The publicly traded companies that operate in the LBM segment can be an invaluable source of information regarding the industry’s overall health. Though the financial performance of these companies varied widely during 2013, taken together, their earnings reports represent an interesting pulse of the overall building products distribution market.
BlueLinx reported a 12.8% increase in 2013 revenue versus the prior year. Despite increased sales, the Atlanta-based distributor was essentially at breakeven from an EBITDA (earnings before interest, taxes, depreciation, and amortization) standpoint. EBITDA is a critical measure that serves as a proxy for the cash flow of a company. Special expense items—including severance, restructuring, and distribution-center closing expenses—represented a significant drag on earnings.
Stock Building Supply, in Raleigh, N.C., fared much better, with a revenue increase of 27% in 2013. The increase led the company to post a 2.3% EBITDA margin. While this still leaves ample room for improvement, Stock’s total 2013 EBITDA was roughly 14 times higher than the prior year.
One factor supporting Stock’s improved performance was the 15.5% increase in single-family housing starts to roughly 618,000 starts for the year. In its earnings release, though, Stock highlighted the fact that its sales to new-home builders actually increased by 31% last year, surpassing its 18% increase in sales to remodeling contractors. For anyone engaged in this industry during the past five years, the fact that new construction so greatly outperformed repair and remodeling is nothing short of jaw-dropping.
Dallas-based Builders FirstSource rounded out the earnings release season and further highlighted the benefit of serving the new-construction market. The company saw a 39% jump in revenue, a 4% EBITDA margin, and a 9.5 times increase in total EBITDA.
There are important lessons in the data from Stock Building Supply. First and foremost is the fact that the company tracks its new-construction and repair and remodeling sales. This allows it to discern trends between the two categories that would lurk somewhere in the realm of “gut feel” for companies that don’t monitor this data. Surprisingly, many building products companies with which we are in touch haven’t adopted the discipline of tracking the end markets into which their products are being sold.
The second lesson is that, since Stock’s new-construction sales growth rate well exceeded that of the national increase in housing starts, the law of mathematics says that Stock grabbed market share from its competitors this year. This is good for Stock, but it can be just as good for any building products distributor. This market share capture means that after years of hunkering down, customers are in play again.
Your customers appear willing to change suppliers. Companies that come to market with the right mix of excellent products, competitive pricing, timely delivery, and a host of other factors that customers value, can and will win share in this market.
Michael Collins is a partner with Building Industry Advisors. He leads the firm’s efforts in M&A, capital placement, and acquisition advisory services for building products distributors and manufacturers. Contact him at firstname.lastname@example.org or 312.854.8036.