The second quarter was not pretty for two industry titans–financial results for Building Materials Holding Corp. and Builders FirstSource prove how far the market has fallen. Both companies plan to attack their woes with more staff and facilities cuts.
Meanwhile, Builders FirstSource, the seventh-largest dealer in this year's ProSales 100, reported a net loss of $45.9 million in the second quarter on a 33.9% drop in sales. The Dallas-based company attributed the loss to the slumping home construction market, saying that housing starts in the markets it serves have fallen 43.1% in the quarter ended June 30 from the year-earlier period.
The second quarter's $45.9 million net loss compares with an $8.4 million net profit in 2007's second quarter. Sales for BFS declined to $307.3 million this quarter from $465.1 million a year ago.
BFS said it's looking at mothballing facilities in the Midwest and Florida but has no plans, at present, to exit any markets. It also said it will seek to push through price increases on lumber and sheet goods that it pulled back from imposing in the second quarter. BFS operates in 13 states. It had 127 locations at the start of the year, according to the ProSales 100.
BMHC already has made drastic cuts. On May 12, the company said it was merging its BMC West and SelectBuild units to streamline services, a move it estimates will save $20 million to $25 million annually. A few days later, it closed its SelectBuild Arizona unit and facilities in Merced and Bakersfield, Calif. In August, it announced it would close its SelectBuild operations in Florida by year's end.
The housing slump has created problems for BMHC, the fifth-largest company on the 2008 ProSales 100, on both sides of its operations. Building products sales (the BMC West part) fell 29% in the second quarter from the year-earlier period, while construction services sales (centered in SelectBuild) sank 51%. The company also recorded $8.5 million in impairments as a result of what it called "certain customer relationships"–it didn't elaborate–and in costs of closing and consolidating some units. It racked up another $5.8 million in expenses to cover the cost of exiting certain leases and pay other charges.
"While our operating results reflect the continued difficult conditions confronting the home-building industry, we made substantial progress in our restructuring program during our second quarter, and also experienced sequential improvements in consolidated sales and gross margin," CEO and Chairman Robert Mellor said in a statement.
BMHC's financial downturn prompted discussions with its lenders for a temporary waiver on minimum net worth and earnings standards. The dealer's preliminary second-quarter results had indicated it was out of compliance on a revolving loan, for which $29 million is outstanding, and on a term loan, on which BMHC owes $340 million.
Not long after, the company announced it had obtained a temporary waiver from its lenders that lets it borrow up to $60 million on its revolving credit facility.
On Aug. 14, BMHC says it went from 25,000 employees in July 2006 to roughly 11,000 as of June. It consolidated operations into six regions and is focusing on millwork and truss projects. BMHC also sold its Phoenix windows operation and is winding down its HVAC operations in Arizona and Nevada, its trim operations in Nevada, and its plumbing operations in Nevada and Southern California. It is also auctioning off some vehicles.
Over the past year, BFS has cut staff such that it has 22% fewer employees in the second quarter than in the year-earlier period, while salaries and benefits expenses fell 22.6% (about $14 million) year-over-year. BFS CEO Floyd Sherman said the company was hurt in the second quarter because it couldn't pass along to its customers a 12% increase in lumber and sheet goods prices that vendors imposed on it during the quarter.
Sherman said the company hasn't left any mark
ets but has consolidated operations within them. "If we continue to see the pattern of decreasing [housing] starts, yes, there could be some markets" it would leave, Sherman said, but would do so carefully because of the difficulty it would face if it wanted to re-enter a market.
–Andy Carlo and Craig Webb