Business context and reporting period
BlueLinx Holdings Inc. distributes structural and specialty building products through 48 North American distribution centers. The supplied filing is a Form 10-Q for the quarter ended July 4, 2015, filed August 13, 2015—not 2014 Q2 as indicated in the request metadata. Results are unaudited; the six-month comparison is with the six months ended July 5, 2014.
Financial results
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Net sales | $515.7 million | $531.5 million | $970.6 million | $975.4 million |
| Gross profit / margin | $60.0 million / 11.6% | $62.0 million / 11.7% | $110.2 million / 11.4% | $114.7 million / 11.8% |
| Operating income | $6.9 million | $9.7 million | $4.8 million | $8.1 million |
| Net income (loss) | $2.9 million | $3.2 million | $(6.1) million | $(5.4) million |
| Adjusted EBITDA | $9.8 million | $10.6 million | $10.2 million | $11.6 million |
Q2 basic and diluted EPS were $0.03, versus $0.04 a year earlier. Six-month loss per share was $(0.07), versus $(0.06). Q2 pretax income was only $0.2 million; the reported net profit depended substantially on a $2.7 million income-tax benefit related to pension-related intraperiod tax allocation.
For the first six months, operating cash outflow was $46.2 million, compared with $68.3 million in the prior-year period. Investing cash outflow was $0.7 million, versus $6.0 million of inflow; prior-year investing cash included proceeds from a property sale. Financing provided $45.3 million. Cash declined to $2.8 million from $4.5 million at fiscal year-end.
Liquidity, debt and balance sheet
At July 4, 2015, total assets were $623.6 million and total liabilities were $658.1 million; stockholders’ deficit was $34.6 million. Current assets were $508.2 million and current liabilities $348.7 million, including $203.1 million of current maturities of long-term debt. Total reported long-term debt was $467.3 million, comprising $203.1 million current and $264.1 million non-current. The company reported $300 million drawn under its revolving credit facilities and $65 million of excess availability; it was in compliance with facility covenants.
The $169.2 million mortgage balance, including approximately $166.7 million due in full July 1, 2016, and a required $35 million payment under the U.S. revolving facility by May 1, 2016, were classified as current maturities. The company said it was exploring refinancing and other means to address these obligations. Its stated view that available liquidity would fund routine operations for at least 12 months excluded these major upcoming payments.
Changes, outlook and risks
- Q2 sales fell 3.0%; management attributed the decline primarily to lower structural-product prices amid weak lumber markets. Structural volume rose 0.9%, but prices fell 6.5%, with an estimated $13 million sales impact. Specialty volume declined 1.3%.
- Six-month sales declined 0.5%. Structural prices fell 4.3%, partly offset by 2.0% higher volume; specialty sales increased 1.0%. Gross profit declined in both periods, while SG&A fell due partly to lower fuel, severance, restructuring and litigation costs.
- Prior-year results included property-sale gains of $5.0 million in Q2 and $5.3 million for six months; there were no such gains in 2015. A pension curtailment following collective-bargaining renegotiations reduced the pension obligation by $7.2 million and generated $6.1 million of after-tax other comprehensive income. This noncash item also affected tax presentation.
- No numerical sales or earnings guidance was provided. Management noted normal seasonality: Q2 and Q3 are typically stronger, while Q1 and Q4 are typically slower. Working-capital needs rise seasonally as receivables and inventory build ahead of peak selling periods.
- On July 29, 2015, NYSE notified the company that its average closing share price had been below $1.00 for 30 consecutive trading days. The company was considering options, including a reverse stock split, but could not assure compliance would be regained; potential delisting could harm share liquidity and access to capital.
- Management cited risks including building-product prices and demand, commodity and inventory management, housing and economic conditions, customer credit, key-vendor supply, competition, fuel costs, weather, capital availability and interest rates. No material changes to previously disclosed legal proceedings or risk factors were reported other than the NYSE listing issue.
Important facts for investors to verify
- Progress and terms of refinancing or otherwise funding the 2016 mortgage maturity and required $35 million facility payment.
- Available revolver capacity, covenant headroom and liquidity as seasonal working-capital needs change.
- Whether sales and margins stabilize if lumber prices remain weak, and the extent to which volume offsets pricing pressure.
- Underlying earnings and cash generation excluding the unusual pension-related tax benefit and comparing periods with prior-year property-sale gains.
- NYSE listing compliance actions and the resulting effect, if any, on share liquidity and capital-raising options.