Aug 29, 2008
Executives
Russ Zukowski – VP, Finance Howard Cohen – Chairman and Interim CEO Doug Goforth – SVP, CFO and Treasurer George Judd – President and COO
Analysts
Steven Chercover – D. A.
Davidson & Company Robert Trout – Goldman Sachs
Operator
Russ Zukowski
Howard Cohen
Thanks, Russ, and thank you everyone for joining us this morning for the BlueLinx second quarter earnings conference call.BlueLinx performed well during the second quarter. We reported net income of $0.21 per diluted share.
The company's results for the second quarter were positively impacted by the increases in product prices in numerous categories. While underlying wood-based product prices increased in the first quarter of 2008, they decreased from the comparable prior period.
Metal prices, including both specialty fasteners and structural rebar prices also increased from the first quarter of 2008.While we are pleased with our second-quarter results, we do not expect a near-term upswing in the housing market. Current housing forecast suggest that the downturn will be long-term and so we will continue to take appropriate actions in order to manage the business through this downturn.Subsequent to the quarter-end, we made a decision to restructure our LSV Operations.
Based on market conditions in California, we decided to exit the custom-build business of LSV, while maintaining the cabinet and contractor-focused business, which are similar in nature to our BlueLinx Hardwoods operations.As I told you on our last call, we are highly focused on managing cash flow. We continue to aggressively manage inventories, receivables and spending and keep tight controls on our cost structure while continuing to be focused on serving the needs of our customers, suppliers and shareholders.
We believe our second-quarter results reflect those efforts and, as I mentioned earlier, we will continue to manage our business tightly going forward. I am confident that we will emerge from this downturn well positioned to capitalize on our industry's rebound when it occurs.
Doug Goforth
Thanks, Howard. Good morning to everyone.
Starting on Slide seven, overall sales for the second quarter ended June 28th totaled $835 million, down 23% or $247 million from second quarter 2007.Specialty sales declined 20% from the same period last year, with the majority of the decline coming from lower unit volumes. Structural product sales declined 26%, also largely a result of lower unit volumes.
Specialty products comprised 48% of total sales, up from 46% in 2007.BlueLinx generated approximately $107 million in gross profit for the quarter. We generated gross margins of 12.9% or 190 basis points higher than the second quarter of 2007.
Specialty gross margin of 14.3% compares with 14% a year ago. Structural gross margin of 11.9% compares to 9.3% margin generated in the prior-year period.
Structural margins benefited from an increase an underlying rebar prices, combined with well-positioned inventory level entering the quarter.Operating expenses for the quarter totaled $86 million, a decrease of $12 million or 13% from a year ago. The decline primarily reflects decreases in payroll costs related to lower headcount and in other expenses not directly related to headcount.
These declines were partially offset by fuel costs, which increased by approximately 30% over the prior-year period. As Howard mentioned, we are tightly managing our costs and will continue to actively manage our costs relative to both current and future business conditions.
Howard Cohen
Thanks, Doug. Before turning it over to the operator I'd like to make a few closing remarks.First, we continue to operate in one of the worst housing markets on record.
Our primary focus is and will continue to be managing cash flow. We have a flexible capital structure that provides us with liquidity necessary to continue to execute an extended cyclical downturn while positioning the company to be the supply chain solution of choice once this housing correction has run its course.Most housing forecasters still point in the future to a strong, prolonged rebound of the housing market based on the population demographics and other factors.
We will participate in that rebound as the leading building parts distributor in the United States.Second, perhaps despite or perhaps in light of the challenging environment, we believe we are becoming more successful in underscoring our value proposition to our customers and getting paid for value we bring to them through our position in the supply chain. I certainly believe that our focus in tightly managing all aspects of our business in this environment combined with the highly dedicated employee base has allowed us to become successful and is allowing us to separate ourselves from our competition.Third, as you are aware, during the second quarter we received a two year advance notice as required under the contract of Georgia-Pacific's intent to terminate our existing supply agreement.
This existing supply agreement runs through May 2010. BlueLinx continues and will continue to distribute GP products for the next two years under the existing contract.
We anticipate a new contract that is mutually beneficial to both BlueLinx and Georgia-Pacific and will be in place by May of 2010.Also, let me comment briefly on the CEO search. We are in the process of selecting final candidates for the position and the Board of Directors expects to name a replacement early in the fourth quarter.Finally, I would like to publicly thank George Judd, Doug Goforth, Duane Goodwin, and Dean Adelman, and the BlueLinx senior staff on how well they have led their respective organizations during this challenging environment.
I am very pleased to be working with this high quality team and all of the BlueLinx people through this very difficult time.Now I'd like to open it up for questions. Operator?
Operator
Steven Chercover – D.A. Davidson & Company
Howard Cohen
Steven Chercover – D.A. Davidson & Company
Howard Cohen
Steven Chercover – D.A. Davidson & Company
Howard Cohen
Steven Chercover – D.A. Davidson & Company
George Judd
Steven Chercover – D.A. Davidson & Company
George Judd
Steven Chercover – D.A. Davidson & Company
Operator
Robert Trout – Goldman Sachs
Howard Cohen
George Judd
Robert Trout – Goldman Sachs
George Judd
Robert Trout – Goldman Sachs
George Judd
Howard Cohen
Robert Trout – Goldman Sachs
George Judd
Robert Trout – Goldman Sachs
Operator
Howard Cohen
Operator
This concludes today's BlueLinx second quarter 2008 earnings conference call. You may now disconnect.