Feb 17, 2011
Executives
Maryon Davis - Director, Finance and Investor Relations George R. Judd - President and Chief Executive Officer H.
Douglas Goforth - Senior Vice President, Chief Financial Officer and Treasurer
Analysts
Steven Chercover - D. A.
Davidson
Operator
Good morning. My name is Carly and I'll be your conference operator today.
At this time, I would like to welcome everyone to the BlueLinx Fourth Quarter Earnings Release Conference Call. All lines have been placed on mute to prevent any background noise.
After the speakers’ remarks there will be a question-and-answer period. (Operator Instructions) As a reminder, ladies and gentleman, this conference is being recorded, today, February 17, 2011.
Thank you. I’d now like to introduce Maryon Davis with BlueLinx.
Ms. Davis, you may begin your conference.
Maryon Davis
Thank you, Carly, and welcome ladies and gentlemen to the BlueLinx fourth quarter 2010 conference call. With us this morning our George Judd, Chief Executive Officer and Doug Goforth, Chief Financial Officer.
Our press release was issued earlier this morning. A copy of the release is available in the Investor Relations section of the company's website at bluelinxco.com.
Before starting the call, I need to refer you to our Safe Harbor statement. I would like to remind everyone that on today's call, management may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including all statements concerning future or unexpected events or results.
Actual results could differ materially from those projected in the company's forward-looking statements due to known and unknown risks and uncertainties. A discussion of factors that may affect future results is provided in the company's filings with the Securities and Exchange Commission.
BlueLinx undertakes no obligation to publicly update or revise any forward-looking statements contained in these presentations based on new information or otherwise, except as required by law. With that requirement completed, I'd like to remind our listeners that we have posted slides on our website.
We will be referring to these slides during this call and we encourage you to use them during our remarks. Additionally, the slide package contains an appendix of supplementary tables available for your review.
Now, let me turn the call over to our Chief Financial Officer, Doug Goforth.
H. Douglas Goforth
Good morning. I will start with an overview of the quarterly results and George will provide an operations review of the quarter and close with final perspective.
For those of you following along with the slides posted on the Investor Relations section of the BlueLinx website, I will begin with slide 5. Overall, sales for the fourth quarter ended January 1, totaled $367.9 million, up approximately 0.5% or approximately $1.8 million from the fourth quarter of 2009.
Specialty sales increased 7.4% year-over-year, reflecting increases in both volume and product mix. Structural product sales decreased 9.5% from the same period last year.
The decrease was driven by 7% year-over-year increase in product selling prices offset by a 16.5% decrease in units sold. Specialty products comprised 59% of total sales, up from 55% in the fourth quarter of 2009.
Overall, unit volume declined 4.3% compared to the year ago period. Specialty volume grew 5.9%, as we continued to focus on increasing our share of value added products.
Structural products volume declined 16.5% as demand for these products softened during the quarter. Housing continues to remain weak, actual total U.S.
housing starts declined 3% for the fourth quarter of 2010, compared to the same period last year with single-family starts, which our business is closely tied to down 8.7%. The 2010 fourth quarter marks a record low for fourth quarter for both the total number of actual housing starts and the number of single-family starts, since record keeping began 50 years ago.
The environment for homebuilding and home remolding continues to face substantial headwinds with an overhang of inventory, low consumer confidence and high unemployment. These conditions combined with the normal seasonal slowdown associated with our fourth quarter negatively impacted our financial results.
BlueLinx generated approximately $44 million in gross profit for the quarter; gross margin was 12.1%, which is down 0.3% from prior year quarter. Despite the year-to-year decline, we considered 12.1% as strong margin performance, considering the price and demand challenge that we faced in our markets.
Structural margins were flat to the prior-year quarter at 9.5% and improved 2.1% over the prior quarter as prices stabilized compared to the extreme pricing volatility of the third quarter. Specialty gross margins for the quarter were 14.7% compared with 14.4% in the third quarter and 15.3% a year ago.
Total operating expenses increased to $56.5 million from $50.1 million a year ago and included $0.7 million in significant special expense items and $6.2 million in real estate and other gain items, respectively. Keeping our expenses flat in the quarter reflects our ongoing focus on managing expenses.
The company reported an operating loss for the fourth quarter of $12.2 million compared to an operating loss of $4.8 million in the prior year period, reflecting a $900,000 decrease in gross profit and a $6.5 million increase in operating expense. Our fourth quarter net loss of $20.2 million or $0.66 per diluted share compares with the net profit of $12 million or $0.37 per diluted share in the fourth quarter of 2009.
Our reported net loss for the period is after interest expense of $7.8 million, which includes $1.4 million in pretax non-cash interest income related to our interest rate swap compared to interest expense of $6.8 million in the prior year period, which included a $1.1 million pretax non-cash charge associated with our interest rate swap. The current year net loss is after a tax provision of $137,000 compared to a prior year tax benefit of $23.6 million comprised of the $20.4 million tax refund on our 2009 net loss due to the extension of the net operating loss carry back provision to five years and a $3.3 million non-cash benefit related to the allocation of income tax expense to other comprehensive income.
As discussed on prior calls, during the first quarter of 2009, BlueLinx provided a valuation allowance for 100% of its U.S. deferred tax assets.
As a result, the company’s tax provisions in future periods consist of income taxes on earnings of its Canadian operations and certain state income taxes, but generally will not include any income tax benefit related to its U.S. operations.
Looking at full-year results on slide 6, sales for the year ended January 1, totaled approximately $1.8 billion, up 9.6% from the same period last year. Gross margin of 11.7% equaled the year ago period.
Full year, the operating expenses increased approximately 12% from the same period last year. With both the 2010 and 2009 period benefiting from net gains from significant special items of $1.1 million and $26 million respectively.
The resulting operating loss of $23.9 million compares to an operating loss of $16.3 million for the year ago period. EBITDA declined $11.3 million over the prior year period reflecting increased gross profit and the unfavorable impact of operating expense increases, which resulted from net gains on significant special items in the prior year period.
The full-year reported net loss of $53.2 million or $1.73 a share compares with a net loss of $61.5 million or $1.98 a year ago. Turning to cash flow on slide 7, during the quarter, we generated $18 million in cash from operating activities, which compares with net cash used by operations of $6.4 million in the fourth quarter of 2009.
As we have said in our previous quarterly calls, we are highly focused on tightly managing our working capital items for serving the needs to our customers, suppliers and shareholders. We believe our fourth quarter results reflect these efforts.
Cash used in financing activities was approximately $15 million for the quarter, driven by a $4.8 million reduction in outstanding borrowings under our revolving credit facility and $7.6 million decrease in bank overdrafts and a $2.8 million increase in restricted cash related to the mortgage. The resulting cash balance at January 1 was $14.3 million compared with $29.5 million a year ago.
Moving to slide 8, we had approximately $103 million of excess availability under our revolving credit facility as of quarter-end. This number will likely to continue to [be tied] our industry and our company begins its recovery from the historic downturn, but we believe that the amounts available from our revolving credit facility and other sources will be sufficient to fund our operations and capital requirements for the next 12 months.
The combined debt balance on our mortgage and revolving credit agreement was approximately $383 million, a decrease of $4.8 million from the third quarter of 2010. Net debt at the end of the fourth quarter was approximately $338 million compared to $347 million at October 2 and was up approximately $45 million from a year ago.
Turning to slide 9, cash cycle days for the fourth quarter totaled 52. That compares with 51 days for the third quarter of 2010 and 49 days compared to the same period a year ago.
Our performance particularly with accounts receivable and inventory reflects our daily efforts to manage our working capital risk. That concludes my review.
Now, let me turn the call over to George.
George R. Judd
Thanks, Doug. Good morning.
BlueLinx’s fourth quarter operational performance was impacted by the continued difficult conditions of the housing and construction markets. Our company faced a challenging environment in the fourth quarter of 2010 with the actual number of housing starts at record fourth quarter lows.
During the quarter, we continued to successfully battle the economic turbulence that gripped our markets, focused on proper revenue growth, cost containment, cash management and most importantly customer service. Our accomplishments during the quarter demonstrate our ability to execute our strategies, despite the economic headwinds.
I’m proud that we grew sales over the prior year period in the worst fourth quarter of housing starts on record. We delivered strong gross margins of 12.1%, well above the historical levels, as we continued our focus on profitable growth.
We managed costs very well in a tough environment, holding flat to prior year levels. And we generated $18 million in cash from operations.
Our fourth quarter performance demonstrated that we’re executing on our strategy to growth the high margins specialty products segments of our business. Growing specialty products requires both cultivation of and close interaction with our customers and suppliers in order to understand their needs and develop value-added specialty product programs The process demands that we invest time and expertise necessary to build productive relationships.
We’re making these investments and we’re showing tangible results, evidenced in both sales growth and increased vendor interest. Specialty sales were up over the prior year quarter, 7.4%.
Just last month we were at the International Builders Show in Orlando and we met with more than 20 vendors who expressed interest in our capabilities. We also conducted a national sales meeting in vendor fair during the quarter.
For the first time, we had our entire outside sales force together with 50 strategic vendors. I’m excited as we execute the strategies developed during that meeting.
The overall mood at the Builders Show and in our vendor fair was one of steadfast belief, the worst is past and the industry is in recovery. We remained focused on improving gross margins both by managing our structural products business and by increasing our mixed specialty products over the long run.
Our track record throughout the cyclical downturn shows that we performed well in sustaining gross margins in this increasingly competitive market. We continue to be relentless and sustaining our cost performance in managing our working capital in the current operating environment.
As we move forward in 2011, we remain focused on improving dependable and on providing dependable high-quality service to our customers as the home construction industry works its way back to more normalized levels. We expect that our business related to new home construction will remain challenging through the first quarter and then begins to gain momentum as the year progresses.
We’re optimistic that the 2011 business climate will be better for our industry and for BlueLinx. While the industry works its way through this historic housing correction, we’re encouraged by certain economic forecasters who point to a favorable long-term outlook for household creation and for new home construction.
Despite operating in a difficult economic climate, our business is solid and our market position is strong. Strategically, our specialty product remains our number one strategic competitor as we move forward into 2011.
The intend to foresee this is the market leader, operating from a business platform that we believe is unique and compelling. With that, we’ll open the call to questions.
Operator, will you please instruct everyone on how to ask questions? Thank you.
Operator
(Operator Instructions) Our first question comes from Steven Chercover with D.A. Davidson.
Steven Chercover – D. A. Davidson
Good morning, everyone.
George R. Judd
Good morning, Steve.
Steven Chercover – D. A. Davidson
I've got three questions. First of all, while the sales were basically flat year-over-year, your SG&A was up about $7 million, is that due to expenses associated with assessing the takeover from Cerberus?
H. Douglas Goforth
Steve, this is Doug. No, primarily, as soon as the fourth of 2009, we had about $6 million real estate gain in the numbers.
So it’s primarily related to that non-recurring item.
Steven Chercover – D. A. Davidson
Okay. I think you mentioned that.
I think you called it, but why wouldn’t that be shown in SG&A as opposed to just different line item?
H. Douglas Goforth
Well, I mean we’ve broken it out in our quarterly releases as it is broken out separately, but it runs into SG&A, it’s a gain on sale of assets.
Steven Chercover – D. A. Davidson
Got you, okay, thanks. Switching gears, how are the initiatives to leverage your distribution system by serving adjacent industries or products?
George R. Judd
Steve, it’s George. Listen, we’ve invested in global supply chain heavily through 2010 and it’s starting to realize itself now in 2011.
It takes a little while to gain that momentum on tangent products. I’m happy with the results, I’m excited.
I met with the team last night and they were talking that business in the pipeline on new value-added products that businesses that we were not in 2009 and 2010 are robust for May and June. And that’s all business that’s in the pipeline now and most of that product is sourced in Asia and South America.
Steven Chercover – D. A. Davidson
And can you give us a sense of what those product lines or businesses might be?
George R. Judd
They are (Inaudible) base products, so there might be metal products in areas that we want in prior to last year or they might be extended outdoor living we call our decking business in our outside to home business Outdoor Living that product line is expanding into, not just decking and railing, but related products that would go along with the growing economic Outdoor Living category.
Steven Chercover – D. A. Davidson
I see. But was there ever any thought of using your fleet of trucks, which I think was [850], somewhere in that ballpark to deliver product to a say a Supercenter that was beside a Home Depot or is just more product, more skews to the same end customers?
George R. Judd
Yeah. Our logistics network can fit products that can ride on flatbeds and curtain sides and we do and are looking at exploring other opportunities that might not even be tied to building products.
But we don't have a lot of exciting things to report on that. The reality is to be the economic recession.
There is a lot of trucking lines and warehouse, empty warehouse and everybody’s is competing for that space and it’s not very profitable for us to experiment into that business. We haven't found anything as profitable for us to experiment and put on the front door yet.
We are constantly looking, we’ve looked at numerous products from both lawn mowers to snow blower to – you name it – we’ve looked that way even to some furniture categories. But we haven't found anything yet.
It’s other than just logistics, which we are providing some logistics to some of those types of industries where we do a buy-sell, value add, revenue increasing and margin dollar increasing opportunity.
Steven Chercover – D. A. Davidson
Okay. And my final question.
I'll get back in the queue is, how would you characterize the competitive landscape today, do you think on balance, you’ve lost more customers or competitors?
George R. Judd
We’ve lost far more customers. We've lost over 7000 customer locations since the peak.
Competitors have held on far more than we certainly expected. It’s tough out there.
It's one of the reasons why we report on our gross margins as a big success. Even though we are down three-tenths of a percent.
It's difficult sweating out there for us to maintain our gross margins at higher than trend and higher than historical averages. Previous quarter is a tribute to our investments that we made both in inventory and in our pricing and the computer systems that monitor how we price our products throughout the country.
It’s tough out there Steve.
Steven Chercover – D. A. Davidson
I believe it. Okay, well, best wishes hopefully it is going to turn soon.
George R. Judd
Thank you.
Operator
At this time, there are no further questions. I would now like to turn the call back over to George for any closing remarks.
George R. Judd
Okay, we thank you all for joining our call today. We're looking forward to 2011 in a recovering housing environment.
Appreciate it. Thank you.
Operator
This does conclude today’s conference call. Thank you for participating.
You may now disconnect.