BlueLinx Holdings Inc. — Form 10-Q Summary
Period: Quarter ended July 2, 2016, with six-month results compared with the periods ended July 4, 2015. The request metadata says “2015 Q2,” but the filing itself reports fiscal 2016 second-quarter results.
Business context and financial performance
BlueLinx distributes structural and specialty building products through a North American distribution network. Specialty products represented approximately 61% of second-quarter sales and structural products 39%. Figures below are in millions of dollars unless stated otherwise.
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Net sales | $509.0 | $515.7 | $983.3 | $970.6 |
| Gross profit / margin | $57.4 / 11.3% | $60.0 / 11.6% | $115.0 / 11.7% | $110.2 / 11.4% |
| Operating income / margin | $2.7 / 0.5% | $6.9 / 1.3% | $3.0 / 0.3% | $4.8 / 0.5% |
| Net income (loss) | $(3.1) | $2.9 | $(9.3) | $(6.1) |
| Adjusted EBITDA | $12.7 | $9.8 | $19.7 | $10.2 |
Second-quarter sales fell 1.3%, while same-center sales increased 1.8%; unit volume rose 1.7%, but price/other factors reduced sales by 3.0%. Six-month sales increased 1.3%, with same-center sales up 4.3%. For the quarter, specialty unit volume grew 3.7% and structural volume declined 1.2%. Six-month gross profit improved, but higher SG&A and interest costs contributed to a larger net loss.
Cash flow, balance sheet and liquidity
- Operating cash flow was negative $25.9 million in the first six months, versus negative $46.2 million a year earlier. Investing activities provided $1.9 million; financing activities provided $24.5 million. Cash increased $0.4 million to $5.2 million.
- At July 2, 2016, current assets were $430.2 million and current liabilities $196.6 million. Total liabilities were $595.5 million, compared with assets of $529.9 million; stockholders’ deficit was $65.6 million.
- Current and noncurrent debt totaled approximately $402.9 million. Revolver borrowings were $246.9 million, with $65.3 million excess availability. Mortgage balance was $158.8 million; its 6.35% interest rate is fixed.
- Debt classified as current included a remaining $59.1 million mortgage principal reduction due by July 1, 2017, and $3.5 million of the Tranche A Loan. A further $55.0 million mortgage principal payment is due by July 1, 2018; the mortgage matures July 1, 2019. The U.S. revolving facility matures July 15, 2017.
- Management said operating cash and available revolving credit should fund routine operations and working capital for at least 12 months. The company was in covenant compliance at quarter-end, but stated it would not currently meet the 1.2:1 fixed-charge coverage requirement if the facility’s excess-availability trigger were reached.
Material changes, outlook and risks
- Efficiency actions include planned closure of four owned distribution centers by the end of Q3 2016 and approximately 60 job reductions, plus closure of a Canadian sales and administrative office and a SKU rationalization. Related charges included $4.3 million of inventory adjustments reducing gross margin, $2.2 million of additional SG&A costs, and $1.2 million of severance and benefits in Q2. Severance payments were expected through the rest of fiscal 2016.
- Management reported pro forma gross margin, excluding initiative-related inventory adjustments, of 13.1% for Q2 and 12.7% for the first six months. It attributed the six-month sales increase to a strong first quarter, stable commodity prices and higher unit volumes. No specific full-year earnings or sales guidance is provided.
- Collective bargaining changes curtailed future service accruals for a significant percentage of pension-plan participants. The resulting actuarial-assumption changes increased the pension obligation by $12.2 million and produced a $12.2 million pension-related other comprehensive loss; this was not a $12.2 million operating expense.
- The company was marketing real estate to meet mortgage principal reductions and expected to continue property sales and/or sale-leasebacks. Assets held for sale were $8.4 million at quarter-end. A property sale generated a $0.3 million gain in Q2.
- On July 26, 2016, BlueLinx regained compliance with the NYSE minimum average share-price standard. It had not yet regained compliance with the exchange’s combined average market-capitalization and stockholders’-equity standard, although it reported market capitalization of at least $50 million daily since March 29, 2016.
- Key disclosed risks include building-product prices, supply and demand, inventory and commodity management, housing and economic conditions, customer credit, vendor continuity, competition, fuel costs, weather, interest rates and access to capital.
Most important facts for investors to verify
- How the company will fund the $59.1 million mortgage reduction due by July 2017, the $55.0 million payment due by July 2018, and the 2017 revolver maturity, including expected proceeds and timing from property sales.
- Whether revolver availability remains above the covenant trigger and how the company would address the fixed-charge coverage requirement if availability falls below it.
- Whether cost savings from facility closures and SKU rationalization offset related charges and ongoing distribution costs, and whether reported margin improvement persists after inventory adjustments.
- Progress toward satisfying the remaining NYSE continued-listing standard and the potential implications if compliance is not regained.