BlueLinx Holdings Inc. — Form 10-Q summary
Period: Quarter ended July 1, 2017, with six-month results compared with the periods ended July 2, 2016. Although the request metadata says 2016 Q2, the filing is for 2017 Q2. Amounts below are in millions of dollars except per-share data.
Business context and results
BlueLinx distributes building and industrial products through U.S. distribution centers. In Q2 2017, structural products accounted for about 45% of sales and specialty products about 55%. Results are seasonal and sensitive to housing activity, construction conditions, product prices, and weather.
| Metric | Q2 2017 | Q2 2016 | First six months 2017 | First six months 2016 |
|---|---|---|---|---|
| Net sales | $474.0 | $509.0 | $902.6 | $983.3 |
| Gross profit | $60.5 | $57.4 | $115.0 | $115.0 |
| Gross margin | 12.8% | 11.3% | 12.7% | 11.7% |
| Operating income | $9.3 | $2.7 | $15.1 | $3.0 |
| Net income (loss) | $3.2 | ($3.1) | $3.8 | ($9.3) |
| Diluted EPS | $0.35 | ($0.35) | $0.42 | ($1.05) |
Material changes and management commentary
- Reported sales fell 6.9% in Q2 and 8.2% in the first six months, primarily reflecting prior-year distribution-center closures and SKU rationalization. Adjusted same-center sales, a non-GAAP measure, rose 5.1% in Q2 and 3.7% year to date. Management said comparable unit volumes were relatively flat in the six-month period while prices increased.
- Q2 gross profit rose 5.5% despite lower reported sales, with the margin improvement mainly from specialty products. Specialty gross margin was 15.3% in Q2 versus 12.8% a year earlier; structural gross margin was 8.7% versus 9.5%.
- SG&A declined 7.0% in Q2 year over year, largely from lower payroll, property-tax, and maintenance costs associated with prior-year restructuring. Six-month SG&A also included $5.5 million of expense related to withdrawal from a multiemployer pension plan.
- Six-month operating income included a $6.7 million gain on property sales. The company sold two former distribution facilities and excess land; proceeds from asset sales were $27.6 million.
- Interest expense declined year over year, primarily due to lower debt balances. The mortgage principal was $97.8 million at July 1, 2017, down about $61 million from a year earlier.
Cash flow, debt, and liquidity
- Cash was $4.8 million at July 1, 2017, versus $5.5 million at December 31, 2016. Current assets were $413.3 million and current liabilities $195.2 million; the balance sheet showed a $25.4 million stockholders’ deficit.
- Operating cash flow was negative $54.5 million for the first six months, compared with negative $25.9 million in the prior-year period. Seasonal increases in receivables ($41.7 million) and inventory ($29.4 million) contributed to cash use.
- Investing activities provided $27.4 million, principally from asset-sale proceeds. Financing activities provided $26.3 million, including $54.7 million of net revolving-facility borrowings, offset mainly by $29.0 million of mortgage principal payments.
- Revolving-credit-facility borrowings were $231.3 million, with $74.2 million of excess availability, subject to borrowing-base and covenant conditions. The company reported compliance with facility covenants at quarter-end.
- The mortgage had a $55.0 million principal reduction due no later than July 1, 2018; the remaining balance was due by July 1, 2019. The company said it was marketing real estate for sale-and-leaseback transactions and could consider refinancing to meet the payment.
- The revolving facility was due July 15, 2018. Management expected to extend or refinance it, but cautioned there was no assurance of acceptable terms or successful refinancing. Management stated that expected operating cash flows and available borrowing capacity would fund routine operations and working capital needs for at least 12 months.
Outlook, risks, and contingencies
The filing provides no specific earnings or revenue guidance. Management expressed a long-term view that the improving U.S. housing-market trend would continue, while noting results depend on housing starts and other market conditions. Disclosed risks include changes in product prices, supply and demand, inventory and commodity management, customer creditworthiness, vendor supply, competition, fuel costs, weather, interest rates, and availability of capital.
- The estimated multiemployer pension withdrawal liability was increased to $5.5 million. Final determination was under negotiation with plan trustees; the company might pursue a lump-sum or partial lump-sum arrangement.
- Two properties remained held for sale at quarter-end, with a reported net book value of $0.8 million.
- The company disclosed no material change in legal proceedings or risk factors from its 2016 Form 10-K, and said routine legal proceedings were not expected to have a material adverse effect based on its current understanding.
Important facts for investors to verify
- Progress and terms of refinancing or extending the revolving facility before its July 15, 2018 maturity.
- Funding plan for the $55.0 million mortgage payment due by July 1, 2018, including any real-estate sale-and-leaseback transactions.
- Availability under the borrowing base and compliance with minimum-availability and other facility covenants.
- Final amount and payment terms of the multiemployer pension withdrawal liability.
- Whether improved margins and adjusted same-center sales translate into sustained cash generation, given operating cash outflows and seasonal working-capital needs.