ago period. With BlueLinx's end-use markets more closely tied to single-family housing, we believe the 6.3% increase in revenue for the quarter driven by our Specialty Products represents expanded market share.

Specialty sales 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 product sales increased 7% from the same period last year. This increase was driven by a 2.8% increase in volume and a 4.2% year-over-year increase in product selling prices. Specialty Products comprise 59% of total sales consistent with the third quarter of 2010. Overall, unit volume rose 5% compared to the year-ago period.

BlueLinx 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 initiatives 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 when margins were 9.5%. We benefited somewhat from the firming prices for key grades of wood-based structural products during the quarter. Average fourth-quarter 2011 benchmark wood base structural prices were up approximately 1.5% compared to the fourth quarter of 2010.

Specialty gross margins for the (technical difficulty) 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% 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 costs 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 a $3.6 million increase in gross profit and a $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 of $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 expense of $6.8 million 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 six, sales for the year ended December 31 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 on significant special items, decreased 6.9% from the same period last year, which included $1.1 million in net gains on 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 a 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 per share, compares with a net loss of $53.2 million, or $1.73, a year ago.

Turning to cash flow on slide seven. 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 a $24 million reduction in outstanding borrowings under our revolving credit facility, an $8 million decrease in bank overdrafts, and a $3.7 million principal repayment on the mortgage, a $7.1 million increase in restricted cash related to the mortgage, and $0.3 million usage from other ideas. The resulting cash balance at December 31 was $4.9 million compared with $14.3 million a year ago.

Moving to slide eight, we had approximately $118 million of excess availability under our revolving credit facilities as of quarter end. While this was 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 12 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 totaled 56. That compares with 58 days for the third quarter of 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. In keeping with 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 plans to launch a complete line of privately-branded engineered products. Today I am pleased to report that this week we 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 joist and LVL are backed by a limited lifetime 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 Weyerhaeuser to becoming independent distributor of Weyerhaeuser's engineered wood products in the New England area effective February 13, 2012. BlueLinx won this distribution agreement after a rigorous process from which we emerged as the best fit for the New England market based on our operational capabilities, our alignment with Weyerhaeuser's 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 through 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.

This 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 of specific strategies that will leverage our powerful sales and distribution assets.

Before turning the call over to the operator, let me make a few closing remarks. Homebuilders ended 2011 with a 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 the 1.2 million that economist equate with a healthy housing market.

Builders started just 428,000 single-family homes all year, the fewest on record dating back more than half a century. So the challenges continue for our 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 starts forecasts ranging from 630,000 to 730,000 starts.

We remain focused on returning BlueLinx to profitability. We continued 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 maintained a historical high gross margin rate and generated increased gross profit. We controlled costs and working capital while providing our customers and vendors the high-quality products and services they expect from BlueLinx. We generated a profit of 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. We moved into -- 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 the leadership team at 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 where annual housing starts were once again weaker than expected. Nevertheless, I am pleased that we are able to narrow our operating loss for the year by approximately $16 million. So 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 on how to ask a question?

(Operator Instructions) 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 talk about how you think it through in terms of -- the end markets are somewhat out of your control, but internally I guess what are some of the major -- is there anything different that you expect to do in 2012 [on or it's just a] continuation of what you have been doing to get towards profitability?

Really what we are referring to is that through this long-lasted and much steeper housing contraction -- and we certainly expected and anybody that I ever talked to had expected that five years ago when we talked about housing, the bubble bursting. We have made a lot of adjustments to BlueLinx that we did not expect.

We just did that again in 2011 where we consolidated some markets, where we closed our Sacramento, California, facility and sold the property and service those customers from our Fremont facility. And we have retained a large percentage of the business. So we are constantly looking at models out how we can serve our customers in a more effective and cost efficient way.

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 in gross profit dollars during 2011. We have a few things in the pipeline for 2012 -- we haven't announced them; we are working on them -- that we are hoping will also provide that type of revenue and gross profit growth.

Thirdly, the thing we did announce in the fourth quarter was the engineered lumber. In the last three years our engineered lumber margins have declined. 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 are excited about what we announced.

So those types of things. We are constantly adjusting and working. We agree we can't control how many houses get built. We are excited for what we see on the markets right now. In the fourth quarter we saw some activity and that seems to be continuing.

We had a large team down at the International Builders Show last week in Orlando and the activity was better. The large builders that we met with and customers that we met with down there were much more optimistic about 2012, so we are excited about that. We can't control it, but we constantly have to be making adjustments to make sure that we capitalized on it.

Then I guess as a follow-up question, just kind of the announcement that you made this week regarding the Weyerhaeuser engineered products, any idea what that means in terms of volume or revenue?

Yes, we do but that is not anything we are prepared to disclose.

Right, I guess I really -- okay, I just wasn't sure. Okay, that is fine.

I guess my last question is kind of a general question. When you think it through, if arbitrarily -- and I am not really asking for a projection. But if revenues were up, say, 10% next year is the idea that you expect the overall gross profit margin to improve while SG&A is relatively flat? Or will 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 volume starts to grow. But we will have to grow; we will have to add some more drivers and we will have to add some more material handlers to the fixed costs that go in our bucket. But we are going to manage aggressively our corporate overhead on our sales expense.

Okay, great. Thank you very much.

Good questions, thanks.

There are no further questions. Mr. Judd, do you have any closing remarks?

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.