Tough Third Quarter for BMHC, Builders FirstSource
The building slump continues to hurt sales for two of the LBM industry’s top players, as Building Materials Holding Corp. (BMHC) and Builders FirstSource both released disappointing third-quarter results on Oct. 25.
BMHC reported $618 million in third-quarter sales, a drop of 24 percent from $818 million in the same quarter last year. The nation’s fourth largest pro dealer posted $4.2 million in net income from the third quarter, which ended on Sept. 30. This compares to $35.3 million in the third quarter of 2006.
Income from discontinued operations included a gain of $3.1 million from the sale of three BMC West yards in Colorado in September 2007.
“We’re facing one of the most challenging business environments the home-building industry has experienced in decades,” said Rob Mellor, BMHC’s chairman, president and CEO, during a conference call with analysts. Single-family starts declined 31 percent in September, he pointed out. “Even permits and starts for multi-family homes were down sharply in September,” he added.
SelectBuild, the San Francisco company’s construction services division, was particularly hard hit by building permit drops. With key markets of California, Arizona, Nevada and Florida, SelectBuild showed a 32 percent slide in sales during the past quarter, to $299 million from $438 million in the third quarter of 2006.
|Q3 Net income|
|Down 88 percent|
|Down 24 percent|
BMC West, the company’s distribution arm, posted sales of $319.7 million, a decrease of 16 percent from $379.7 million in the same quarter of 2006. Income dropped 34 percent, from $31.4 million last year to $20.6 million this year.
BMHC executives assured analysts that the company is in compliance with all its credit facilities and that its bankers are not getting nervous. “The banks that we deal with…have a very good perspective on the dynamics of the business,” said senior vp and CFO Bill Smartt. The company continues to aggressively reduce overhead, he said. BMC West reduced payroll, benefits and incentives by $3.9 million, compared to the third quarter of 2006, while SelectBuild reduced the same expenses by $9.2 million.
SelectBuild has reduced its headcount by approximately 5,000 since the middle of last year, according to senior vp and CEO Mike Mahre.
Employee downsizing also came up during the Builders FirstSource earnings conference on Oct. 26, with one analyst expressing concern over “cut[ting] into muscle” with further layoffs.
|Q3 Net loss|
|Down from $17.3 million gain last year|
|Down 27.4 percent|
“We continued [headcount reductions] in October, and we will continue on throughout the duration of the correction trying to make appropriate adjustments in our stacking levels,” said Bill Horn, the company’s senior vp and CFO.
Four days later, Builders FirstSource announced that Kevin O’Meara, the company’s president and chief operating officer, was leaving to seek other opportunities. There are no plans to fill his position at this time, according to a prepared statement. [See sidebar]
Builders FirstSource reported sales of $414 million for the third quarter of 2007, a decline of 27.4 percent over revenues of $570 million from the same period a year ago. Ranked sixth on HCN’s Top 350 Pro Dealers list, the Dallas-based company posted a net loss of $11.5 million for the quarter, which ended on Sept. 30. This compares to net income of $17.3 million in 2006.
CEO Floyd Sherman told investors that the company is under continued pressure from builders seeking price concessions “unlike any pressure that I have seen or experienced in over 40 years in the business.” In response, Builders FirstSource is sacrificing its margins in some cases, but only if it sees a strategic advantage “when the market turns,” Sherman said.
The chief executive warned analysts that it could be a long haul. “We generally do not expect recovery until late 2008 or early 2009,” he said.
O’MEARA OUT AT BUILDERS FIRST SOURCE
Kevin O’Meara, president and chief operating officer of Builders FirstSource, has resigned from the company he helped found in 1997. O’Meara’s abrupt departure was announced in a one-paragraph statement released on Oct. 30.
“At this juncture, Kevin feels that it would be mutually beneficial for Kevin and the company for him to seek new corporate leadership opportunities,” the statement said. There are no plans to fill the position at this time, according to the company.
A former consultant with Bain & Co., O’Meara helped found BSL Holdings, which later became Builders FirstSource. After serving as senior vp-operations, O’Meara was promoted to chief operating officer in 2000. He guided the company through numerous acquisitions, culminating in an initial public offering in June of 2005. O’Meara was named president of Builders FirstSource in October 2006.
Lumber Liquidators closes IPO
Toano, Va.-based specialty hardwood flooring retailer Lumber Liquidators has closed its initial public offering.
The company offered 10 million shares of common stock at a price of $11 per share, including 3.8 million shares offered by the company and 6.2 million shares offered by selling stockholders.
The company intends to use the net proceeds of approximately $36.4 million from the offering to repay outstanding debt and support the growth of the business, which includes plans for 25 stores in 2007, followed by 30 to 40 new stores per year until 2011.
Goldman Sachs and Merrill Lynch acted as joint book-running managers with Lehman Brothers, Banc of America Securities and Piper Jaffray serving as co-managers for the offering.
Lumber Liquidators has seen same-store sales growth of 8.5 percent to 9 percent each quarter this year. According to the company’s S-1 filing with the Securities and Exchange Commission, in 2006 Lumber Liquidators had sales of $332 million, up 35 percent from sales of $245 million in 2005.
The retailer currently operates 111 small-format stores in the United States. The company is traded on the New York Stock Exchange under the symbol “LL.”
NKT Holdings withdraws initial public offering
Providence, R.I.-based HVAC company NTK Holdings has canceled its initial public offering according to a Securities and Exchange Commission filing this week.
The company said that the application was withdrawn “due to the unsettled market conditions.” The company had planned to use the IPO proceeds to repay debt.
The announcement was part of Nortek’s third-quarter earnings statement. Nortek, which reported a 4 percent increase in sales, is a subsidiary of NKT.
The company reported net earnings of $37.6 million for the period ended Sept. 29, down 44.9 percent from last year’s earnings of $67.7 million in the same period last year. Nortek also reported net sales of $602 million, up 4 percent from $579 million last year.
NTK Holdings manufactures air conditioning, heating ventilation and home environmental control technology products.