Builders FirstSource (BFS) posted a 12.7% increase in net sales year over year in the third quarter to reach $2.1 billion in net sales. The increase in sales was complemented by a 84.2% rise in net income year over year, the Dallas-based dealer reported in its third quarter earnings report. Net income jumped to $73.3 million in the third quarter of 2018.
The dealer estimated sales volume grew 1.5% in the third quarter, while price increases related to commodity inflation resulted in the additional 11.2% in overall net sales growth. When BFS accounted for commodity inflation, the company estimated the single family homebuilding market grew 3.1% while the repair and remodel market shrunk by 2.6%. However, it estimated that valued-added products sales such as windows, doors, and millwork grew 13.9% during the quarter.
The company's gross margin increased 13.8% year over year to $522.8 million and the gross margin percentage increased 0.3 points year over year to 24.7%. BFS, ranked second on this year’s ProSales 100, estimates the margin increased largely because of the decline in commodities costs during the quarter relative to the firm’s short-term customer pricing commitments.
Selling, general, and administrative (SG&A) expenses in the quarter rose to $401.0 million, or 18.9% of sales. The percentage dropped 0.8 points from the third quarter of 2017, which BFS attributed to the "cost leverage as well as continued cost management focused on general and administrative expenses." Interest expense in the quarter decreased $4.7 million from the year-earlier period to $29.1 million.
BFS measures itself in EBITDA—earnings before interest, taxes, depreciation, amortization, integration-related expenses, and other unusual costs. Adjusted EBITDA grew $32.8 million year over year to 154.8 million. BFS estimated the growth was largely due to sales increases as higher prices benefit the company's gross profit and adjusted EBITDA dollars. Adjusted EBITDA rose from 6.5% of sales to 7.3% when compared to the year-earlier period.
"The growth in adjusted EBITDA dollars, and the improvement in EBITDA margin, reflected our ability to successfully manage the volatility in commodity costs during the quarter as well as realize cost efficiencies on a sustained basis," CFO Peter Jackson said in a news release from the company.
According the company's balance sheet as of September 30, 2018, goodwill accounts for $740.4 million of BFS's $3.2 billion in assets while the liabilities side shows long-term debt stands at $1.8 billion.
"While the rate of market growth has recently eased, the long term outlook for the housing industry continues to be favorable as do the opportunities for Builders FirstSource to generate profitable growth for the balance of 2018 and beyond," CEO Chad Crow said in a concluding statement in the release. "We continue to invest in high margin value added products and operational excellence initiatives that position us well within the industry."
