BlueLinx Holdings Inc. — Form 10-Q Summary
Reporting period: Three months ended March 30, 2019. The request metadata says 2018 Q1, but the filing is for 2019 Q1. BlueLinx distributes structural and specialty building products. The comparison with 2018 is materially affected by Cedar Creek, acquired April 13, 2018, whose results are included in the current quarter but not the reported prior-year quarter.
Financial performance
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Net sales | $638.7 million | $437.5 million |
| Gross profit / margin | $86.0 million / 13.5% | $55.3 million / 12.7% |
| Operating income (loss) | $4.3 million | ($6.6 million) |
| Net loss | ($6.7 million) | ($13.4 million) |
| Basic and diluted loss per share | ($0.72) | ($1.47) |
| Cash used in operating activities | ($77.8 million) | ($45.0 million) |
- Reported sales increased 46.0%, primarily because Cedar Creek was included for the full current quarter. The filing does not provide a clear reported organic-growth rate. Pro forma sales, as if the acquisition had occurred earlier, were $638.7 million versus $784.3 million in Q1 2018.
- Gross margin improved 0.8 percentage points. Management attributed the improvement primarily to acquisition synergies; structural-products margin was 9.5% versus 9.8%, and specialty-products margin was 15.6% versus 14.7%.
- SG&A was $74.4 million, up from $59.2 million, and depreciation and amortization was $7.3 million, up from $2.7 million, largely reflecting Cedar Creek. Interest expense rose to $13.4 million from $8.5 million, reflecting higher average debt, interest rates, transaction-cost amortization, and finance-lease interest.
Balance sheet, debt and liquidity
- At March 30, 2019, cash was $12.7 million; current assets were $679.7 million and current liabilities were $225.0 million. Stockholders’ deficit was $18.3 million.
- Reported debt carrying value was $559.5 million, net of discounts and issuance costs. The company reported revolving-facility borrowings of $393.5 million and term-loan borrowings of $178.2 million. Revolver excess availability was $113.8 million.
- The revolving facility’s weighted-average rate was 4.6%; the term loan’s stated rate was 9.5%. BlueLinx reported compliance with debt covenants at quarter-end.
- Operating cash outflow reflected working-capital needs, including increases of $37.9 million in receivables and $45.5 million in inventory. Cash increased to $12.7 million from $8.9 million at year-end, supported by $82.7 million of net financing cash flow.
- Operating lease assets and liabilities were recognized following adoption of ASC 842; adoption added $57.5 million of right-of-use assets and corresponding liabilities at transition. Finance-lease obligations were $149.9 million at quarter-end.
Outlook, risks and notable items
- Management said first-quarter housing starts and permits suggested near-term challenges, while it continued to expect the housing-market improvement trend to persist over the long term. It noted that wood-product commodity prices stabilized during the quarter but remained low versus historical levels, weighing on sales realizations.
- BlueLinx expects normal operating cash flows and revolving-credit availability to fund routine needs for at least the next 12 months. No specific earnings or revenue guidance was provided.
- Results are seasonal: the first and fourth quarters are typically slower, while the second and third quarters generally have higher construction volumes and working-capital requirements.
- Key stated risks include acquisition integration and synergy realization, housing and commodity-price volatility, interest rates and substantial indebtedness, working-capital and liquidity needs, supplier and customer dependence, labor matters, and information-technology disruption. About 5% of employees were covered by agreements expiring in fiscal 2019 or then under negotiation.
- A labor-agreement renegotiation caused a pension curtailment affecting 29 plan participants; the filing reports $853,000 of pension-curtailment income in other comprehensive income, net of tax. Routine environmental and legal matters were reported, with reserves established for probable losses; management did not expect a material long-term adverse effect.
- Management said disclosure controls were effective. Cedar Creek’s internal controls were excluded from management’s assessment while integration was ongoing.
Important facts for investors to verify
- How much of sales and gross-profit performance reflects Cedar Creek, versus comparable underlying demand, mix, and pricing?
- Whether working-capital growth and seasonal cash use remain manageable, and whether revolver availability and covenant headroom are adequate.
- Debt-service capacity given the term loan’s 9.5% stated rate, rising interest expense, and finance- and operating-lease commitments.
- Progress on Cedar Creek integration, expected synergies, and the controls integration timetable.
- Housing-start, lumber and panel-price trends, and the effect of labor negotiations and pension assumptions on future results.