Builders FirstSource reported weaker third-quarter results as a soft housing market weighed on sales and margins. The building-products supplier said net sales fell 2.2% from a year earlier to $3.9 billion, while net income and adjusted EBITDA declined more sharply.
The company attributed the pressure mainly to lower housing activity and related headwinds. Acquisitions partly offset a decline in its core business, but gross profit fell and operating costs took a larger share of sales.
Key details
- Sales were $3.9 billion, down 2.2%. Core organic sales declined 3.9%, and commodity deflation reduced sales by 0.1%. Acquisitions added 1.8% growth.
- Single-family remained the largest source of weakness. Core organic sales in that market fell 6.2%. Multi-family sales rose 2.0%, while repair-and-remodel and other sales increased 0.3%.
- Gross profit fell 10.6% to about $1.1 billion. Gross margin narrowed 2.6 percentage points to 27.8%, which the company linked primarily to the lower housing-starts environment.
- Adjusted EBITDA dropped 28.3% to $311.1 million. Its margin fell 2.9 percentage points to 8.1%, reflecting lower gross margin and reduced operating leverage.
- Net income was $60.4 million, or 56 cents per diluted share, compared with $122.4 million, or $1.10 per share, a year earlier. Lower gross profit and higher interest and selling, general and administrative costs weighed on earnings. A $33.6 million income-tax benefit partly offset those pressures; the company had recorded $37.1 million of tax expense in the year-earlier quarter.
- Selling, general and administrative expenses edged up $2.5 million to $973.2 million. Acquisitions and higher fuel and insurance costs contributed to the increase. Lower variable compensation and wages following cost-saving measures provided partial offsets. SG&A rose to 25.3% of sales from a year earlier, reflecting reduced operating leverage.
- Net interest expense increased $3.0 million to $72.2 million, primarily because of higher average debt balances and interest on other finance obligations.
- Cash generation weakened. Cash from operating activities was $146.6 million, down $401.2 million year over year. Free cash flow fell 83.7% to $76.0 million from $464.9 million, mainly because of lower net income and higher working capital, partly offset by lower capital spending.
- Builders FirstSource narrowed its full-year outlook based on year-to-date performance while maintaining the midpoints of its net-sales and adjusted-EBITDA outlooks. The release did not provide the revised ranges in the material presented here.
- Management said it is focusing on cost control, operational execution, value-added products and technology investments. The company said its capital position and cash generation support pursuing growth opportunities while retaining financial flexibility.
The quarter’s results show the pressure from weaker housing conditions flowing through both sales and profitability: gross profit fell faster than revenue, while SG&A consumed a larger share of sales. The company’s full-year outlook midpoint is unchanged, but its decision to narrow the outlook reflects less uncertainty around its expectations for the year.