Builders FirstSource, Inc. (Nasdaq: BLDR), a leading supplier and manufacturer of structural and related building products for residential new construction in the United States, today reported financial results for its third quarter ended September 30, 2006.
"Our third quarter results reflect the current challenges facing the homebuilding industry as many homebuilders work through excess inventory," said Floyd Sherman, Builders FirstSource Chief Executive Officer. "Our sales were down only 11.5 percent year-over-year despite an estimated 20.6 percent decrease in housing starts in our markets and a 14.3 percent decrease in nationwide commodity lumber and lumber sheet good prices. We partially offset these market conditions by gaining market share while simultaneously improving our gross margin percentage and reducing our operating costs. I am pleased with our performance given the difficult current market environment."
Third Quarter 2006 Financial Results
- Sales for the third quarter were $569.9 million compared to $644.0 million for the same period in 2005.
- Third quarter 2006 net income was $17.3 million compared to $27.8 million in the same quarter last year. Third quarter 2006 net income included a $4.3 million (net of tax) charge to reduce the carrying value of goodwill related to one of the company's reporting units. Net income for the third quarter 2006 also included stock-based compensation expense of $0.8 million (net of tax) as the company adopted Statement of Financial Accounting Standards No. 123 (Revised 2004), Share-Based Payment, on January 1, 2006.
- Net income per diluted share for the quarter was $0.48 in 2006, including the aforementioned charges, compared to net income per diluted share of $0.80 in 2005.
- Diluted weighted average shares outstanding for the third quarter of 2006 were 36.0 million compared to 35.0 million for the same quarter last year.
- Gross margin percentage for the quarter was up slightly at 26.6 percent, compared to 26.4 percent in the same quarter of 2005.
- EBITDA for the quarter was $47.0 million compared to $58.7 million in the third quarter of 2005. EBITDA as a percentage of sales decreased from 9.1 percent to 8.3 percent.
- As of September 30, 2006, the company's cash on hand was $65.8 million, and funded debt was $315.0 million.
Commenting on the third quarter results, Charles Horn, Builders FirstSource Senior Vice President and Chief Financial Officer, said, "During the quarter, we continued to deliver on sales drivers that we can control. Market share gains and new facilities positively affected our sales by an estimated 11.2 percent and 1.7 percent, respectively."
During the third quarter, housing starts for markets in which the company operates declined by an estimated 20.6 percent compared to the same period in 2005. Many of the company's largest markets, including Texas, Georgia and the Carolinas, started to experience year-over-year declines in housing starts after experiencing year-over-year growth during the first half of the year. In addition, nationwide commodity lumber and lumber sheet good prices decreased approximately 14.3 percent compared to the third quarter last year. The company mitigated those commodity price declines to a 3.8 percent decrease to its total sales primarily through pricing management and product mix.
Horn added, "We managed our cost structure very well during the quarter adjusting our operating expenses commensurate with the decline in sales volume. Selling, general and administrative expenses decreased $5.4 million from the third quarter of 2005. As a percentage of sales, however, third quarter SG&A increased from 18.0 percent in 2005 to 19.4 percent in 2006. Lower market prices for lumber products increased the 2006 percentage by 70 basis points. Stock compensation expense, which was not present in 2005, added 20 basis points, and costs associated with our Sarbanes-Oxley compliance efforts added 20 basis points."
"We believe we can continue to mitigate a portion of the macroeconomic headwind by gaining market share to grow faster than our underlying markets. We also believe we can continue to increase sales through new operations," said Mr. Sherman. "However, we expect that difficult market conditions affecting our business will continue to have a negative effect on our operating results and year-over-year comparisons through at least mid 2007. While we are very focused on reducing costs and conserving capital during this challenging period, we want to avoid taking steps that will limit our ability to compete and create shareholder value in the long term."
Mr. Sherman concluded, "Certainly, there are adjustments we are making as we manage through the current downturn. Still, we remain confident in our core business model and operating strategy. We also believe our diverse geographic footprint gives us a competitive advantage during both contracting and expanding housing markets. We plan to judiciously invest in new operations and to strategically seek acquisition candidates. Finally, we continue to believe that the long-term outlook for the housing market is very positive."
Builders FirstSource will host a conference call tomorrow at 11:00 a.m. Central Time (CT) and will simultaneously broadcast it live over the Internet. To participate in the teleconference, please dial into the call a few minutes before the start time: 800-565-5442 (U.S. and Canada) and 913-312-1298 (international). A replay of the call will be available from 1:00 p.m. CT October 27 through November 2, 2006. To access the replay, please dial 888- 203-1112 (U.S. and Canada) and 719-457-0820 (international). Please refer to pass code 3659947. To access the webcast, go to http://www.bldr.com and click on "Investors." The online archive of the webcast will be available for approximately 90 days.