BlueLinx Holdings barely stayed in the black during the second quarter, posting net income of $600,000 vs. $6.6 million in the year-earlier period, the Atlanta-based building products distributor reported today. Revenue shrank 49% to $424 million, volume dropped 45%, gross profit sank 55% to $48.3 million, and gross margins slipped 1.5 points to 11.4%.
President and CEO George Judd, speaking to analysts this morning, said he believes business conditions are improving. He said BlueLinx has seen substantial increases in the number of plans for blueprints and requests for takeoffs. He noted that most of this activity is in entry-level housing, away from the large urban markets, and more often in New England and the Midwest than in the Sunbelt or in past high-growth areas like Las Vegas and Phoenix. "I feel we're in the trough of this housing correction," he said, adding later that while there appears to be an uptick of demand, it's "nothing to ring the bell about."
The latest results mean BlueLinx compiled a net loss of $60 million for the first half of the year, 15 times more than the $4 million net loss it incurred in the opening six months of 2008. Roughly three-quarters of that loss can be attributed to a special charges of $44.6 million in the first quarter that primarily was related to a valuation allowance against deferred tax assets.
"While we continue to operate in a weak demand environment, I am encouraged by signs indicating our industry may be stabilizing," Judd said in a statement accompanying the financial results. "During the quarter we generated $8.4 million in cash from operations, and we ended the quarter with $184 million in excess availability. We have managed our business to be well-positioned to take full advantage of the rebound in construction activity. We are determined to grow our business at a faster rate than the overall rebound as it occurs."
BlueLinx attributed the drop in second-quarter sales to the fall in housing starts over the past year. It gave the same reason for the drop in gross profit, adding that lower underlying product prices also contributed. It noted that margins were higher a year ago in part because structural metal prices had gone up sharply then.
On the other hand, BlueLinx cut its total operating expenses by 56% from the year before to $48.6 million. More than a third of that reduction relates to a $17.4 million gain it recorded as a result of April's early cancellation of the Master Supply Agreement with Georgia-Pacific. It also reaped $4.2 million on the sale of certain surplus properties.
Gross profit for the six months ended July 4 fell by about half, to $92.6 million from $185.2 million in the first half of 2008, while gross margin slipped to 11.1% to 11.9% and operating expenses declined to $100.4 million from $171.9 million.
Judd told analysts that BlueLinx's goal is to get about 60% of its revenue from specialty products such as roofing, insulation, mouldings, and 40% from structural products, a category that includes plywood, OSB and framing lumber. The ratio improved to 58-42 in the second quarter from 48-52 a year ago, the company said, as structural product sales dropped 58.6% on a 50.1% decline in unit volume while specialty sales were down only 37.9% on a unit volume decline of 38.9%. Judd predicted the slow rise in home construction will push the specialty-structural ratio to about 55-45 in the next few quarters, but his long-term goal remains to boost specialty products to account for 60% of all sales revenue. That's largely because the margins are better on specialty products; the gorss margins were 12.6% for specialty products and 10.3% for structural goods in the second quarter, BlueLinx said.
BlueLinx describes itself as supply more than 10,000 products from more than 750 suppliers to about 11,500 customers nationwide. It has 70 warehouses and employs approximately 2,000 people.
