Filing scope
Period mismatch: The supplied filing is BlueLinx Holdings Inc.’s Form 10-Q for the quarter ended October 1, 2016 (fiscal 2016 Q3), not 2015 Q3. Comparisons below are against the quarter ended October 3, 2015 and the corresponding nine-month period.
BlueLinx distributes structural and specialty building and industrial products. In Q3 2016, specialty products represented approximately 57% of sales and structural products 43%.
Financial performance
| Metric | Q3 2016 | Q3 2015 | First nine months 2016 | First nine months 2015 |
|---|---|---|---|---|
| Net sales | $476.0 million | $517.8 million | $1,459.4 million | $1,488.4 million |
| Gross profit / margin | $60.1 million / 12.6% | $60.8 million / 11.7% | $175.0 million / 12.0% | $171.0 million / 11.5% |
| Operating income | $22.6 million | $8.5 million | $25.6 million | $13.2 million |
| Net income (loss) | $15.0 million | $0.6 million | $5.7 million | $(5.5) million |
| Diluted EPS | $1.68 | $0.06 | $0.64 | $(0.63) |
- Q3 sales fell 8.1%; reported unit volume declined 8.5%. Specialty product sales fell to $272 million from $319 million, while structural sales were approximately flat at $204 million.
- For the first nine months, sales fell 2.0%, while gross profit rose 2.4%. The company reported adjusted sales growth of 3.6% in Q3 and 4.5% year to date, and adjusted gross margins of 12.4% and 12.6%, respectively. These are non-GAAP measures excluding operational-efficiency effects.
- Q3 operating income included a $13.9 million gain on property sales; the nine-month gain was $14.7 million. These gains materially contributed to reported operating and net income.
- Interest expense was $6.1 million in Q3 and $19.6 million year to date, compared with $7.1 million and $20.4 million in the prior-year periods.
Cash flow, debt and liquidity
- Operating cash flow used $0.2 million in the first nine months, versus $28.3 million used in the prior-year period. Investing activities provided $18.4 million, including $18.9 million in asset-sale proceeds; financing activities used $18.3 million. Cash ended at $4.7 million.
- At October 1, 2016, reported current and long-term debt totaled approximately $363.2 million, including $44.9 million classified as current. The mortgage balance was $142.2 million; revolving-credit borrowings were $223.2 million, with $68.9 million of excess availability.
- The mortgage requires a $42.5 million principal reduction by July 1, 2017 and a further $55.0 million payment by July 1, 2018; it matures July 1, 2019. BlueLinx said it was marketing real estate to meet these obligations.
- A November 3, 2016 amendment extended the revolving credit facility and Tranche A Loan maturity to July 15, 2018, reduced the revolving facility limit by $15 million to $335 million, and added availability-related financial tests. The company reported covenant compliance as of October 1, 2016.
- Total liabilities exceeded total assets by $49.7 million, leaving stockholders’ deficit of $49.7 million. Management stated that operating sales and available borrowing capacity should fund routine operations and working capital for at least 12 months.
Material changes, outlook and risks
- BlueLinx closed four owned distribution centers and reduced its workforce by approximately 60 employees; the actions were completed by quarter-end. SKU rationalization was also completed. The company reported a net $0.7 million increase to Q3 earnings from these initiatives and a $5.8 million increase to earnings for the first nine months.
- Four distribution facilities were sold in Q3, generating the $13.9 million gain and reducing mortgage principal by $16.6 million. Seven unoccupied properties remained held for sale.
- Management described the business as seasonal: first and fourth quarters are typically slower, while second and third quarters are generally stronger. No specific revenue or earnings guidance was provided.
- Risks cited include building-product prices and demand, housing and construction conditions, inventory and commodity pricing, customer creditworthiness, vendor supply, fuel costs, interest rates and capital availability, weather, competition, accidents, product liability and cyber intrusion.
- The company regained compliance with the NYSE minimum share-price standard but had not regained compliance with the exchange’s market-capitalization and stockholders’-equity standard and remained under monitoring. No material change in disclosed legal proceedings was reported.
Important facts for investors to verify
- How much recurring operating profitability remains after excluding property-sale gains and operational-efficiency adjustments.
- Whether planned property sales and available credit will cover the $42.5 million mortgage reduction due by July 2017 and subsequent payment requirements.
- Revolving-credit availability, covenant headroom and the effects of the November 2016 amendment’s thresholds and scheduled commitment reductions.
- Whether sales volumes and margins recover, particularly in specialty products, and how seasonality and housing-market conditions affect results.
- The company’s progress toward regaining full NYSE continued-listing compliance.