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Builders FirstSource Inc. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: October 28, 2009 06:07AM
Builders FirstSource Inc. (BLDR) filed Quarterly Report for the period ended 2009-09-30. Builders FirstSource is a leading supplier and manufacturer of structural and related building products for residential new construction in the United States. Manufacturing facilities include plants that manufacture roof and floor trusses wall panels stairs aluminum and vinyl windows custom millwork and pre-hung doors. Builders FirstSource also distributes windows interior and exterior doors dimensional lumber and lumber sheet goods millwork and other building products. Builders Firstsource Inc. has a market cap of $163.5 million; its shares were traded at around $4.53 with and P/S ratio of 0.2.
Highlight of Business Operations:
Housing conditions remain challenging. The seasonally adjusted annual rate for national single-family housing starts at September 30, 2009 was 501,000, down 8.7% from an annual rate of 549,000 one year ago, and down 72.5% from the peak of 1,823,000 in the first quarter of 2006. For the third quarter, national single-family housing starts were 137,800, down from starts of 163,000 in the third quarter of 2008, a 15.5% decline. For the first nine months of 2009, national single-family housing starts were 339,800, down from starts of 518,800 through September of 2008, a 34.5% decline. We felt the impact of these difficult conditions on our third quarter results although we were able to mitigate some of the impact through execution of our strategy, which consists of prudently growing market share, adjusting staffing levels, monitoring our physical capacity, and protecting liquidity. Net sales for the quarter were
$188.9 million, down $77.1 million, or 29.0%, compared to $266.0 million in the third quarter of 2008. While the rate of decline for single-family starts slowed during the quarter, down only 15.5%, single-family units under construction fell 33.8% from the year ago period. We estimate that market share losses reduced our sales for the quarter by approximately 8%, the result of an extremely competitive pricing environment. However, for the year, we estimate that market share growth has added over 6% to our sales. We have recently sacrificed market share in an attempt to protect our gross margins and avoid unnecessary credit risks. Recent bankruptcies by several large building material companies have created excess inventory in our markets contributing to the highly competitive pricing environment. As the excess inventory clears, we may see the pricing pressure subside to some degree. We reduced our average full-time equivalent headcount by over 1,900 from the third quarter of 2008, a decrease of 38.4%. The reductions in payroll costs coupled with other cost reductions allowed us to reduce our selling, general and administrative expenses by 29.2% compared to the third quarter of 2008, and by 30.1% on a year-to-date basis, adjusting approximately 100% with our sales volume declines each period. We did not close any facilities during the quarter as our current level of sales activity supported the capacity. Our asset utilization remained strong, as our working capital as a percentage of sales, excluding cash and income tax receivables, dropped to 9.1% compared to 11.0% in the third quarter last year. Net cash used during the quarter was $15.8 million compared to $12.0 million in the third quarter of 2008, excluding revolving credit facility activity and income tax refunds. As expected, working capital was not a source of cash due to higher sales on a sequential quarter basis.
Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased $20.3 million, or 29.2% from last year. Salaries and benefits expense, excluding stock compensation expense, decreased $11.0 million, or 28.0%, compared to a 25.8% decline in sales volume. Total average full-time equivalent employee headcount for the quarter was 38.4% lower (35.9% lower for selling, general and administrative employees) than the year ago quarter. Office general and administrative expense declined $1.5 million due to lower telecommunication and travel related costs. Delivery expenses fell $3.7 million due to lower fuel costs and equipment lease expense as we eliminate excess fleet. Bad debt expense decreased $1.1 million due to better than expected recoveries coupled with overall improvement in the aging of our accounts receivable.
As a percent of sales, selling, general and administrative expenses decreased from 26.2% in 2008 to 26.1% in 2009. Salaries and benefits expense as a percentage of sales decreased 0.3%, while bad debt expense decreased 0.5%. Partially offsetting these reductions were increases as a percentage of sales in office general and administrative, occupancy, and delivery expenses due to fixed costs within these expense categories.
Income Tax Expense (Benefit). We recognized income tax expense of $0.1 million, or a 1.0% effective tax rate, during the quarter compared to a benefit of $4.5 million, or a 22.2% benefit rate, for the same period a year ago. The income tax rate in the current quarter was impacted by a non-cash valuation allowance of $6.2 million against the net deferred tax assets generated from the net loss during the period related to our continuing operations. Excluding the effect of this valuation allowance, the effective tax rate was a benefit of 38.5%. The income tax rate in the third quarter of 2008 was impacted by a non-cash valuation allowance of $3.2 million against the net deferred tax assets generated from the net loss during the period related to our continuing operations. Excluding the effect of this valuation allowance, the effective tax rate was a benefit of 38.0% for the third quarter of 2008.
Sales. Sales for the nine month period ended September 30, 2009 were $523.9 million, a 34.4% decrease from sales of $799.1 million last year. During the period, housing starts in our markets decreased approximately 36.8%, while market prices for lumber and lumber sheet goods were on average 16.2% lower than the same period a year ago. We were able to partially offset these negative market dynamics by adding approximately 6% to our sales through market share growth including continued growth into the multi-family and light commercial segments.Arnold Schneider of Schneider Capital Management.
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