Feb 20, 2014
Executives
Maryon Davis - Investor Relations Mitch Lewis - Chief Executive Officer Douglas Goforth - Chief Financial Officer
Analysts
Dustin Thomas - Sidoti
Operator
Good morning. My name is (Regina), and I will be your conference operator today.
At this time, I would like to welcome everyone to the BlueLinx's 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 gentlemen, this conference is being recorded today, Thursday, February 20, 2014.
Thank you. I'd now like to introduce Maryon Davis with BlueLinx.
Ma'am, you may begin the conference.
Maryon Davis
Thank you, Regina. Good morning.
Thank you for joining us for the BlueLinx fourth quarter 2013 earnings conference call. This call is being webcast on the company's website at bluelinxco.com.
The earnings release and presentation slides for this call can be found in the Investor Relations section of the company's website. This presentation includes statements about our expectation of future operational and financial performance that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
These statements are subject to a number of risks, uncertainties and assumptions that could cause our actual results to differ materially from those provided, including, but not limited to risks and uncertainties with respect to economic, governmental and technological factors outside of our control, and changes in the supply and/or demand for products we distribute particularly as a result of conditions in the residential housing market. These and other factors that could cause actual results to differ materially from forward-looking statements are discussed in greater detail in our filings with the Securities and Exchange Commission.
Forward-looking statements speak only as of the date of this presentation. We undertake no obligation to revise them in light of new information.
Finally, we undertake no obligation to review or confirm analyst's expectations or estimates that might be derived from this presentation. This presentation includes references to adjusted EBITDA, which is a non-GAAP financial measure within the meaning of the Securities and Exchange Commission's Regulation G.
Reconciliations of net income to adjusted EBITDA and segment income to segment EBITDA are included as an appendix and are posted on our website at bluelinxco.com. Our speakers this morning are Mitch Lewis, Chief Executive Officer, and Doug Goforth, Chief Financial Officer.
Doug will begin the call this morning with a review of the financial statements. Then, Mitch will comment will comment on the current results and add a final perspective before opening the call to your questions.
Now, let me turn the call over to our Chief Financial Officer, Doug Goforth.
Douglas Goforth
Thank you, Maryon. Good morning, everyone.
It's a pleasure to speak to you again about our business and our fourth quarter results. This morning, we reported a GAAP net loss of $2.5 million or $0.03 per diluted share for the fiscal fourth quarter of 2013, compared with a GAAP net loss of $11.4 million or $0.17 per diluted share for the fiscal fourth quarter of 2012.
As noted in our press release this morning, our fourth quarter results were impacted by the following factors. A pre-tax restructuring charge of $1.2 million or $0.01 per diluted share and a pre-tax gain of $1.3 million or $0.02 per diluted share related to the sale of the company's Sioux Falls distribution center, which we closed in the third quarter of 2013.
And an income tax benefit of $8 million related to a non-operating actuarial gain associated with the company's hourly pension plan. In fiscal fourth quarter and fiscal year ended January 4, 2014 included 14 and 53 weeks respectively, compared to 13 and 52 weeks respectively for the fiscal fourth quarter and fiscal year ended December 29, 2012.
The 53rd week of fiscal 2013 contributed $19.2 million net sales and a pre-tax loss of $1.3 million. Beginning on Slide 5, overall sales for the fourth quarter ended January 4, totaled $486.3 million, up 10.4% or $46 million from the fourth quarter of 2012.
Specialty sales increased 10.4% year-over-year reflecting a 9.2% increase in unit volumes and 1.2% increase in product selling prices. Specialty products comprised 56% of total sales consistent with the same period last year.
Structural product sales increased 9.7% from the same period last year. This increase was driven by 8.3% increase in volumes.
Overall unit volumes, including closed centers and the 53rd week in 2013 increased 8.8% compared to the year ago period. On a 13-week comparable same center basis, 2013 fourth quarter revenue increased to $467.1 million or 12.1% compared to the fiscal fourth quarter of 2012.
Gross profit for the fiscal fourth quarter totaled $54.3 million, up 4.3% from $52.1 million in the year ago period. Overall, 2013 fiscal fourth quarter gross margins were impacted by a higher channel mix and direct and reload sales and a higher year gross structural wood-based product prices.
Gross margins for the 2013 fiscal fourth quarter of 11.2% were up, compared to the full fiscal year gross margin of 10.6% and down, compared to 11.8% for the same period a year ago. Fiscal 2013 fourth quarter operating expenses were $58.1 million compared to $56.7 million for the same period a year ago.
Significant special items included in operating expenses for the 2013 fiscal fourth quarter included $1.3 million in gains from the sales of certain properties, and $1.2 million in restructuring and severance cost. Significant special items included in operating expenses in the year ago quarter included $0.2 million in gains from the sale of certain property.
Operating expenses in the year ago period also included $3.5 million in expenses related to the five closed distribution centers. After adjusting for significant special items, closed distribution centers, 53rd week operating expense and a percentage of comparable same center revenue improved to 11.7% in the 2013 fiscal fourth quarter from 12.8% in the year ago period.
Reported operating loss for the 2013 fiscal fourth quarter was $3.7 million compared to $4.5 million a year ago and primarily reflects the increase in gross margin. The fourth quarter GAAP net loss of $2.5 million or $0.03 per diluted share compares with the GAAP net loss of $11.4 million or $0.17 per diluted share in the fourth quarter of 2012.
Our reported net loss for the period, adjusted interest expense was $7 million compared to $6.8 million in prior year period. In current quarter, net loss is after a tax benefit of approximately $8.3 million of which $8 million related to a non-operating actuarial of gain associated with company's hourly pension plan, and compares to the tax provision of approximately $100,000 from the prior year period.
Our effective tax rate was 18.2% and negative 1.7% for the fiscal 2013 and fiscal 2012 respectively. The effective tax rate for fiscal 2013 is largely due to full evaluation allowance recorded against our tax benefit and an allocation of income tax and other comprehensive loss for the non-operating actuarial gains associated with the company's hourly pension plan resulting in a benefit from continuing operations.
The effective tax rate for fiscal 2012 is largely due to evaluation allowance recorded against our tax benefit related to our fiscal 2012 loss. Fiscal fourth quarter results for 2013 through the net pre-tax gains and significant special items was $1 million.
Fiscal fourth quarter results for 2012 included net pre-tax charges and significant special items was $5 million or $0.01 per diluted share. After adjusting for significant special items, 2013 fiscal fourth quarter adjusted net loss was $6.4 million or $0.08 per diluted share, compared to an adjusted net loss of $6.7 million or $0.10 per diluted share in the same period a year ago.
The company's operating results for the 2013 and 2012 fiscal fourth quarter and fiscal full year period, adjusted for significant special items are detailed in the company's press release issued this morning. A complete reconciliation of GAAP net loss to adjusted net loss is included in both the appendix of the conference call presentation and the press release reporting tables.
Turning to cash flow on Slide 6, during the quarter BlueLinx generated approximately $31 million in cash from operating activity, up approximately $13 million for the same period a year ago. Moving to Slide 7, the combined debt balance on our mortgage and revolving credit agreements was $398.1 million, a decrease of $39.8 million in the third quarter of 2013.
Net debt at the end of fourth quarter was approximately $393 million compared to approximately $372 million at December 29, 2012, and $422 million at September 28, 2013. Turning to Slide 8, cash cycle days for the fourth quarter totaled 60.
That compares to 61 days sequentially, and 58 days from the same period a year ago. That concludes my review of the financial results.
Now, I'd like to turn the call over to our new CEO, Mitch Lewis.
Mitch Lewis
Thanks, Doug. Good morning.
I'd like to start by updating you about the company's end markets as indicated on Slide 10. As you likely aware in the fourth quarter, the industry enjoyed continued improvement in new housing starts, which also helps build the company's volume growth.
Simple family housing starts were up 11%, compared to the fourth quarter of 2012. In addition, we enjoyed a continued modest rebound in repair and modeling activity.
For the full year, single-family housing starts increased 15.5% (inaudible) remodeling market index grew by 3.8%. The good news is that we expect these trends to continue.
We generally agree with the consensus forecast of total housing starts in 2014 in 1.1 million in a range, while we're expecting residential repair and remodeling activity to grow at 4% to 5%. Obviously, the beginning of this year will be impacted by the severe weather across the country and the various growing optimism in the industry regarding our 2014 end markets.
At the international builder show earlier in the month was very busy, and we were able to talk many of our vendors and customers there. Our customers appear to have a solid backlog of construction projects, which is going well for continued recovery in the market.
As the level of optimism and activity of the share really felt we were like 2004 than 2014. So we will see how year unfolds, but the sentiment is certainly very positive at the outset.
I know we've talked about the emphasis on specialty products as a mechanism to improve gross margin for BlueLinx. I think Slide 11 is helpful in understanding the gross is impacted by not only the type of products we sell, but also the gross margin within the product category as well as the distribution channel for these products.
As you can see, overall gross margin for the fourth quarter was 11.2%, this is better than the full year average through the third quarter of 10.5%, but it's obviously not as compared to our 2012 fourth quarter gross margin performance. The organization is continuing its emphasis on improving our gross margins.
We will continue to have specialty products, but it's important that we focus on price improvement in every category of the business. And we are actively taking steps to increase and support this focus.
For example, in the last two weeks we have instituted selling price training to associates with our (pricing authority). We are creating common analytical tools and metrics to enable managers to assess their team's pricing decisions as well as identify errors in pricing input and methodology.
And we are reassessing compensation programs to ensure they are consistent with the strategy of the business. We'd want to see improved mix within the product channels, but we will also focus on margin enhancement within the individual product categories.
Slide 12 tells the story that we have improved our adjusted EBITDA performance in the second half of 2013 compared to 2012. A large component of this improvement, the volume increase coupled with the rationalization of fixed cost out of the business.
It's great to see an improvement, but I can assure you that this management team is not happy with our performance in the back half of 2013. The organization simply is not and will not be satisfied with underperforming (inaudible).
As you know, a tremendous amount of cost and energy went into setting the stage for an improved 2014. We have done a great deal of work, but there is still a lot of opportunity at BlueLinx.
Now, I just finished my fourth week here, so I certainly today don't have all the answers to drive this organization to financial prosperity. But they are excluding main areas that we are focusing on in the short-term.
First, we want to ensure that we have a solid capital structure to provide runway for the company as our markets recover. And we will continue to accelerate our emphasis on working capital metrics and management.
But growing markets typically in effective paid increase working capital, and we want to have the flexibility to take advantage of opportunities as the market recovery occurs. As you would expect, we will always have communication to evaluate capital structure opportunities that make sense for the company.
But I want to be clear; this is not something that we have to do in the short-term. A solid capital foundation would certainly enable organization to focus on operational improvement and profitable growth.
Our second major focus is on gross margin enhancement. I have already discussed with you the activities that are taking place.
On the rest of the show there will be an unrelenting emphasis on improving the overall gross margins of this business, and ultimately the contribution margins of the products we sell. I think it's important to note that our pricing is not necessarily differentiated based on actual cost to serve our customers.
So we are diving into a comprehensive contribution model that will enable us to evaluate our customers and our products to confirm that we are getting paid appropriately for providing great service and high quality products. This analysis will drive tactical decisions we make regarding existing and targeted accounts and products.
And our third major short-term focus is on improving our operational efficiency. We spend over a $100 million in logistics stuff annually.
So within that area we need to emphasis daily. We are in the process of assessing whether our organizational structure and the expertise that we have align with this priority.
We will create a structure and methodology that provides a consistent best practice approach to all of our facilities. That's our medium and short-term focus for now.
With my short tenure at BlueLinx, it would of course be premature to talk about the comprehensive long-term strategy. What I can say is I'm confident that this company has tremendous upside potential.
And we have dedicated and loyal team members or industry experts who are willing to do what it takes to get the job done. We have the footprint that enables us to deliver outstanding service for the tremendous product range with the North American building product market with a scale that provide significant upside profitability potential as we drive our margin enhancement and operational efficiency initiatives.
And we have end markets that appear to be on the upswing.
,
With that said, Regina, we'd like to open it up for any questions you may have.
Operator
(Operator Instructions) Our first question will come from the line of Dustin Thomas with Sidoti & Company.
Dustin Thomas - Sidoti
Hi guys, how are you?
Douglas Goforth
Great. Good morning.
Dustin Thomas - Sidoti
Two quick questions, could you provide a little color on the price decrease in some of the structural wood-based products?
Douglas Goforth
The decrease is for the most part year-over-year on a quarterly basis, primarily in panel products.
Dustin Thomas - Sidoti
Okay.
Douglas Goforth
Mainly OSD, but plywood was also down. Lumber prices were actually up somewhat.
Dustin Thomas - Sidoti
Douglas Goforth
Dustin Thomas - Sidoti
Okay, I got you. Thank you so much.
Douglas Goforth
Thanks.
Operator
There are no further questions at this time. I will turn the conference back over to Mr.
Lewis for any closing remarks.
Mitch Lewis
Okay. Well, thank you very much for listening in.
We appreciate your interest in BlueLinx, and look forward to talking with you in the next quarter.
Operator
Ladies and gentleman, this does conclude today's conference. Thank you all for joining, and you may now disconnect.