Builders FirstSource (BFS) today presented two views of its financial status in the second quarter: The GAAP version that recognizes last July's merger with ProBuild only in the latest quarter's results, and a pro forma vision that compares BFS' 2Q16 results with the combined BFS-ProBuild numbers of a year ago. Both show robust profit growth and less vigorous sales increases.
The numbers under generally accepted accounting principles showed net income at the No. 2 company on the ProSales 100 rose nearly 10-fold to $29.4 million in the April-to-June period compared with a $3.6 million profit in the pre-merger second quarter of 2015. Sales rose 263% to $1.7 billion from $500 million, while gross margin rose to 24.6% from 22.1%
But measured under a pro forma basis that unites BFS' and ProBuild's 2Q2015 numbers, net income merely doubled to $35.3 million from $18.4 million. "This improvement was largely a result of the operating synergies realized, as well as $6.5 million in interest savings as a result of debt exchanges and other actions by the company to reduce interest, which was partially offset by taxes," BFS said in its announcement.
Those pro forma profits came on an increase in sales of just 3.3%, to $1.7 billion. The gross margin slipped to 24.9% from 25.6%, again primarily due to commodity price deflation benefits in 2015, Dallas-based BFS said.
Volume rose 4%, but commodity price deflation knocked 0.7 percentage point off those gains. Single-family sales volume rose4.1%, multifamily sales volume fell 3.2%, and repair and remodel sales volume increased 7.3%.
BFS measures itself with adjusted EBITDA, which it defines as earnings before depreciation and amortization expense, interest expenses, stock compensation, gains or losses on sales and assets impairments, and such things as severance, one-time costs, and losses from closed ProBuild locations.
By that measure, BFS' adjusted EBITDA rose in the second quarter to $116.7 million (a 7.0% margin) from a year-earlier $100.2 million (6.2% margin).
Floyd Sherman, BFS' chief executive officer, said the company's synergy and cost-savings initiatives were big reasons behind the increased EBITDA. "We have just passed the one year anniversary of the acquisition of ProBuild, and the integration efforts are progressing better than expected," he said in the news release. "The combined company is operating effectively as one, providing best in class service to our customers and delivering on our business objectives. We are now a more diversified company with enhanced scale and an improved geographic footprint, which allows for better customer reach and less exposure to any one market. We are confident in our existing plans and actions that are designed to achieve $100 million to $120 million of targeted annual cost savings before one-time integration expenses within two years of the closing date, and realized $22 million in the second quarter alone. "
The company's balance sheet shows $2.96 billion worth of assets, of which $740.4 million is goodwill. On the liabilities side, BFS has $1.91 billion worth of long-term desbt and lease obligations.