Third-quarter net income at Builders FirstSource (BFS) shrank by nearly two-thirds from the previous year, to $39.8 million from $125.5 million, on a 7.6% rise in sales to $1.88 billion, the company reported today.

The profit looks worse because the results for 2016's July-to-September quarter included an allowance of $117.6 million against deferred tax assets that was partially offset by $53.3 million worth of debt issuances and refinancing costs.

Operating income rose 2.8% to $88.7 million. The gross margin slipped to 24.4% from $25.0%. Net profit as a percentage of sales fell to 4.7% from the year-earlier 7.2%.

BFS likes to measure itself in terms of adjusted EBITDA, which it defines as earnings before interest, taxes, depreciation and amortization plus integration expenses (mainly its takeover of ProBuild), debt issuances, refinancing costs, changes in tax valuation allowances, and facility closure costs. By that metric, adjusted EBITDA rose in the quarter to $122 million (a 6.5% margin) from the year-earlier $118.3 million (6.8% margin).

CEO Floyd Sherman said the latest quarter "proved our agility to respond to unexpected challenges, including two major hurricanes and commodity inflation." Dallas-based BFS gets a hefty share of its business from Texas and Florida, so the hurricanes in those states cut sales.

Commodity inflation--particularly for lumber--was a two-edged sword for the nation's biggest full-service lumberyard and No 2 business on the ProSales 100. BFS noted that the quarter's sales per day after excluding closed yards rose 9.5% from 2016. Commodity price hikes contributed 6.9 percentage points of that increase, while 2.6 points came from increased sales volume.

While the higher prices boosted sales, "unexpected moves in commodity prices" push down the gross margin by 60 basis points. Ultimately, however, BFS rated the price increases as a long-term good thing for both gross margin and EBITDA dollars.

The company's Sept. 30 balance sheet shows that of the $3.09 billion assets, goodwill accounts for $740.4 million of that total and intangible assets figure in another $139 million. Meanwhile, the company ledger shows $1.9 billion worth of long-term liabilities.