BMC Stock Holdings executives are stressing words like "discipline," "rigor," and "pricing excellence" while citing a shift in commission structure, the addition of new technology, and increased focus on remodelers when they describe how the nation's No. 2 full-service lumberyard is changing its ways.
Those points of emphasis shone through July 30 when BMC met with stock analysts to discuss the company's second-quarter results. The Atlanta-based company's net profit shot up to $27.7 million in the April-to-June period from $15.1 million year earlier, while sales jumped 12.6% to $998.5 million.
"[W]e have significantly increased the rigor with which we run the business," COO Mike McGaugh told the analysts, according to a transcript of the meeting. "With enhanced levels of discipline, we're doing a better job tracking and improving our performance. "... First, we are increasing our focus on pricing excellence and pricing analytics. Second, we are driving improved purchasing rigor. Third, we're driving discipline on our SG&A [selling, general, and administrative] spending. And last, as I've spoken about in previous calls, we are implementing the BMC Operating System, our game-changing approach to operational excellence."
Many of these changes have been launched or implemented in the five months since CEO Peter Alexander left the company and David Keltner took his place as interim chief executive officer. "I would expect to have a replacement named by the end of the summer," Keltner said.
Here are some key ways that BMC is evolving:
Automation
BMC used the analysts' call to point to a video of its recently opened automated truss facility in Atlanta and to announce plans to develop a similar facility in Salt Lake City in 2019. "As with Atlanta, once we've fully ramped up production, we expect to achieve at least a 50% improvement in productivity rates, as compared to our traditional truss facility while using a third less labor," McGaugh said, adding later: "We have three to four other markets in mind that we'll announce in subsequent quarters."
Commissions
McGaugh said the company is increasing commissions on value-added products and incremental growth while "throttling back" payouts on commodity products and sales in which the volume of the purchase remains unchanged. These changes will help drive behaviors that align with the company's strategy, he said.
Purchasing
"We are leveraging the benefits of the BMC-Stock merger in our improved purchasing power," McGaugh said. "We're standardizing and aggregating our purchases to drive lower costs. This is delivering margin protection and enhancement. ... This more rigorous approach to purchasing is a key differentiator and is here to stay."
M&A
After buying very little following its takeover of Stock Building Supply several years ago, BMC signaled in February that it's back in the game with its acquisition of Shone Lumber of Delaware."We've been very active in building our business development group," Keltner said. " And I think we're doing a lot of outbound calls, building relationships, making a lot of contacts, and we're receiving a fair amount of inbound calls as well. ... I'm disappointed we haven't closed anything since June, but I'm very encouraged by what we're seeing in terms of conversations we're having and the overall pipeline development. And I think it'll pay dividends down the road."
Customers
BMC also has made clear--in part by buying Shone--that it aims to get a bigger percentage of its sales from remodelers. "It offers us a number of things," Keltner told the analysts. "One, it is a higher-margin profile customer segment, but it's also less cyclical. So we get the benefit of that throughout the different building cycles we're in. And there are similar products, obviously, and similar vendors. So there's a lot of adjacency to what we're doing today. And I think in the end, it makes us a more robust company with less cyclicality, and I think it makes sense for us to go down that path." Some of the deals BMC is looking into will help it boost its presence among remodelers, he said.
Discipline
Challenges keeping expenses under control "is still a little bit of an overhang from the Stock-BMC merger," McGaugh said. Seeking synergies are important, he indicated, as are efforts to introduce money-saving concepts like lean operations. "We have found ways to reduce overtime expenses, eliminate waste in our production and distribution processes, and obtain more yield from our assets. We are becoming better operators."
