Bluelinx Holdings Inc (BXC) 2012 Q4 法說會逐字稿

Good morning. My name is Regina and I will be your conference operator today. At this time, I would like to welcome everyone to the BlueLinx fourth-quarter 2012 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, Wednesday, February 13, 2013.

Thank you. I would now like to introduce Maryon Davis with BlueLinx. Ms. Davis, you may begin your conference.

Thank you, Regina. And welcome, everyone, to the BlueLinx fourth-quarter 2012 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'd 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'd 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.

We will begin the call this morning with opening remarks and an operations review from George. Then Doug will present an in-depth review of the financial statement. Lastly, George will add a final perspective before opening the call to your questions.

Now let me turn the call over to our Chief Executive Officer, George Judd.

Thank you, Maryon. Good morning, everyone, and thank you for joining us.

Before beginning our remarks regarding the fourth-quarter 2012 results, I would like to comment on our press release issued January 10, 2013, announcing a $40 million planned rights offering. As the housing market and general economic conditions continue to improve, the additional capital raised in the rights offering will allow BlueLinx to participate more fully in these improving conditions.

We have filed a registration statement with the Securities and Exchange Commission, which contains a preliminary prospectus. As the rights offering process is ongoing, we will not have any comments or take any questions regarding the offering. We will take questions at the conclusion of this call regarding the results and strategies.

Thank you for your understanding. And with that, I'll begin the review of our fourth-quarter and full-year results.

Those of you following along with the slides posted on the Investor Relations section of the BlueLinx website, I'll begin with slide 4. The fourth-quarter business environment improved, as the underlying market fundamentals and leading indicators continued to strengthen, increasing the credibility of the housing market recovery. US builders started work on homes in December at the fastest pace in over four years, and finished 2012 as their best year for residential construction since the early stages of the housing crisis.

According to the Congress Department, builders broke ground in homes in December at a seasonally adjusted annual rate of 954,000 units. That is 12.1% higher than November's annual rate and nearly twice the recession low reached in early 2009. Both single-family and multi-family starts increased in December, and the pace of new home construction permits ticked up to a 4.5 year high. Total housing starts in the fourth quarter increased approximately 36% compared to the same period a year ago.

For the year, the Commerce Department reported total housing starts of 780,000 units. While this is roughly half the annual number of starts consistent with a healthy market, it is an increase of 28% from 2011, and is the most since 2008.

This recovery is real but we have a way to go before we are in a healthy or normal market. What's that mean for BlueLinx? Last quarter, I talked about our end use markets and our efforts to gain a deeper understanding of the end use markets of our product assortment.

Recently, as part of our presentation at the Barclay Industrials Distribution Forum, we discussed our estimated participation in end use markets, which is recapped on slide 23 in the Appendix of today's conference call's slides. Consistent with our previous disclosures, single-family starts represents the housing end use market to which BlueLinx is most closely tied.

In December, the pace of single-family home construction increased 8% and is now 75% higher than the recession low reached in March of 2009. Single-family actual housing starts ended the year up 24% from 2011. For the full-year 2012, our Structural Products group performed well, executing our strategic goal to pursue revenue growth, while expanding gross margin percentage. We did a good job managing this business in 2012, and we effectively leveraged the pricing volatility in wood-based structural products, and focused on profitable growth, not unit volume growth.

Our efforts in this area resulted in gross margin improvement of 30 basis points from the same period a year ago. As discussed on previous earnings calls, we expected our structural business to strengthen earlier in the housing market recovery.

In our Specialty business, we experienced varying degrees of growth in 2012. This grouping of products is diverse in its makeup and its end use markets. Large portions of this product grouping -- paneling and roofing, for example -- are more closely tied to the repair and remodeling markets. Other products, such as hardwood plywood and particleboard, are tied to our Industrial business. These businesses are recovering at a much slower pace than the new residential construction markets. Specialty Product growth remains our priority. And as all markets recover, we anticipate our growth will accelerate.

Continuing on slide 4, we're excited about BlueLinx -- we are excited about BlueLinx's prospectus in the recovering housing market, as the continued favorable trends in housing fundamentals experienced through the fourth quarter. For the quarter, we grew revenue in both product groupings, effectively applied our pricing disciplines, and managed our operating costs at the current business environment.

Year-over-year revenues grew for the sixth consecutive quarter in the fourth quarter of 2012 as we executed our strategy of controlled profitable growth. We aggressively pursued targeted business opportunities that met our profitability goals during the quarter, resulting in year-over-year growth in the structural and specialty value-added products.

We were disciplined with our revenue growth, as we managed margins, inventory, and credit risk in a recovering housing market. We delivered strong margins in both product categories, and effectively managed operating expenses, as volumes through the Weyerhaeuser distribution channels increased.

Turning to the full-year performance, we grew up total revenue 8.7%, while successfully producing our highest gross margin profit -- I'm sorry -- our highest-ever gross profit margins. As a result, we narrowed our comparable full-year adjusted net loss by $12.2 million relative to a year ago. Our 2012 results are the continuation of a trend in improvements towards positive net earnings, as shown on slide 25.

Looking forward, we have established positive momentum in our business as we enter the 2013 fiscal year, and remain confident, both in the opportunities ahead of us and in our strategy, to profitably grow our Company.

Now let me turn the call over to Doug for a closer look at the financial results.

Thank you, George. Good morning. Beginning on slide 7, overall sales for the fourth quarter ended December 29 totaled $440.3 million, up 12.6% or $49.2 million from the fourth quarter of 2011. This reflects a 5.4% increase in specialty product sales and an 18.9% increase in structural product sales from the year-ago period. Fourth-quarter sales mix was favorably impacted by increased structural product pricing compared to the year-ago period, with structural sales accounting for 44% and specialty sales accounting for 56% of total revenue during the quarter.

The increase in total revenue is attributable to increased specialty unit volume and underlying structural product prices. Structural wood-based product prices retreated early in the quarter, and rose during the last two months of the quarter. Overall, unit volume rose 2.9% compared to the same period a year ago, as specialty unit volume increased 5.4%, and structural unit volume decreased 0.8% compared to the same period last year.

BlueLinx generated approximately $52 million in gross profit for the quarter, up 8.7% from approximately $48 million in the year-ago period. Overall gross margin was 11.8% for the quarter, down from last year's 12.3%, as lower margin structural product sales increased from 41% of revenue to 44%, therefore representing a larger mix of total gross margin.

Fourth-quarter operating expenses of $56.7 million were up compared to $50.5 million for the same period a year ago, and included $0.2 million and $3.9 million in net gains from real estate-related items in 2012 and 2011, respectively. Excluding real estate-related items, operating expense increased approximately 4.6% compared to the same period a year ago, even while unit volume through the Weyerhaeuser distribution channel increased approximately 6.5%.

We are pleased with our performance and effectively controlling costs in 2012. And our management team remains focused in this area of our business, as revenue growth continues to accelerate.

The Company reported an operating loss for the fourth quarter of $4.5 million compared to $2.6 million in the prior-year period, reflecting a $4.2 million increase in gross profit and a $6.1 million increase in operating expenses. Our fourth-quarter net loss of $11.4 million, or $0.19 per diluted share, compares with a net loss of $10.3 million or $0.17 per diluted share in the fourth quarter of 2011.

Our reported net loss for the period is after interest expense of $6.8 million, which was flat compared to the prior-year period. The current year net loss is after a tax provision of approximately $100,000 compared to a tax provision of approximately $800,000 in the prior-year period.

Looking at full-year results on slide 8, sales for the 12 months ending December 29 totaled $1.91 billion, up $152.4 million or 8.7% from the same period last year. Gross margin of 12.1% represents a new high for BlueLinx and compares to 12% in the year-ago period. We believe our ability to expand overall gross margin indicates successful execution of our margin strategy.

Full-year reported operating expenses of approximately $224.6 million were up compared to $218.4 million a year ago, and included approximately $10.4 million and $12.6 million in significant special items in 2012 and 2011, respectively. The resulting operating profit of $5.5 million compares to an operating loss of $8.3 million for the same period a year ago, and represents a $13.8 million year-over-year improvement. The full-year reported net loss of $23 million, or $0.38 a share, compares with a net loss of $38.6 million, or $0.89, a year ago.

Turning to slide 9, EBITDA increased $12.3 million over the prior-year period, due to the increase in gross profit, partially offset by operating expense increases. Excluding the impact of significant special items in 2012 and 2011, EBITDA improved by $14.5 million.

Turning to cash flow on slide 10, during the quarter, we generated approximately $12 million in cash from operating activities compared to approximately $33 million last year. Our fourth-quarter 2012 operating cash flow was comprised of a net loss of $11.4 million, $3 million in non-cash expenses, a $19.6 million decrease in working capital, and $1.2 million in other items.

The decrease in working capital primarily reflects seasonal decreases in accounts receivable of $34.3 million, partially offset by a $9.8 million increase in inventory, and a $4.9 million net decreases in accounts payable and other working capital items. This is the first time since the end of 2005 that the Company has increased its inventory position during the fourth quarter in anticipation of accelerated demand.

Investing activities included $300,000 for capital expenditures and $600,000 in proceeds from the sale of excess equipment during the quarter. Cash used by financing activities of $15.4 million included approximately $13.8 million used to reduce the revolving credit facility.

During Q3 2012, we sold our facility in Newark, California. The cash received from the sale is reflected in the mortgage cash trap at September 29, 2012. On October 1, 2012, $12.8 million of cash from the sale, and $11.8 million of cash accumulated in the mortgage cash trap, was used to pay down the mortgage principal. The resulting cash balance at December 29 was $5.2 million compared with $4.9 million a year ago.

For the 12 months of 2012, we used approximately $74 million of cash for operating activities compared to approximately $50 million in cash during the year-ago period. Our operating cash flow in 2012 includes a net loss of $23 million, $12.3 million in non-cash expenses, and $4.5 million in other items, offset by a $52.3 million increase in working capital; $9.9 million in gains from the sale of certain properties; and $5.9 million from the modification of our corporate headquarters lease agreement, previously disclosed in the third quarter of 2011.

Working capital increased primarily due to higher sales volumes this year versus last year, coupled with an atypical acceleration of housing starts late in the quarter. Cash provided by investing activities was $16.4 million for the 12 months of 2012, driven by proceeds from the sale of real estate.

Cash provided by financing activities was approximately $58 million, driven by a $76.9 million increase in outstanding borrowings under our revolving debt facility; a $37.3 million mortgage principal payment; a $13 million increase in bank overdrafts; a $10 million decrease in restricted cash related to the mortgage; and $4.5 million usage from other items. This compares to approximately $29 million of cash provided by financing activities a year ago.

As a reminder, we completed a $60 million rights offering during the third quarter of 2011. On July 29, 2011, we issued approximately 28.6 million shares and received $60 million in gross proceeds from the rights offering. $56 million of the proceeds from the rights offering were used to immediately pay down the revolving credit facility.

In conjunction with the rights offering, we negotiated an amendment to our mortgage agreement, which, in part, allowed for the release of $38.3 million in total funds held as collateral under the mortgage agreement, saving $2.4 million a year in interest expense. The release cash was used for an immediate prepayment on the mortgage loan without incurring a prepayment penalty.

Moving to slide 11, we had approximately $88 million of excess availability under our revolving credit facilities as of quarter end. That is approximately $50 million above our minimum availability requirements as of December 29th. The combined debt balance on our mortgage and revolving credit agreements was $377.4 million, a decrease of $42.7 million from the third quarter of 2012. Net debt at the end of the fourth quarter was approximately $372 million compared to $387 million at September 29.

Turning to slide 12, cash cycle days for the fourth quarter totaled 58. That compares with 59 days sequentially and 56 days for the same period a year ago. The increase in cash cycle days is a result of both strategic inventory investments to support targeted growth, and a higher mix of structural product dollars, which traditionally carries shorter payment terms.

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

Thanks, Doug. I'd like to share a few observations before turning the call over to the operator for questions.

As we move forward in 2013, we are confident in our ability to both increase our share of the market, and maintain the operating discipline that we have demonstrated over the last several years. We remain focused on providing dependable, high-quality service to our customers as the recovery of the residential construction market continues to accelerate.

We're encouraged by economic forecasters who point to favorable outlook for household creation and new home construction. The consensus of forecasts we monitor, including those produced by Research Information Systems and the National Association of Home Builders, currently put housing starts in the range of approximately 900,000 to 1.2 million units for 2013. These same forecasters estimate continued growth in 2014.

The outlook for some of our other end use markets is also encouraging, with repair modeling activity expected to increase throughout 2013, and with modest growth predicted for industrials and nonresidential construction markets.

In summary, the operating environment is improving and the housing market currently is showing significant signs of improvement. Our 2013 operating plan is based on expectations that our sales will significantly increase from 2012 levels, as the overall market for the products we distribute continues to gain momentum. Our plan is to maintain a strong gross margin level by continuing to focus on specialty product growth, and by effectively managing our structural business for profitability.

In 2012, we achieved record gross margins of 12.1%, delivering a 20 basis point improvement in specialty gross margin and a 30 basis point improvement in structural. I'm very pleased with the strong margin performance in 2012. In addition, we'll continue to effectively manage our operating costs, as we have done over the last several years, without diminishing our ability to achieve our growth objectives.

Excluding significant special items, 2012 operating expenses increased approximately 1.7% compared to 2011, even while unit volumes through the Weyerhaeuser distribution tradition channel increased approximately 9%. Executing our growth plan requires that we have the financial leverage, sales expertise, and the inventory necessary to support accelerated growth. We are moving forward with specific goals on these fronts in 2013.

As previously announced, we have initiated a $40 million rights offering to more fully participate in the housing market improvements. We are highly confident in the effectiveness of our national nationwide sales force, which has executed extremely well over the past year, delivering 8.7% revenue growth and record gross margins, and is staffed to meet our 2013 growth objectives.

Our product portfolio in support services remain best-in-class. We currently are working to ramp up sales of new and existing products over the next several months. And we believe they will positively impact special product unit volume growth in 2013.

Let me take a moment to share a couple of examples. During the fourth quarter, we launched our new SteelLinx website -- www.steellinx.com. SteelLinx is BlueLinx's comprehensive proprietary line of quality metal products. The website puts the full breadth of our SteelLinx product offering at the fingertips of our sales team and customers, providing that, we believe, to be a very effective sales tool.

Another example is our new complete line of privately branded engineer products, onCENTER, which we launched last February. Our customers have responded well to our total engineered product solution this year. And we expect to continue growth in this area in 2013, as we execute targeted initiatives. Our year-old relationship with Weyerhaeuser in the Northeast continues to be another notable success.

Finally, our strategic relationships are strong. We believe the combination of successful execution of our strategy, and the continued recovery of the housing and construction markets, will return BlueLinx to profitability.

With that I'd like to open the call to questions, operator?

(Operator Instructions). Mark Wilde, Deutsche Bank.

George, just as we see volume kind of picking up across the business, are you seeing any bottlenecks?

Well, it's funny, Mark, I was just at the Harvard Joint Center meeting the last couple days, and that was one of the roundtable discussion points that we talked about, as a group of CEOs from around the industry.

And the big bottlenecks are labor. That's from the builder perspective, and really, from our perspective as well. Hiring qualified people --- particularly, for us, drivers -- is a challenge. And then we still have financing limits on the industry and availability for builders to fund the acquisition of new lots.

Seems that one of the anchors that we'll have as the recovery comes forward will be that some of the A lots in the desirable markets are cleaned out. And the time to get new lots developed in desirable locations is longer, as communities have cut the support teams and the inspectors, and all those things that have been reduced through the Recession.

So it's going to take a little while to ramp up. But I tell you, everybody was very, very optimistic, as with the last meeting that we had in the fall up at Harvard. The economists are more optimistic than the CEOs, which has flip-flopped from during the Recession, but I think every CEO is very optimistic that the housing recovery will rebound. And those bottlenecks will work through as prices go up and capacities are expanded.

Okay. And I know you try really focusing on the specialty side of your business, but with housing picking up, and let's just say we move back toward 1.5 million starts, are there things you can do to kind of extract the most leverage possible from the structural side of your business? And will you grow with the rise in starts on that side of the business?

Yes, absolutely. We talk about our structural business in growing and maintaining share of that managing profitability. Our structural business is the fastest-growing portion of our business right now. We did expect that, as we thought it would come earlier in the housing recovery.

But our plan is to maintain our structural focus. And that's a big part of our inventory investment that we have today. You know, just between price appreciation and lumber and OSB in particular, and then demand increases. It's -- we built our inventories and we're participating in the market.

Okay. Two other questions. One is, just this relationship with Weyerhaeuser. I mean, historically, they've had a pretty big distribution business on their own. So can you just talk about how you sort of work with them, when you're presumably at the same time kind of competing with them in some markets?

Well, we've always been a customer of Weyerhaeuser even back when we were Georgia-Pacific years and years ago. You know, freight's such an important part of the business that sometimes it's more advantage to procure product from a closer mill.

But the new relationship is exciting to us because it's engineered lumber. It's their brand, which they're the number one supplier of engineered lumber in North America. We have never partnered with them on engineered lumber in our history until 2012. And we started that relationship in the Northeast in Bellingham, Massachusetts, our facility there, when their distributor had some financial difficulties.

It's done very, very well. Our customers are excited about it. I saw some of the Weyerhaeuser guys this week. They're happy with our performance; we're happy with the results. So I think we've done a nice job for them and I expect that to continue.

Okay. And just a last question. On that engineered wood business, I know that kind of pricing and performance for the manufacturers has not been very good in that business. And I know that some of the leading producers have been out there with price initiatives for March. Do you have any view on how that may or may not take hold?

Well, they need a price increase. You know, when you look at OSB increases and veneer increases, and raw lumber timber increases, all the components have gone up, but the assembled product hasn't. So that doesn't make a lot of sense. So we fully support the price increases in the market.

Okay. Very good. Good luck in the first quarter and through the year.

Thanks, Mark.

Greg Cole, Sidoti & Company.

Just a question on the specialty revenue side. I think the reason it's been lagging, other than the large growth on the structural side, is the roofing. Is that still the case?

Yes. I mean, it's definitely growing slower than the structural side. We had a tough year year-over-year comp in roofing, as did everybody in the industry, with 2011 storm issues. And then the way 2012 came out with large roofing winter buys and price increases, it was kind of a messy year in the roofing business. And it definitely did have an impact. It's a major business for us. And it's a growing business for us.

Okay. Do you have an estimate of what it would have grown this year without the roofing impacts?

It's hard to know what a normal 2011 would have been. Right? So the new housing roofing segment increase with starts, you know, 20% or so. But that storm damage was just so large in '11, and it was thankfully minimal in 2012, thankfully from the perspective of those affected by storms.

And you know, the Sandy thing is just kicking in now. So, in the industry, we're just starting to see the rebuild up there. So that will have a little uptick in all the product lines, but specifically roofing. So I don't know -- I didn't do the analysis on what a year-over-year comparison would be without the storms. But it affected the producers, it affected all of the distributors, and it affected the retailers as well.

Okay. That's fair. And then as we're -- as you're trying to get up to the 60%, how does that -- I guess, how do you get there in such a, I guess, a booming market for housing over the next two years? Is this -- are you going to have to, I guess, do something on a very large scale to improve specialty revenue?

Well, we were at, you know, within 1 point of 60% before the market actually started to come back. And the structural business comes back first, which we had expected and had communicated in previous calls.

So, if you take price, you know, the price appreciations, particularly in framing lumber and OSB, and consider that the impact on what that mix is, and then just that structural comes first, I'm optimistic that our strategy will allow us to continue our migration towards 60% and beyond, as we grow our share in codes like roofing and product lines like roofing, and product lines like molding.

And our metal product line is very strategic to us, as I talked about in the prepared comments. All of those lines see nice growth and I expect that to continue.

Okay, thank you very much.

Okay. Thank you, Greg.

There are no further questions at this time. I will turn the call back over to Mr. Judd for any closing remarks.

Okay. Thank you, operator. Thanks for joining us. And I look forward to talking to you on next quarter's call.

Ladies and gentlemen, this does conclude today's conference. Thank you all for joining, and you may now disconnect.