Strengthened by record sales in 2005, Dallas-based Builders FirstSource (BFS) announced Feb. 23 that the company will re-enter the pro dealer M&A arena after a pause last year to focus on the company's initial public offering (IPO). "We did not make any acquisitions in 2005, but we plan to aggressively pursue acquisition opportunities in 2006," said BFS CEO Floyd Sherman during the conference call to report 2005 fourth quarter and annual results. "We're very pleased to report a solid fourth quarter finish to 2005, a year that we emerged as a public company and achieved record sales. Our outstanding 2005 performance, coupled with our improved balance sheet, puts us in a good financial position to be more aggressive toward [acquisitions as part of] our growth strategy in 2006."
Even with increased expenditures as part of the company's IPO -- including higher legal and accounting fees compared to when the company was privately held -- BFS increased sales last year by 13.6 percent to $2.3 billion, led in large part by sales of prefabricated components, which accounted for 21 percent of sales at $491.85 million, an increase from 2004 where components only accounted for 18.8 percent of sales. Lumber and sheet goods, meanwhile, declined as an overall percentage of sales, from 39.6 percent ($815.2 million) in 2004 to 36.4 percent ($849.9 million) in 2005. Prefabricated components were also the largest driver of an increase in overall gross margin to 25.3 percent compared to 23.5 percent in 2004, although all product categories saw a gross margin increase in 2005, BFS CFO Charles Horn said during the conference call.
The strong performance and continued demand for components will likely have BFS looking to make pro dealer acquisitions that involve manufacturing operations and install capabilities. "The businesses we will be looking at will have a very strong manufacturing and distribution orientation as well as very likely being involved in installed services to some degree, which we would enhance once we make the acquisition," said Sherman, who also indicated that BFS is screening market-leading companies with manufacturing capabilities and is prepared to make acquisitions outside of the company's current geographic footprint in the Eastern and Southern states. On the organic end, the company plans to open four truss plants and one panel plant in 2006, as well as expand manufacturing capacity at 10 existing truss plants and four existing panel plants.
Commenting on the overall residential construction market for 2006, Sherman expressed a cautious but bright outlook. "While certain market indicators point toward conservative growth in the home building industry, we believe that any pull back will be regional and temporary," he said. "By continuing to successfully execute our operating initiatives and growth strategies, we have firmly established the company as a premier supplier and manufacturer to the home building industry, and we are excited about our future prospects for continued growth and profitability."