Earnings Labs

BlueLinx Holdings Inc. (BXC)

Q2 2010 Earnings Call· Thu, Aug 5, 2010

$52.69

-6.15%

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Transcript

Operator

Operator

Good morning. My name is Brandy, and I will be your conference operator today. At this time, I would like to welcome everyone to the BlueLinx second quarter 2010 conference call. All lines have been placed on mute to prevent any background noise. (Operator instructions) As a reminder, ladies and gentlemen, this conference call is being recorded today, Thursday, August 5, 2010. Thank you. I would now like to introduce Maryon Davis with BlueLinx. Ms Davis, you may begin your conference.

Maryon Davis

Management

Thank you, Brandy. Welcome ladies and gentlemen to the BlueLinx second quarter 2010 conference call. With us this morning are 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 Web site 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 or 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 Web site. We will be referring to these slides during this call, and we encourage you to view 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 Executive Officer, George Judd.

George Judd

Chief Executive Officer

Thanks Maryon. Good morning everyone and thank you for joining us today. Let me open the call with a brief comment on the announced tender offer for the outstanding shares of common stock to BlueLinx Holdings Inc. by servers ABP, investor LLC or CAI. Our board of directors has appointed a special committee of our independent directors to evaluate the transaction and develop a recommendation to our stockholders regarding this tender offer. In light of this, the company will have no comments concerning the tender offer and will not take questions after our prepared remarks. Thank you for your understanding, and with that I will turn the call over to Doug Goforth, our chief financial officer.

Doug Goforth

Chief Financial Officer

Thanks George. I will start with a brief overview of the quarterly results followed by a more detailed financial review. Then George will provide an operations review of the quarter and close with the final perspective. Let us begin with the quarterly overview. The second quarter business climate was characterized by unprecedented volatility in the structural wood-based products market and a sluggish recovery of demand for products related to new home construction. For the most part, our customers continued to conduct business with very lean inventories in response to a slow spring in summer construction season. Against these head wins, we operated our structural product business to minimize the impact of sharp price movements while focusing our growth efforts in the specialty products area. Overall unit volume grew 11.9% compared to the year ago period with both specialty and structural product group showing increases. Specialty volume grew 13.5% as we continued to focus on increasing our share of value-added products. Structural products grew 9.7% on strong lumber and plywood volumes. Overall gross margins was 11.9% for the quarter, up from last year’s 11.4% due to specialty product margin expansion and growth in our out of warehouse business. We believe our gross margin performance is one of the key indications that BlueLinx is operating effectively in a difficult environment. For the second quarter of 2010, we reported a net loss of $3.4 million or $0.11 per share on revenues of $541 million. During the quarter, we used $34 million in cash for operations, and we had approximately $176 million in excess availability at the end of the quarter with a cash balance of $19 million. Our net debt was approximately $366 million, up $35 million from the prior quarter largely reflecting seasonal increases in working capital. Now for a closer look…

George Judd

Chief Executive Officer

Thanks Doug. Second quarter business conditions remain challenging for our industry and for BlueLinx. Housing starts [ph], which our business is closely tied to are slightly above the trough levels evidenced by 11.5% increase in second quarter housing starts from a year ago. We faced these challenges by continuing to focus on our long-term growth objectives. We experienced successes in our specialty business and challenges in our structural business. Against the backdrop of continued sluggishness in the housing markets, we executed our specialty business, our specialty products strategy well. Our long-term strategic objective is to profitably grow our specialty revenues to 60% of total sales. Specialty offers higher margins, less price volatility, and is well suited to our unique centralized distribution platform and our national sales force in our solutions based value proposition. For the quarter, we grew specialty unit volumes 13.5% over the prior year quarter and expanded gross margins 2.9 percentage points to 15.5%. I am pleased with our specialty products performance and our ability to achieve record specialty quarterly gross margins. We did this by executing on targeted specialty growth initiatives for value added products by leveraging key strategic partnerships and by adding value to our customers with quality products delivered on time as promised. Our number two objective is to manage our structural business for profitability. In the second quarter this meant managing the business to mitigate the negative impact of wood-based structural product price volatility. Prices were benchmark graded to plywood, OSB and lumbar rose between 5% and 46% from the end of March through the end of April, and then fell sharply decreasing between 19% and 48% from the end of April through the end of June as demand fell off sharply resulting in gross margins declining 1.2 percentage points compared to the second…

Operator

Operator

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.