Bluelinx Holdings Inc (BXC) 2013 Q1 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 first-quarter 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, May 1, 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 first-quarter 2013 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 BlueLinx.co.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 or 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.

We will begin the call this morning with opening remarks from George. Then Doug will present an in-depth review of the financial statements. Lastly George will provide an operations review and 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 this morning.

Before beginning our remarks regarding the first-quarter 2013 results I would like to comment on our press release issued March 29, 2013 announcing the completion of the previously announced $40 million rights offering. The rights offering was fully subscribed and as a result on March 28, BlueLinx received net proceeds of approximately $38.6 million from the offering.

The newly subscribed shares were issued on March 28, 2013 resulting in approximately 86.6 million total shares outstanding. After giving effect to the offering, Cerberus ABP Investor LLC, our largest stockholder, beneficially owns approximately 54.4% of BlueLinx common stock.

We view the tremendous response to this rights offering by our existing shareholders as a strong indication of the continued confidence in the support and of our growth strategy.

The new residential construction market and to a lesser extent the home improvement and remodeling markets are showing signs of significant improvement. I believe this highly successful offering underlines investor confidence and BlueLinx's ability to benefit from these improving conditions. We thank all of our stockholders for their support.

Now I will turn the call over to Doug to begin the review of the first-quarter financial results. Doug?

Thank you, George. Good morning. Beginning on slide six, overall sales for the first quarter ended March 30 totaled $503.2 million, up 10.9% or $49.4 million from the first quarter of 2012. This reflects a 27.7% increase in Structural Products sales and a 1% increase in Specialty Product sales from the year-ago period.

First-quarter sales mix was favorably impacted by increased Structural Products pricing compared to the year-ago period with Structural sales accounting for 46% and Specialty sales accounting for 54% of total revenue during the quarter.

Overall unit volume rose 2.7% compared to the same period a year ago as Specialty unit volume increased 1.5% and Structural unit volume increased 4.5% compared to the same period last year.

Turning to the slide seven, BlueLinx generated approximately $56 million in gross profit for the quarter, up 4.1% from approximately $54 million in the year-ago period. Overall gross margin was 11.2% for the quarter down from last year's 12% as lower margin Structural Products sales increased from 41% of revenue to 46% therefore representing a larger mix of total gross margin.

First-quarter operating expenses of $61.6 million were up compared to $58.3 million for the same period a year ago and included $0.6 million in net expenses from significant special items in 2013 and $0.6 million in net gains from significant special items in 2012. Excluding significant special items, operating expense as a percentage of sales was 12.1% compared to 13% for the same period a year ago.

The Company reported an operating loss for the first quarter of $5.1 million compared to $4.1 million in the prior year period reflecting a $2.2 million increase in gross profit and a $3.3 million increase in operating expenses.

Our first-quarter net loss of $12.6 million or $0.19 per diluted share compares with a net loss of the $11 million or $0.17 per diluted share in the first quarter of 2012. The reported net loss for the period is after interest expense of $7.2 million compared to $6.8 million in the prior year period. The current quarter net loss is after a tax provision of approximately $200,000 which was comparable to the tax provision in the prior year period.

Turning to cash flow on slide eight, during the quarter we used approximately $96 million in cash from operating activities compared to approximately $89 million for the same period last year. Our first-quarter 2013 operating cash flow was comprised of a net loss of $12.6 million, $3.8 million in non-cash expenses, $86.9 million increase in primary working capital components at $0.1 million usage in other items.

The increase in working capital primarily reflects a $61.4 million increase in accounts receivable in accordance with rising sales, a seasonal increase in inventory of $90 million partially offset by a corresponding increase in accounts payable of $64.1 million.

As we have discussed on prior earnings calls, we will continue to tightly manage our working capital items on an ongoing basis. As always, we expect to consume cash through the first half of the year as our working capital increases to support a growing business.

Investing activities included approximately $1 million for capital expenditures and $200,000 in proceeds from real estate related items during the quarter. Cash provided by financing activities was $96.7 million for the quarter driven by a $71 million net increase in outstanding borrowings under our revolving credit facility, approximately $40 million in proceeds from the rights offering, a $6.3 million decrease in bank overdrafts, a $3 million decrease in restricted cash related to the mortgage, and a $5 million usage from other items.

We received approximately $40 million in gross proceeds from the 2013 rights offering which was offset by expenses paid to date of approximately $0.1 million. The net proceeds from the transaction were approximately $38.6 million and exclude all expenses related to the 2013 rights offering, some of which were paid during the second quarter of 2013.

All net proceeds from the rights offering were used to immediately pay down the US revolving credit facility. The resulting cash balance at March 30 was $5.3 million compared with $5.9 million a year ago.

Moving to slide nine, we had approximately $126 million of excess availability under our revolving credit facility as of quarter end. This is approximately $78 million above our minimum availability requirement on our US revolving credit facility as of March 30. The combined debt balance on our mortgage and revolving credit agreements was $447.7 million, an increase of $70.3 million from the fourth quarter of 2012. Net debt at the end of the first quarter was approximately $439 million compared to approximately $372 million at December 29, and $401 million at March 31, 2012.

As previously announced concurrent with the completion of the rights offering, the Company amended and extended its US revolving credit facility. As a result of the amendment and extension, the Company's existing $400 million credit facility was increased by $22.5 million to $422.5 million. The maturity date was extended to April 15, 2016. The amended US revolving credit facility continues to have a $100 million uncommitted accordion credit facility to potentially increase the maximum available credit to $522.5 million.

Turning to slide 10, cash cycle days for the first quarter totaled 61. That compares with 58 days sequentially and 57 days for the same period a year ago. The increase in cash cycle days is the result of both strategic inventory investments and increases in inventory levels across all regions in anticipation of a strong spring selling season.

Finally, concurrent with this morning's announcement of the first-quarter results, we announced that subsequent to the end of the first quarter, we contributed certain qualifying employer real properties with BlueLinx' hourly retirement plan. Real estate, including certain land and buildings, is located in Charleston, South Carolina, Buffalo, New York and has been valued by independent appraisals at approximately $6.8 million in the aggregate. The Company is leasing back the property from its hourly retirement plan for 20 years and will pay monthly rent to the retirement plan.

The contribution of the property will not have any impact on the Company's day-to-day operations at these locations. The contribution of real estate is expected to see to all of the Company's 2013 cash contribution requirements for its hourly retirement plan.

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

Thank you, Doug. Our business is off to a good start in many parts of the country. BlueLinx performed well in the southern regions but underperformed expectations in the northern regions as the country experienced a long, cold winter especially when compared to the early spring experience last year.

We realized sales growth despite the tough comparison and benefited from the strong wood-based Structural Product prices and increased demand in geographic regions with less severe winter.

As discussed on previous earnings calls in general, we expect our Structural business to strengthen earlier in the housing recovery and it is our intention to aggressively pursue profitable business growth within this category of our business. Our customers rely on BlueLinx to support their inventory as their structural businesses expand.

Our job is to manage this growth with a disciplined margin and inventory plan. We did a good job of this during the first quarter. Structural sales grew 28% and represented 46% of total revenue. Structural gross margin was 8.7% for the quarter, down from 9.9% a year ago. This is a consequence of the elevated pricing environment we experienced in the first quarter. With the higher prices, the industry transacts business at a lower gross margin rate and it still generates an acceptable return.

So let me give you a specific example. A truckload of plywood that we might have sold last year for $15,000 with a gross margin of 10% generates $1500 in gross profit. That same truckload of plywood sold at elevated prices for $25,000 at a 6% gross margin generates the same $1500 in gross profit. While the gross margin percentage falls, the gross margin dollars generated remains constant on flat unit volume.

We experienced many competitive situations during the quarter that required us to lower margin expectations for those still transacting good business.

Though our first-quarter Structural gross margin percentages declined compared to a year ago, total Structural Products gross profit dollars grew at a faster rate than our unit volume. Our unit volume grew at 4.5% in the quarter, Structural gross profit increased approximately 13% or $2.3 million in the first quarter compared to a year ago.

First-quarter gross margin on the Specialty side of the business increased to 13% compared to 12.6% a year ago as we continued to focus on margin improvement, pricing discipline and expanding the more value added Specialty products in our assortment.

Specialty revenues declined in two of our largest Specialty regions compared to the same period last year. Historically our best Specialty sales markets are in the Northeast and Midwest which were impacted by a severe winter. When the roads are icy and snow covered, we often elect to keep our trucks off the road until they are safe. Sales in the first quarter of last year benefited from record warm temperatures which prompted an earlier than normal start to the 2012 selling season. The shift contributed to sales growth of 16% in the first quarter of 2012 over the first quarter 2011.

Specialty sales were up 1% in the first quarter 2013. A large percentage of Specialty business is program business where customers commit to purchase a specific product or brand exclusively from BlueLinx. Many of our fastest growing Specialty products are more closely tied to the repair and remodel markets which are recovering more slowly.

Looking forward, we expect seasonal strengthening in all areas in the second quarter especially the Northeast and Midwest and a recovering repair and remodel market to help fuel Specialty revenue growth.

In summary, we grew overall revenue 10.9% by placing a greater emphasis on core Structural Products which are used earlier in the earlier phases of new home construction and we expect Specialty sales to increase with seasonal demand increases and as repair and remodeling markets drivers improved. The repair and remodeling business saw little improvement as the housing market improved in the first quarter.

We continued to do a good job of managing our costs during the quarter. Total operating expenses as a percentage of sales were 12.2% compared to 12.9% a year ago.

We remain optimistic that the sustained upward trend in both housing starts and permits will continue and will accelerate growth in other areas such as repair and remodel. We invested in inventory during the quarter and are well-positioned to grow in all regions as we move into spring. Our team is focused on providing great products and service to our customers as the overall market for our products we redistribute continues to gain momentum.

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

(Operator Instructions). [Marc Kaufman], Little Oak Asset Management.

Good morning. What is the outlook on catching up on the Specialty side of the business in the Northeast and Midwest in this quarter? I certainly understand that the weather has still been difficult even in April in the Midwest?

We did see continued acceleration throughout the month of April in Specialty sales particularly in the Northeast and in the southern markets of the Northeast. We still have Northern New England still slower than we would like to see it. The Midwest is not performing the way we want to see it yet but all of our customers and we have been talking to them regularly have a good pipeline of business.

When we look at our Specialty business and how the season affects it, some of our largest coats are roofing which we talk about in most calls; our roofing business is well behind where we expected it. Our decking business, which some of that is tied to some of our top retail customers, is well below where we expected it and our vinyl siding which is -- we did a big launch with our vinyl partner, Ply Gem, a new upgraded vinyl product called Compass.

We spent a lot of time and money bringing that product to market together with Ply Gem and we have seen the projected increases in revenue. So we are starting to see it. This week even in the Midwest in parts of the Midwest we saw it and we are still optimistic that that business is coming and that the reason I talked about program business in my prepared comments, Marc, is that program business is lost in advance. We haven't lost that business. So we have our customers' business. It is tied up. Prices are set, got to wait for the orders to come through.

In comparative, how does it look in the Southeast?

Building. The Southeast had a better first quarter in the Specialty side. I did talk about the ratios of Specialty business are traditionally our strongest Specialty markets are in the Northeast and Midwest so they make up a larger percentage of our total Specialty revenues and so then they are down. And they were down in the first quarter. It is an anchor for us.

Those businesses continue to grow in most areas. We've got a couple of areas that we are not happy with but we are driving it hard and we are optimistic.

Okay, thank you. I will step back into queue.

David Williams, Williams Financial.

Good morning, guys. Just a quick question. I wanted to get your thoughts on how you are seeing lumber prices trending now? It appears that things are starting to moderate a bit and then if we do see that moderation, what do you expect -- or how would you expect that to impact maybe margins going forward especially as we think about maybe Specialty coming back up as we get into the spring selling season?

Lumber or margins are moderating; they are weak right now, lumber prices. We are not expecting it to be a prolonged correction. Prices were high on lumber products. They can't continue to go up forever so we had expected them to start to fall and we are managing our inventories and our sales appropriately for that. But we have an inventory position so when lumber prices fall, it affects our gross margin percentages.

We are optimistic. I think the industry is optimistic listening to others, talking to our suppliers. So there is a lot of business out there that is happening, a lot more business than was happening 12 months ago. People are going to have to buy the product to build these homes that are coming out of the ground and I expect there to be a correction.

So it has trended down. Lumber composites pretty down last week. They are pretty down again today, midweek and when they level out, when they start to go up, I think it is a short-term correction. So through the quarter I think that we will have a couple of weeks hit -- two three weeks hit in our margins and then it will come back and they will start to gain some momentum again.

Thanks for the color there. Secondly, you talked about the R&R market definitely hasn't improved at the same pace as we have seen in the new home market. But what maybe gives you the confidence or early indication that the R&R market either starting to recover or that it will recover through the back end of the year?

Well, for a couple of years we have been talking about deferred home repair and upgrade. Consumer confidence drives a lot of the upgrade part. You can't defer everything forever. We see the signs, we hear it. We've got a lot of plans and then when we talk to Harvard and I do serve on that Harvard Board for the Housing Institute and when we look at their LIRA, their leading indicator for remodeling activity, they are very optimistic and they talk to all of the remodelers and everybody in the industry on what is happening and how many quotes they have, how many bids they have, how they turn into orders, etc. All of that is optimistic.

When I talked to my customers and my suppliers that do a lot of business in the repair and remodeling sector, everybody is feeling the same way that there is going to be robust increases in activity. However, nobody has felt it yet.

It is up a couple of points and that is better than shrinking but we don't feel that people have come out and decided that they are going to for example build their new deck. It is slower than we projected but we are counting on the future on seasonality and all of the indicators that we measure out there as far as confidence and projects that are planned.

Good luck on the second quarter, guys.

Thanks, David.

Alan Weber, Robotti & Co.

Good morning. Can you talk about in some of the markets -- in some of your major product lines whether you think you have picked up or lost market share?

I have been trying to give you some color with some of the answers to some of our questions. When we look at our Structural portion of the business in the first quarter, we maintained or slightly grew market share. Not everybody reports the same way we do so it is a difficult comparison but that is our estimate.

With the Specialty side of the business, we surveyed all of our top customers and we surveyed all of our suppliers. Our business is equal to or better than all of them but the customers that are just focused in Texas, Arizona, Las Vegas or parts of California.

If you have a real small service area, those markets outperformed us. We did not participate in some of the recovery in the Phoenix and Las Vegas markets to the extent that the housing recovered. Traditionally those weren't large share markets for us and we don't have large facilities in those markets so that wasn't a surprise to us.

Okay. So basically when you look at your volumes relative to new home starts and like that, you kind of just attribute it basically to your being heavier in the Northeast and the Midwest why the numbers don't look as good that way?

Well, in the Southeast it is a tough comparison -- housing starts -- it is one of those things that I talk internally to our team about constantly. The mix up which we did give some disclosure last year on how our revenues are generating from housing starts from repair-remodel, from our industrial and manufactured housing businesses how that makes up our components.

When housing grows at 20%, 30%, 40% depending on the region and repair-remodeling grows at 2%, then what is the blended average and that is how we run our business and our expectations and we continue to refine those models to determine how we perform against the market.

But when we look at the products that we sell that are tied to new home construction, the structural stuff and then even products like molding, products that we count as Specialty like engineered lumber -- some other folks count that in a different segment -- our business is growing market by market with the starts.

Okay, great. Thanks an awful lot.

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

Thank you, operator. Thank you all for listening to this morning's call and look forward to talking to you next quarter.

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