The flurry of recent acquisitions by Builders FirstSource stem from a plan to get more business from multifamily builders, the dealer's president and CEO told analysts.
"When you look at the acquisitions that we made with the truss manufacturing companies, those companies will enable us to become more involved with the multifamily sector of the business," Floyd Sherman said in a conference call Oct. 24 to present to analysts the company's third-quarter results. "That’s where the primary focus is on. We think the multifamily business will continue to be very good. It looks like the multifamily construction over next several years will be more robust than single-family. These operations will certainly allow us to gain better penetration into that particular market and in the areas where we acquired the plans. And so we look at that strategically as being very, very important to this company to get into more involved in a multifamily."
Sherman was referring to the company's acquisitions in recent months of Sloan Lumber Co. in Houston; West Orange Lumber Co. in Orlando, Fla.; Truss Rite in Dallas; and Trim Tech of Austin, Texas. On a trailing 12-month basis as of their respective acquisition dates, these companies had generated combined revenue of approximately $67 million, BFS said.
Nationwide, multifamily projects have accounted for 30% to 41% of all housing starts in recent months.
"We like the multifamily business where we can deliver a product without getting involved in a lot of installed work," Sherman told analysts in the conference call, a transcript of which was posted by Seeking Alpha. "We like trusses. We also like the millwork category and those areas in particular are of real interest to us. We also really wanted to be able to get into the Houston market. We think the Houston market can be really expanded. ... We think that this will be a very, very large market for us going forward. And this acquisition gives us a chance to enter the market with a company that had excellent reputation, very high quality people."
As for West Orange Lumber, that deal gets BFS into commercial door sales as well as building products distribution and a truss facility for the Orlando market.
"We want to add more manufacturing content to the company," Sherman said. "We want to add more value added products and we think that in the long term is what will produce a better earnings stream for us."
BFS' earnings report came in a bit below analysts' expectations, Seeking Alpha reported. Its income in the third quarter shrank by about one-third from the year-earlier period to reach $8.5 million. Sales rose 7.9% from 2013's third quarter to hit $434.9 million, but that number includes sales at four companies acquired recently. Same-store sales rose 5.3%.
At 22.5%, the Dallas-based dealer's gross margin percentage split the difference between the 23% it posted in 3Q13 and the 22% it recorded in this year's second quarter.