For BFS, declining sales, positive attitude
Builders FirstSource is a rarity among pro dealers: a publicly traded company that operates in a kind of SEC-regulated fish bowl.
The industry was watching closely again last month, as the Dallas-based company spelled out its sales situation to investors during its fourth-quarter earnings call. The big picture was one of fourth-quarter sales in decline — but a decline not nearly as steep as that of residential construction in the southern markets served by Builders FirstSource.
Sales slipped 4.5% to $147.1 million in the quarter ended Dec. 31, 2010. But CEO Floyd Sherman pointed out that the U.S. Census Bureau’s figures for the South Region — encompassing the entire geographic footprint of the company — saw fourth-quarter single-family starts slip 9.3% from the prior-year quarter.
The company estimates that sales increased 3.1% due to commodity inflation, but decreased approximately 7.6% due to volume and competitive pricing pressure.
“These sales results, even when adjusted for commodity inflation, would indicate we gained market share during the quarter,” Sherman told investors. “We look to continue this trend, but only where these gains are at acceptable margins.”
Speaking of sales, senior VP and CFO Chad Crow broke down fourth-quarter sales by product category:
• Windows and doors: $36.8 million, up 1.3%;
• Lumber and sheet goods: $40.8 million, up. 3.0%;
• Millwork category: $20.1 million, down 1.5%;
• Prefabricated components: $26 million, down 11.0%; and
• Other building products and services: $26.8 million, down 16%.
The last category, which includes labor revenue on installed services, was negatively impacted by the quarter-over-quarter decline in the number of multi-family units under construction, which was down approximately 26% in the South Region, Crow said.
Meanwhile, Builders FirstSource said it is beginning to target smaller builders more than it has done in the past — particularly in the dealer’s larger markets. The company operates 69 yards in nine states from Texas to Maryland.
The first six months of 2011 may prove “difficult,” despite forecasts of improving housing conditions. The period will have a tough comparison with 2010, which benefited from the federal tax credit for first-time home buyers, he said.
Still, no earnings call would be complete without some good news, and Sherman was armed with observations from the field: “Recently, we have seen a return of certain customers that we had previously lost due to pricing,” the CEO said.
When an analyst pressed for reasons why, Sherman said service, delivery and inventory all play a role. He added: “I think another reason as they look down the road, they are starting to say, ‘Who are going to be survivors in this business, and what’s their ability to handle us when business really starts to improve?’ That’s a concern I think that a lot of builders are beginning to have. Who is going to be around?”
In brief: Masco’s tough Q4
Masco CEO Timothy Wadhams had his work cut out for him on Feb. 15. That’s when he had to lead the discussion of his company’s fourth-quarter and full-year earnings results — including a fourth-quarter net loss attributable to Masco Corp. of $1.034 billion.
That massive figure, one of the biggest to appear in the home channel, included good will and other intangible impairment of $721 million. But still.
Wadhams didn’t sugar coat the news. Out of the box he dove into sales, down 9.0% in the fourth quarter. He volunteered — even before the Q&A — the fact that sales to key retailers were off in the mid-teen percentage range. Masco’s particularly hard-hit cabinet business was down 29% in the fourth quarter.
But there were some positives — including $500 million in fixed-cost reductions realized at the end of 2010. Bright innovations include Arrow’s R.E.D. line, the Watkins Ace Sanitizer and the ProCision countertop solution.
“We continue to be very optimistic about the longer term,” he said. “Household formations, population growth, the age of the housing stock — all of those are positives, we think, for our business.”
Optimism from the Oracle of Omaha
A housing recovery will probably begin within a year. So says Warren Buffett, investment icon and CEO of Berkshire Hathaway.
Still, the Omaha, Neb.-based company’s home-construction-related business portfolio has struggled recently. Johns Manville, MiTek Industries, Shaw Floors and Acme Brick combined for pre-tax profits of $362 million in 2010, compared with $1.3 billion in 2006. And during that time, the four brands have shed about 9,400 jobs.
Still, all four are continuing to invest in significant improvements or acquisitions. For instance:
• MiTek made five bolt-on acquisitions in the past 11 months;
• Acme Brick spent $50 million to acquire Montgomery, Ala.-based Jenkins Brick & Tile;
• Johns Manville is building in Milan, Ohio, a $55 million plant to make single-ply roofing membrane; and
• Shaw will spend $200 million in 2011 on domestic plants and equipment.
“These businesses entered the recession strong and will exit it stronger,” Buffet wrote in his annual letter to shareholders.
In his widely read missive, the Oracle of Omaha added a characteristic defense of American capitalism. “Throughout my lifetime, politicians and pundits have constantly moaned about terrifying problems facing America,” Buffett wrote. “Yet our citizens now live an astonishing six times better than when I was born. The prophets of doom have overlooked the all-important factor that is certain: Human potential is far from exhausted.”