Builders FirstSource's (BFS) loss from continuing operations deepened to $19.7 million in the third quarter from $15.9 million in the year-earlier period on a 4.5% drop in sales to $180.4 million, the company reported late Thursday, Oct. 21. The Dallas-based LBM operation also revealed it temporarily idled four manufacturing facilities and two distribution centers.
"Though the volatility in the commodity markets has subsided, current market conditions remain difficult and we expect this to persist into 2011," chief executive officer Floyd Sherman said in a news release. "We remain committed to our proven strategy of conserving liquidity while monitoring, and adjusting as necessary, physical capacity and staffing levels. As expected, seasonal reductions in working capital helped reduce our use of cash during the quarter. We still believe our liquidity at year-end will range from $100 million to $110 million. While we do not expect 2011 to be a robust year of new home construction, we are hopeful we will see some improvement over 2010, and that 2011 will signal the beginning of a sustained recovery."
Sherman elaborated on those comments Friday during BFS' conference call with stock analysts. "From a construction standpoint it's still very weak out there. The activity slowed down [during the third quarter] and ended in the numbers that we indicated. Right now we have very little forward visibility. We are running our business on a day-to-day basis.
"The activity in October is not as good as what we saw in September," Sherman added. "There is some feeling that November will be a little bit better, but that still remains to be seen. Right now we are preparing for ... a weaker quarter from a housing/construction standpoint than the third quarter."
The 4.5% drop in sales from $188.9 million in the third quarter of 2009 occurred over a period in which housing starts are down by double-digits compared with year-earlier levels, Sherman noted. For instance, in the South--where BFS operates--single-family housing starts in the third quarter dropped 13.7% from the year-earlier third quarter.
BFS said the 4.5% drop in sales to $180.4 million reflects a 5.6% rise in commodity prices that was overwhelmed by a 10% cut in volume and "competitive pricing pressure." Sherman told analysts Friday that non-commodity products, particularly prefabricated items, suffered the most pricing pressure because builders aren't in any rush for goods and thus don't need to take advantage of the kinds of timing and efficiency benefits that prefabs provide.
The result was that gross margins slipped to 19.7% in the third quarter from 20.9% a year before, again largely due to competitive pricing for non-commodity products. In dollar terms, the gross margin subsided to $35.5 million from $39.4 million. Selling, general, and administrative expenses decreased by 3.4% to $47.6 million.
Adding $839,000 in asset impairments and $411,000 in facility closure costs and BFS' loss from operations deepened to $13.3 million from $9.9 million. A total of $6.9 million in interest expenses pushed the pre-tax loss from continuing operations to $20.2 million, and a $525,000 income tax benefit trimmed that loss to $19.7 million. BFS incussed an additional $795,000 in losses from discontinued operations, bringing its net loss to $20.5 million for the third quarter compared with $15.2 million for the July-September 2009 period.
BFS prefers to measure itself by adjusted EBITDA, which it defines as net income or loss before depreciation and amortization, interest expense, income taxes, (gain) loss on sale of assets, (income) loss from discontinued operations, and other non-cash or non-recurring items including asset impairments, facility closure costs, severance, recapitalization costs, expensed acquisition costs, and stock compensation expense. By that measure, BFS' adjusted EBITDA deepened to a negative $8.3 million from a negative $4.8 million.
The third quarter also marked the temporarily idling of two manufacturing facilities in Maryland and two more in Florida plus two distribution centers in South Carolina, all to reduce operating expenses and excess capacity. BFS now counts 54 distribution centers and 47 manufacturing facilities, most of which are co-located with the distribution facilities. BFS ranked 10th on the latest ProSales 100 Mergers higher up the chart have moved it to ninth place. (See updated list.)
Lumber and lumber sheet goods accounted for 27.7% of all sales in the quarter, or $50.1 million, while windows and doors accounted for 22.7% of sales, or $40.9 million. Prefabricated components figured in another 20.1% of sales, or $36.3 million, millwork provided 10.9% or $19.6 million, and other building products and services accounted for the final 18.6% of sales, or $33.5 million.
