Business context and reporting period
This is BlueLinx Holdings Inc.’s unaudited Form 10-Q for the quarter ended September 29, 2018—not 2017 Q3 as stated in the request metadata. BlueLinx distributes structural and specialty building products. Results include Cedar Creek, acquired April 13, 2018, from that date onward; therefore, year-over-year growth is not directly comparable.
Financial performance
Amounts are in millions, except per-share data and percentages.
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Net sales | $859.8 | $479.3 | $2,190.2 | $1,381.9 |
| Gross profit / margin | $91.8 / 10.7% | $60.5 / 12.6% | $250.7 / 11.4% | $175.5 / 12.7% |
| Operating income (loss) | $(4.0) | $11.2 | $(6.1) | $26.1 |
| Net income (loss) | $(9.9) | $5.7 | $(31.9) | $9.5 |
| Diluted EPS | $(1.07) | $0.62 | $(3.46) | $1.04 |
| Operating cash flow | Not provided for quarter | $(59.3) | $(38.3) |
Liquidity, debt and balance sheet
- At September 29, 2018, cash was $7.6 million, current assets $739.3 million, and current liabilities $234.3 million. Operating working capital was $506.7 million, up $280.9 million from year-end, primarily due to Cedar Creek.
- Reported debt was $581.1 million, versus $276.7 million at December 30, 2017. This excludes capital lease obligations of $153.2 million principal; total liabilities were $1,089.3 million against stockholders’ equity of only $2.2 million.
- The revolving facility had $415.4 million outstanding, $122.8 million excess availability, and a 4.2% weighted-average rate. The $180 million term loan had $179.1 million outstanding and a stated 9.2% rate. BlueLinx reported compliance with facility covenants.
- Nine-month investing cash outflow was $247.0 million, including $353.1 million paid for Cedar Creek, partly offset by $108.0 million in asset-sale proceeds. Financing cash inflow was $309.2 million.
Material changes and unusual items
- Q3 sales rose 79.4% year over year, largely reflecting Cedar Creek, which contributed $348.6 million in Q3 sales. It contributed $706.6 million in sales from acquisition through quarter-end.
- Gross margin fell to 10.7% from 12.6%; management cited falling commodity prices, a $5.2 million inventory valuation adjustment, and acquisition inventory step-up charges. Nine-month gross margin was also lower, at 11.4% versus 12.7%.
- Q3 SG&A included $3.8 million of Cedar Creek integration-related costs and $6.5 million of multi-employer pension withdrawal costs. Nine-month SG&A included $19.1 million of acquisition-related legal, professional, and integration costs and $14.7 million of stock-based compensation, primarily cash-settled stock appreciation rights.
- Interest expense increased to $13.3 million in Q3 and $33.9 million for nine months, reflecting higher debt, financing costs, and lease interest.
- The January sale-leaseback of four distribution centers generated $110.0 million gross proceeds; $97.8 million was used to repay the mortgage. BlueLinx recorded $95.1 million in capital lease assets and obligations and deferred an $83.9 million gain for amortization over the lease terms.
Outlook, risks and contingencies
Management provided no quantified earnings or sales guidance. It said it expected housing-market improvement over the long term while noting near-term challenges in housing starts and permits. The company expected operating cash flows and revolving-credit availability to fund routine needs for at least 12 months. Risks highlighted include commodity prices and inventory management, housing demand, tariffs and trade policy, customer and supplier concentration, interest rates and financing availability, and Cedar Creek integration, synergy realization, and acquisition-related debt. Environmental and legal matters are not expected, based on current information, to materially harm long-term financial condition, results, or cash flows, although outcomes could affect a given quarter. About 5% of employees were covered by collective bargaining agreements up for renewal in fiscal 2018 or expired and under negotiation. Cedar Creek’s internal controls were excluded from management’s control assessment during integration.
Key facts for investors to verify
- Confirm the intended period: this filing covers Q3 2018, not Q3 2017.
- Assess underlying sales and margins separately from Cedar Creek’s acquired contribution and acquisition-related inventory and integration costs.
- Review debt-service capacity, term-loan pricing and covenants, revolving borrowing-base availability, and substantial capital lease obligations.
- Track inventory exposure to commodity-price declines and the impact of working-capital needs on operating cash flow.
- Monitor Cedar Creek integration, final purchase-price allocation, potential synergies, and the planned scope and timing of internal-control integration.