BlueLinx Holdings Inc. — Form 10-Q Summary
Reporting period: First quarter of fiscal 2017, three months ended April 1, 2017. The filing is for 2017 Q1, notwithstanding the request metadata identifying 2016 Q1. Unaudited results are compared with the three months ended April 2, 2016. BlueLinx distributes structural and specialty building products in the United States.
Financial results
| Metric | Q1 2017 | Q1 2016 |
|---|---|---|
| Net sales | $428.6 million | $474.3 million |
| Gross profit / margin | $54.4 million / 12.7% | $57.6 million / 12.1% |
| Operating income | $5.9 million | $0.3 million |
| Net income (loss) | $0.6 million | ($6.1 million) |
| Diluted earnings (loss) per share | $0.06 | ($0.69) |
| Net cash used in operating activities | ($39.9 million) | ($51.6 million) |
Operating income included a $6.7 million gain on property sales. SG&A was $52.9 million, including a $4.5 million non-cash expense for withdrawal from a multiemployer pension plan. Interest expense fell to $5.2 million from $7.2 million, which the company attributed mainly to lower debt balances.
Changes versus the prior-year quarter
- Sales declined 9.6% ($45.7 million), primarily reflecting distribution-center closures completed in 2016 and lower specialty-product sales. Structural sales rose slightly, from about $188 million to $191 million; specialty sales fell from about $292 million to $239 million.
- Management’s non-GAAP adjusted same-center sales increased 2.1%, or approximately $9.0 million. Adjusted same-center gross profit increased $2.6 million; these measures exclude specified effects of facility closures and SKU rationalization and are not GAAP measures.
- Gross margin improved 60 basis points to 12.7%. Structural and specialty margins rose to 9.8% and 14.5%, respectively.
- Net income improved from a loss to a modest profit. The reported comparison also reflects the property-sale gain in 2017 and $3.3 million of refinancing-related costs in 2016.
Liquidity, debt and cash flows
- Cash was $5.2 million at April 1, 2017. Current assets were $398.2 million and current liabilities were $139.1 million; operating working capital, as defined by management, was $261.3 million, up $40.4 million from year-end, largely due to seasonal receivables and inventory growth.
- Reported long-term debt, including current maturities and net of discounts, totaled approximately $317.9 million. The company separately reported $221.2 million outstanding under its U.S. revolving credit facility, with $73.9 million of excess availability.
- The mortgage principal was $99.4 million, bears 6.35% interest, and is due July 1, 2019. The company had prepaid the required $60 million reduction due by July 2017; a further $55 million payment is due by July 2018. Management said it may use property sale-leasebacks or other real-estate financing to meet remaining payments.
- Operating cash outflow was $39.9 million, primarily amid seasonal increases in receivables and inventory. Investing activities provided $27.3 million, largely from asset-sale proceeds. Financing activities provided $12.2 million, including seasonal net revolving borrowings, partly offset by mortgage principal payments.
- The company reported compliance with revolving-credit covenants at quarter-end and stated that expected operating cash flows and available borrowing capacity should fund routine operating and working-capital needs for at least the next 12 months.
Outlook, risks and notable items
- No quantified earnings or sales guidance was provided. Management expressed the view that the long-term improvement in the U.S. housing market would continue and said the company was positioned to support customers. The first and fourth quarters are typically slower; the second and third are generally stronger.
- Risks highlighted include changes in product prices, supply and demand; housing starts and economic conditions; inventory and commodity pricing; customer creditworthiness; vendor supply; competition; fuel costs; adverse weather; access to capital and interest rates; accidents, product liability and cyber intrusion.
- Property sales generated $27.4 million in proceeds and a $6.7 million gain. Three sale-leaseback transactions generated a $13.7 million deferred gain; two properties also resulted in recognition of an $8.0 million capital-lease asset and obligation.
- The company recorded a $4.5 million pension withdrawal liability, payable over an expected 20-year period. Management reported no material change in previously disclosed risk factors or legal proceedings, and stated that disclosure controls were effective.
Important facts for investors to verify
- Whether the sales and gross-profit trends persist after accounting for prior-year distribution-center closures, and how the non-GAAP same-center measures reconcile to reported results.
- The sustainability of positive earnings excluding the property-sale gain and pension withdrawal charge.
- Seasonal working-capital needs, cash generation, and the amount of borrowing availability under the credit facility.
- Funding and covenant capacity for the mortgage’s remaining scheduled principal payments, including the July 2018 payment and 2018 credit-facility maturity.
- The terms and accounting treatment of the sale-leasebacks and the long-term pension withdrawal obligation.