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Why Is Builders FirstSource (BLDR) Up 10.5% Since Last Earnings Report?
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A month has gone by since the last earnings report for Builders FirstSource (BLDR - Free Report) . Shares have added about 10.5% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Builders FirstSource due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Builders FirstSource's Q2 Earnings Miss Estimates
Builders FirstSource, Inc. reported mixed results for the second quarter of 2024 with earnings surpassing the Zacks Consensus Estimate but net sales missing the same. Both earnings and sales declined year over year owing to weaker-than-expected Single-Family starts, slowing Multi-Family, and broader housing affordability challenges.
On an impressive note, BLDR achieved around $37 million in productivity savings through operational excellence and supply-chain initiatives in the second quarter. Year to date, these efforts have resulted in approximately $77 million in savings. For 2024, the company anticipates delivering between $90 million and $110 million in productivity savings.
Earnings & Revenue Discussion
The company reported adjusted earnings per share (EPS) of $3.50, which beat the consensus mark of $3.14 by 11.5%. The reported figure declined 10% from the year-ago EPS figure of $3.89 owing to lower sales.
Net sales of $4.46 billion missed the consensus mark of $4.48 billion by 0.4% and decreased 1.6% on a year-over-year basis. The decline in sales of BLDR was primarily driven by a significant downturn in the Multi-Family segment, which experienced a 31.3% dip. This substantial decrease in Multi-Family sales outweighed the modest gains in other areas, such as a 1.1% increase in Single-Family and a 1.5% rise in Repair and Remodel (R&R)/Other.
Overall, core organic sales declined 3.8%, contributing to a net sales decrease of 1.6%. This decline was somewhat mitigated by 1.9% growth from acquisitions and a 0.3% rise due to commodity inflation.
Sales According to Product Category
Value-Added Product Sales: For the quarter, sales of value-added products (comprising 48.7% of total net sales) were $2.17 billion, down 9% from the prior year (declined 3.4% organically). Within the segment, Manufactured products decreased 18.5% and Windows, doors & millwork fell 2.2% from a year ago.
Specialized Product & Other: Gypsum, Roofing & Insulation products sales (comprising 24.5% of total net sales) increased 0.8% from the year-ago quarter to $1.09 billion.
Lumber & Lumber Sheet Goods: For the quarter, segment sales (comprising 26.8% of the quarterly net sales) rose 12.7% year over year to $1.19 billion.
Operating Highlights
Gross margin of 32.8% contracted 240 basis points (bps) due to a timing shift in product mix toward lower-margin, early-stage homebuilding products and margin normalization, particularly in Multi-Family. As a percentage of net sales, SG&A improved 70 bps to 21.8%.
Adjusted EBITDA fell 12.9% to $669.7 million, mainly due to a reduction in gross profit, which was partially counterbalanced by a decrease in operating expenses. Adjusted EBITDA margin decreased 200 bps to 15% compared to the same period last year, primarily because of lower gross margins, though this was somewhat offset by reduced operating expenses.
Financial Details
As of Jun 30, 2024, Builders FirstSource had cash and cash equivalents of $75.6 million, up from $66.2 million at 2023-end. The company had liquidity of $1.7 billion at the end of June, including $1.6 billion in net borrowing available under the revolving credit facility.
Long-term debt — net of current portion, discounts and issuance costs — was $3.8 billion, down from $3.2 billion at 2023-end. As of the second-quarter end, net debt to trailing 12-month adjusted EBITDA ratio was 1.4x compared with 1.1x in the prior year.
Net cash from operations was $452.1 million, down 41.2% versus $769.3 million a year ago. Free cash flow was $366.7 million in the second quarter, down from $594.3 million a year ago.
BLDR repurchased 5.8 million shares of its common stock at an average price of $170.01 per share for $989.6 million. The company’s board of directors recently authorized a new repurchase plan of up to $1 billion of the company’s outstanding shares of common stock.
2024 Guidance Cut
For 2024, BLDR now expects net sales between $16.4 billion and $17.2 billion versus $17.5 billion-$18.5 billion expected earlier. The estimated figure is down from $17.1 billion reported in 2023 at midpoint. Acquisitions completed within the last 12 months are projected to contribute 1.5% to 2% in net sales growth versus 1-1.5% projected earlier.
Geographically, Single-Family starts are expected to increase by a low single-digit percentage, Multi-Family starts are projected to decline 25% to 30%, and R&R activity is anticipated to remain flat compared to the previous year. Earlier, the company had expected Single-Family starts to be up in the mid-single digits and R&R to be up in the low-single digits but Multi-Family starts were expected to be down by 20-30%.
Gross margin is likely to be in the range of 31.5-32.5% versus 30-33% expected earlier. The projection was down from 35.2% generated in 2023. Adjusted EBITDA is expected to be between $2.2 billion and $2.4 billion (versus an earlier projection of $2.4 billion-$2.8 billion), down from $2.9 billion reported in 2023. Adjusted EBITDA margin is expected to be in the range of 13.4-14% (versus 14-15% of earlier expectation) compared with 17% in the prior year.
Free cash flow is still expected to be in the $1-$1.2 billion range, assuming average commodity prices between $380 and $400 per thousand board feet (mbf).
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
The consensus estimate has shifted -22.14% due to these changes.
VGM Scores
Currently, Builders FirstSource has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Builders FirstSource has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Builders FirstSource belongs to the Zacks Building Products - Retail industry. Another stock from the same industry, Beacon Roofing Supply (BECN - Free Report) , has gained 4.2% over the past month. More than a month has passed since the company reported results for the quarter ended June 2024.
Beacon Roofing reported revenues of $2.67 billion in the last reported quarter, representing a year-over-year change of +6.8%. EPS of $2.32 for the same period compares with $2.66 a year ago.
For the current quarter, Beacon Roofing is expected to post earnings of $2.92 per share, indicating a change of +2.5% from the year-ago quarter. The Zacks Consensus Estimate has changed +1.5% over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Beacon Roofing. Also, the stock has a VGM Score of B.
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Why Is Builders FirstSource (BLDR) Up 10.5% Since Last Earnings Report?
A month has gone by since the last earnings report for Builders FirstSource (BLDR - Free Report) . Shares have added about 10.5% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Builders FirstSource due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Builders FirstSource's Q2 Earnings Miss Estimates
Builders FirstSource, Inc. reported mixed results for the second quarter of 2024 with earnings surpassing the Zacks Consensus Estimate but net sales missing the same. Both earnings and sales declined year over year owing to weaker-than-expected Single-Family starts, slowing Multi-Family, and broader housing affordability challenges.
On an impressive note, BLDR achieved around $37 million in productivity savings through operational excellence and supply-chain initiatives in the second quarter. Year to date, these efforts have resulted in approximately $77 million in savings. For 2024, the company anticipates delivering between $90 million and $110 million in productivity savings.
Earnings & Revenue Discussion
The company reported adjusted earnings per share (EPS) of $3.50, which beat the consensus mark of $3.14 by 11.5%. The reported figure declined 10% from the year-ago EPS figure of $3.89 owing to lower sales.
Net sales of $4.46 billion missed the consensus mark of $4.48 billion by 0.4% and decreased 1.6% on a year-over-year basis. The decline in sales of BLDR was primarily driven by a significant downturn in the Multi-Family segment, which experienced a 31.3% dip. This substantial decrease in Multi-Family sales outweighed the modest gains in other areas, such as a 1.1% increase in Single-Family and a 1.5% rise in Repair and Remodel (R&R)/Other.
Overall, core organic sales declined 3.8%, contributing to a net sales decrease of 1.6%. This decline was somewhat mitigated by 1.9% growth from acquisitions and a 0.3% rise due to commodity inflation.
Sales According to Product Category
Value-Added Product Sales: For the quarter, sales of value-added products (comprising 48.7% of total net sales) were $2.17 billion, down 9% from the prior year (declined 3.4% organically). Within the segment, Manufactured products decreased 18.5% and Windows, doors & millwork fell 2.2% from a year ago.
Specialized Product & Other: Gypsum, Roofing & Insulation products sales (comprising 24.5% of total net sales) increased 0.8% from the year-ago quarter to $1.09 billion.
Lumber & Lumber Sheet Goods: For the quarter, segment sales (comprising 26.8% of the quarterly net sales) rose 12.7% year over year to $1.19 billion.
Operating Highlights
Gross margin of 32.8% contracted 240 basis points (bps) due to a timing shift in product mix toward lower-margin, early-stage homebuilding products and margin normalization, particularly in Multi-Family. As a percentage of net sales, SG&A improved 70 bps to 21.8%.
Adjusted EBITDA fell 12.9% to $669.7 million, mainly due to a reduction in gross profit, which was partially counterbalanced by a decrease in operating expenses. Adjusted EBITDA margin decreased 200 bps to 15% compared to the same period last year, primarily because of lower gross margins, though this was somewhat offset by reduced operating expenses.
Financial Details
As of Jun 30, 2024, Builders FirstSource had cash and cash equivalents of $75.6 million, up from $66.2 million at 2023-end. The company had liquidity of $1.7 billion at the end of June, including $1.6 billion in net borrowing available under the revolving credit facility.
Long-term debt — net of current portion, discounts and issuance costs — was $3.8 billion, down from $3.2 billion at 2023-end. As of the second-quarter end, net debt to trailing 12-month adjusted EBITDA ratio was 1.4x compared with 1.1x in the prior year.
Net cash from operations was $452.1 million, down 41.2% versus $769.3 million a year ago. Free cash flow was $366.7 million in the second quarter, down from $594.3 million a year ago.
BLDR repurchased 5.8 million shares of its common stock at an average price of $170.01 per share for $989.6 million. The company’s board of directors recently authorized a new repurchase plan of up to $1 billion of the company’s outstanding shares of common stock.
2024 Guidance Cut
For 2024, BLDR now expects net sales between $16.4 billion and $17.2 billion versus $17.5 billion-$18.5 billion expected earlier. The estimated figure is down from $17.1 billion reported in 2023 at midpoint. Acquisitions completed within the last 12 months are projected to contribute 1.5% to 2% in net sales growth versus 1-1.5% projected earlier.
Geographically, Single-Family starts are expected to increase by a low single-digit percentage, Multi-Family starts are projected to decline 25% to 30%, and R&R activity is anticipated to remain flat compared to the previous year. Earlier, the company had expected Single-Family starts to be up in the mid-single digits and R&R to be up in the low-single digits but Multi-Family starts were expected to be down by 20-30%.
Gross margin is likely to be in the range of 31.5-32.5% versus 30-33% expected earlier. The projection was down from 35.2% generated in 2023. Adjusted EBITDA is expected to be between $2.2 billion and $2.4 billion (versus an earlier projection of $2.4 billion-$2.8 billion), down from $2.9 billion reported in 2023. Adjusted EBITDA margin is expected to be in the range of 13.4-14% (versus 14-15% of earlier expectation) compared with 17% in the prior year.
Free cash flow is still expected to be in the $1-$1.2 billion range, assuming average commodity prices between $380 and $400 per thousand board feet (mbf).
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
The consensus estimate has shifted -22.14% due to these changes.
VGM Scores
Currently, Builders FirstSource has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Builders FirstSource has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Builders FirstSource belongs to the Zacks Building Products - Retail industry. Another stock from the same industry, Beacon Roofing Supply (BECN - Free Report) , has gained 4.2% over the past month. More than a month has passed since the company reported results for the quarter ended June 2024.
Beacon Roofing reported revenues of $2.67 billion in the last reported quarter, representing a year-over-year change of +6.8%. EPS of $2.32 for the same period compares with $2.66 a year ago.
For the current quarter, Beacon Roofing is expected to post earnings of $2.92 per share, indicating a change of +2.5% from the year-ago quarter. The Zacks Consensus Estimate has changed +1.5% over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Beacon Roofing. Also, the stock has a VGM Score of B.