Builders FirstSource Report 2024 Q3 Results

Builders FirstSource, Inc. (NYSE: BLDR) today reported its results for the third quarter ended September 30, 2024.

Third Quarter 2024 Highlights

All Year-Over-Year Comparisons Unless Otherwise Noted:

• Net sales were $4.2 billion, a 6.7% decrease, driven by lower core organic sales and commodity deflation, partially offset by growth from acquisitions and one additional selling day.
• Gross profit margin percentage decreased 210 basis points to 32.8%, primarily driven by ongoing Multi-Family and core organic normalization.
• Net income decreased 36.9% to $284.8 million, or $2.44 per diluted share compared to $3.59 per diluted share in the prior year period, which is a 32.0% decline in net income per diluted share. Net income as a percent of net sales decreased by 323 basis points to 6.7%.
• Adjusted EBITDA decreased 23.0% to $626.5 million, primarily driven by lower gross profit, partially offset by lower operating expenses after adjustments.
• Adjusted EBITDA margin declined by 310 basis points to 14.8%. Adjusted EBITDA margin has remained in the mid-teens or better for 14 consecutive quarters.
• Cash provided by operating activities was $730.0 million, up $80.5 million compared to the prior year period, while free cash flow increased 18.0% to $634.7 million, compared to $537.8 million in the prior year period.
• The Company repurchased 0.9 million shares of common stock at an average price of $176.73 for $159.7 million, inclusive of applicable fees and taxes.

As previously announced, Dave Rush is retiring as President and CEO of Builders FirstSource ("BFS"), effective November 6, 2024, after 25 years of dedicated service. Mr. Rush will remain on the Board of Directors and continue as a special advisor to ensure a smooth transition.

“I'm proud of our resilient third quarter performance as we maintained a mid-teens EBITDA margin by leveraging our distinct competitive advantages and differentiated business model,” commented Dave Rush, CEO of Builders FirstSource. “Our six acquisitions during the third quarter reinforce our commitment to investing in value-added products to enhance our margin profile. I am confident in our ability to execute our strategy and drive long-term growth.”

Rush added, “It has been an honor to serve this great company as CEO for the past two years capping off my more than 25 years of service through various levels of the business. We have the best people in the industry, and the opportunity to be CEO of BFS has truly been the joy and highlight of my career. I am so proud of how far we have come and am grateful to the Board of Directors, my fellow leadership team and all team members for their support. I have full confidence in Peter and know he will be an excellent leader of BFS. He embodies our culture, has helped craft our current strategy, and has served as a trusted advisor to our operational leaders.”

“It has been a pleasure to serve alongside Dave, and I'm grateful that he will continue to be involved moving forward as an advisor and Board member,” commented Peter Jackson, incoming CEO of Builders FirstSource. "I want to thank the Board for their confidence in Pete Beckmann and me to drive the BFS strategy, which will continue to be focused on growing value-added products and services, driving operational excellence, investing in digital solutions and innovation, and continuing to build our high-performing culture. Disciplined capital allocation is a true competitive advantage that creates shareholder value through opportunistic share repurchases and acquisitions that set us up to drive long-term growth. As a trusted partner to homebuilders, we are helping solve industry pain points with our best-in-class product portfolio and scale, industry-leading digital solutions, and an exceptional team dedicated to customer service. I am confident that we are well positioned to take advantage of the many opportunities in front of us.”

Pete Beckmann, incoming CFO of Builders FirstSource, added, “We delivered resilient results during the third quarter despite a choppy housing market and the reduced value of an average start by leaning into the pillars of our strategy and operating model. We are leveraging our fortress balance sheet and free cash flow generation to drive disciplined capital deployment, as witnessed by our share repurchases and M&A activity during the quarter. Our scale and financial flexibility help us act as a key partner to homebuilders, and we have clear line of sight to compound value creation over the long term.”

Third Quarter 2024 Financial Performance Highlights

All Year-Over-Year Comparisons Unless Otherwise Noted:

Net Sales

• Net sales of $4.2 billion, a 6.7% decrease, driven by a 7.2% decline in core organic sales as Multi-Family continues to trend downward and commodity deflation of 2.9%, partially offset by growth from acquisitions of 2.0% and one additional selling day contributing 1.4%.

• Core organic net sales declined 7.2%. Single-Family declined 4.6% and Multi-Family declined 30.9%, while Repair and Remodel (“R&R”)/Other increased 0.8%. On a weighted basis, Multi-Family and Single-Family lowered net sales by 4.2% and 3.2%, respectively, while R&R/Other raised sales by 0.2%.

Gross Profit

• Gross profit was $1.4 billion, a decrease of 12.3%. Gross profit margin percentage decreased 210 basis points to 32.8%, primarily driven by ongoing Multi-Family and core organic normalization.

Selling, General and Administrative Expenses

• SG&A was $958.3 million, an increase of $18.8 million, or 2.0%, primarily driven by additional expenses from operations acquired within the last twelve months and asset write-offs, which were partially offset by lower variable compensation on decreased sales. As a percentage of net sales, total SG&A increased by 190 basis points to 22.6%, primarily attributable to reduced operating leverage.

Interest Expense

• Interest expense increased $4.1 million to $54.3 million, primarily due to higher average debt balances.

Income Tax Expense

• Income tax expense was $89.0 million, compared to $140.0 million in the prior year period, primarily driven by a decrease in income before income tax. The effective tax rate in the third quarter increased 10 basis points year-over-year to 23.8%.

Net Income

• Net income was $284.8 million, or $2.44 earnings per diluted share, compared to net income of $451.5 million, or $3.59 earnings per diluted share, in the same period a year ago. The 36.9% decrease in net income was primarily driven by lower gross profit and higher operating expenses, partially offset by lower income tax expenses.
• Net income as a percentage of net sales decreased by 323 basis points from the prior year period to 6.7%, primarily due to lower gross profit margins, partially offset by lower income tax expenses.

Adjusted Net Income

• Adjusted net income was $359.5 million, a decrease of 32.6%, primarily driven by lower gross profit, partially offset by lower operating expenses after adjustments and lower income tax expenses.

Adjusted Earnings Per Diluted Share

• Adjusted earnings per diluted share was $3.07, compared to $4.24 in the same period a year ago. The 27.6% decrease was primarily driven by lower adjusted net income, partially offset by share repurchases.

Adjusted EBITDA

• Adjusted EBITDA decreased 23.0% to $626.5 million, primarily driven by lower gross profit, partially offset by lower operating expenses after adjustments.
• Adjusted EBITDA margin declined by 310 basis points from the prior year period to 14.8%, primarily due to lower gross profit margins, partially offset by lower operating expenses.

Productivity Savings From Operational Excellence

• For the third quarter, the Company delivered approximately $27 million in productivity savings related to operational excellence and supply chain initiatives. Year to date, the Company has delivered approximately $104 million in productivity savings.
• The Company expects to deliver $110 million to $120 million in productivity savings in 2024.

Capital Structure, Leverage, and Liquidity Information

• For the three months ended September 30, 2024, cash provided by operating activities was $730.0 million, and cash used in investing activities was $219.3 million. The Company's free cash flow was $634.7 million, compared to $537.8 million in the prior year period due to a decrease in net working capital, partially offset by lower net income.
• Liquidity as of September 30, 2024, was approximately $2.0 billion, consisting of $1.7 billion in net borrowing availability under the revolving credit facility and $0.3 billion of cash on hand.
• As of September 30, 2024, LTM Adjusted EBITDA was $2.5 billion and net debt was $3.4 billion, resulting in the net debt to LTM Adjusted EBITDA ratio of 1.4x, compared to 1.1x in the prior year period.
• In the third quarter, the Company repurchased 0.9 million shares of its common stock at an average price of $176.73 per share for $159.7 million, inclusive of applicable fees and taxes.
• The Company has approximately $840 million remaining in its $1 billion share repurchase authorization announced in August 2024.
• Since the inception of its buyback program in August 2021, the Company has repurchased 93.9 million shares of its common stock, or 45.5% of its total shares outstanding, at an average price of $77.62 per share for a total cost of $7.3 billion. As of September 30, 2024, shares outstanding were approximately 115.6 million.

2024 Full Year Total Company Outlook

For 2024, the Company expects to achieve the financial performance highlighted below. Projected Net Sales and Adjusted EBITDA include the expected impact of price, commodities, and margins for 2024.

• Net Sales to be in a range of $16.25 billion to $16.55 billion.
• Gross Profit margin to be in a range of 32.0% to 33.0%.
• Adjusted EBITDA to be in a range of $2.25 billion to $2.35 billion.
• Adjusted EBITDA margin to be in a range of 13.8% to 14.2%.
• Free cash flow in the range of $1.2 billion to $1.4 billion.

2024 Full Year Assumptions

The Company’s anticipated 2024 performance is based on several assumptions for the full year, including the following:

• Within the Company’s geographies, Single-Family starts are projected to be up low-single digits, Multi-Family starts down 25% to 30%, and R&R flat to the prior year.
• Acquisitions completed within the last twelve months are projected to add net sales growth of 2.0% to 2.5%.
• Total capital expenditures in the range of $375 million to $425 million.
• Average commodity prices in the range of $380 to $400 per thousand board feet (mbf).
• Interest expense in the range of $205 million to $215 million.
• An effective tax rate of 22.5% to 23.5%.
• Depreciation and amortization expenses in the range of $525 million to $575 million.
• Two more selling days in 2024 versus 2023.