BlueLinx Holdings Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter ended June 29, 2013, and six months ended June 29, 2013; comparisons are to the corresponding 2012 periods. The filing is for 2013 Q2, notwithstanding the request metadata. Dollar amounts below are in millions unless stated otherwise.
Business context
BlueLinx distributes building products to customers across the United States through approximately 55 distribution centers. Structural products represented about 45% of Q2 gross sales and specialty products about 55%. Management described housing activity as improving but still below historical levels; the business is seasonal, with Q2 and Q3 typically the strongest quarters.
Financial performance
| Metric | Q2 2013 | Q2 2012 | First six months 2013 | First six months 2012 |
|---|---|---|---|---|
| Net sales | $604.6 | $517.0 | $1,107.7 | $970.7 |
| Gross profit | $55.2 | $63.2 | $111.6 | $117.4 |
| Gross margin | 9.1% | 12.2% | 10.1% | 12.1% |
| Operating income (loss) | ($15.6) | $3.9 | ($20.7) | ($0.2) |
| Net income (loss) | ($22.3) | ($3.7) | ($35.0) | ($14.7) |
| Basic and diluted loss per share | ($0.27) | ($0.06) | ($0.46) | ($0.23) |
- Q2 sales rose 16.9%, reflecting higher demand, product prices and unit volumes. Structural sales increased 28.2%; specialty sales increased 8.3%.
- Gross margin contracted as lumber, OSB and plywood prices fell during the quarter, reducing margins on inventory sold and prompting a $3.8 million lower-of-cost-or-market charge. A further $1.0 million inventory reserve related to restructuring was recorded.
- Q2 SG&A was $68.5 million, up $11.4 million year over year; management attributed the increase mainly to restructuring and leadership-transition costs, higher volume-related costs, and comparison with a prior-year insurance settlement gain.
- Cash used in operating activities was $133.7 million in the first six months, versus $110.1 million in 2012. Receivables and inventory absorbed $75.5 million and $88.4 million, respectively, partly offset by a $49.8 million increase in accounts payable. Investing cash outflow was $2.5 million; financing provided $139.4 million. Cash at period end was $8.4 million.
Balance sheet, debt and liquidity
- At June 29, 2013, current assets were $587.2 million and current liabilities $290.4 million; working capital was $296.7 million. Total assets were $714.3 million, total liabilities $729.1 million, and stockholders’ deficit $14.8 million.
- Reported current and long-term debt totaled approximately $501.8 million. This included $295.6 million outstanding under the U.S. revolver, $4.3 million under the Canadian revolver, and a $201.8 million mortgage. The mortgage carried a fixed 6.35% rate; U.S. revolver rate was 3.5% at quarter-end.
- U.S. revolver excess availability was $90.9 million, $4.9 million above the $86.0 million at year-end 2012; Canadian facility availability was $2.2 million. The company reported covenant compliance at quarter-end and through filing, and did not expect U.S. availability to fall below the threshold in fiscal 2013.
- Management said revolving facilities and other sources should fund routine operations and capital requirements for the next 12 months. However, if U.S. revolver availability falls below the threshold, the company would have to meet a 1.1-to-1 fixed-charge coverage covenant that it said it would not meet at current operating results.
Material changes, outlook and risks
- A fully subscribed rights offering completed March 27, 2013 raised approximately $38.6 million net and issued 22.9 million shares. Shares issued increased to 86.6 million from 63.7 million at December 29, 2012.
- Management announced a headquarters realignment and review that designated five distribution centers for sale or closure, expected in Q3 2013. Q2 charges included $4.3 million severance, $1.0 million inventory reserve and $0.5 million other related charges; leadership-related stock compensation was approximately $2.5 million. YTD SG&A also included transition costs for the Fremont-to-Stockton move.
- Management expressed a view that the housing market was beginning a recovery and demand would improve over the long term, while cautioning that below-average housing activity could continue to weigh on results. It provided no numerical earnings or sales guidance.
- The company recorded an $8.8 million deferred tax asset and matching valuation allowance related to current-period losses; the total deferred tax asset and corresponding valuation allowance were each $91.7 million. Tax benefits therefore remain subject to uncertainty about future realization.
- The IRS had not decided the company’s requested waiver of $2.1 million of its 2012 pension contribution. If denied, the company said it would have to make the full 2012 contribution in fiscal 2013. A $6.8 million real-property transfer to the pension plan was not treated as a contribution for financial-reporting purposes.
- Management cited risks from housing conditions, product-price and supply changes, customer credit, operating costs, restructuring execution, and availability under credit facilities. It reported no material changes to previously disclosed legal proceedings or risk factors.
Key facts investors should verify
- Whether structural-product price declines and inventory accounting continue to pressure gross margins.
- Cash use from seasonal working-capital needs, and revolver availability relative to covenant and lockbox triggers.
- Progress, costs and expected savings from the five-center restructuring and headquarters realignment.
- Resolution and cash impact of the pension contribution waiver, including the accounting and lease implications of contributed properties.
- Rights-offering dilution and the assumptions underlying the fully reserved deferred tax assets.