BFS’ Acquisitions Increase Manufacturing Sales 17.4% in Q3 2022
Builders FirstSource, Inc. today reported its results for the third quarter ended September 30, 2022.
Third Quarter 2022 BFS Highlights
All Year-Over-Year Comparisons Unless Otherwise Noted:
- Net sales increased 4.6% to $5.8 billion for the quarter driven by core organic growth and acquisitions, partially offset by commodity deflation.
- Net income grew 20.4% to $0.7 billion, or $4.72 per diluted share, and adjusted net income increased 16.8% to $0.8 billion, or $5.20 per diluted share.
- Adjusted EBITDA increased 20.1% to a third quarter record of $1.2 billion, mainly driven by net sales growth and a higher mix of sales from value-added product categories.
- Cash provided by operating activities was $1.5 billion, and free cash flow was $1.4 billion.
- Strong quarter-end balance sheet with liquidity of $1.3 billion and a net debt to LTM Adjusted EBITDA ratio of 0.7x.
- During the quarter, the Company repurchased 11.2 million shares of its common stock for $658.2 million at an average stock price of $58.57.
“Our strong third quarter results reflect the fundamental strengths of our business, including the value-added products and solutions that resonate with our customers, and our consistent execution,” commented Dave Flitman, President and CEO of Builders FirstSource. “We are winning new business and strengthening existing customer relationships by providing customers individualized solutions and excellent service, which make us a partner of choice. We delivered a 6.9% increase in core organic sales, including nearly 20% growth in our higher margin value-added products. That performance, combined with continued investments in our core operations and relentless focus on cost controls and productivity, helped us to produce record Adjusted EBITDA of $1.2 billion during the quarter, an increase of approximately 20% versus the third quarter of last year. While we have begun to experience increasing macro headwinds, our leading position in the market, focus on innovation and prudent capital allocation have positioned us to succeed in any environment. I am confident that we will continue to deliver on our strategic pillars given the skill and dedication of our team members.”
Mr. Flitman continued, “In addition to our focus on profitable core organic growth, we have also continued to grow through accretive acquisitions in line with our strategy. In September, we closed our acquisition of Trussway, which expands our footprint in multifamily trusses, and enhances our value-added portfolio to better serve our customers and accelerate growth in the Southwest and Southeast. We also acquired Fulcrum Building Group in September, providing us with pro-focused lumberyards, millwork facilities and additional resources in the high-growth markets along the Gulf Coast. Furthermore, we boosted our footprint in the Arizona market through the acquisitions of HomCo Lumber and Hardware in July and Pima Door & Supply and Sunrise Carpentry in early October, which will provide us with dedicated millwork capabilities in the region. We are excited to welcome the Trussway, Fulcrum, Pima and Sunrise, and HomCo teams, along with their long-standing customer relationships and track records of profitable growth, to the Builders FirstSource family.”
Peter Jackson, CFO of Builders FirstSource, added, “I am proud of our ability to deliver strong financial results in the third quarter. Our growing third quarter sales and Adjusted EBITDA, combined with our focus on working capital management, resulted in record free cash flow of $1.4 billion. In addition, we remain focused on returning capital to shareholders, as evidenced by nearly $660 million in share repurchases. I want to emphasize that we are operating with a proactive mindset and have enhanced our already strong expense management processes. Our fortress balance sheet, low net leverage profile and ample liquidity provide us with the strength and flexibility to navigate a complex operating environment and create value over the long term.”
Builders FirstSource Financial Performance Highlights - Third Quarter 2022 Compared to Third Quarter 2021
- Net sales for the period were $5.8 billion, a 4.6% increase. Core organic sales increased by 6.9% and acquisitions contributed net sales growth of 5.2%, partially offset by commodity price deflation of 7.5%.
- Core organic sales in value-added products grew by 19.9%.
- Core organic growth for Single-Family increased 1.8%, Repair and Remodel (“R&R”)/Other increased 31.1% and Multi-Family increased 16.2%.
- Gross profit was $2.0 billion, a 17.6% increase. The gross profit margin percentage increased 390 basis points to 35.0%, primarily driven by increased sales in value-added product categories and disciplined pricing in a volatile, supply-constrained marketplace.
Selling, General and Administrative Expenses
- SG&A was $1.0 billion, an increase of approximately $125.2 million, or 14.3%, driven primarily by two factors – additional operating expenses from locations acquired within the last twelve months and higher wages and variable compensation costs as a result of increased net sales and profitability. As a percentage of net sales, total SG&A increased by 150 basis points to 17.4%.
- Interest expense increased $8.2 million to $44.1 million, primarily due to higher outstanding debt balances and higher interest rates.
Income Tax Expense
- Driven by higher profitability, income tax expense was $232.4 million, compared to $188.3 million in the prior year period, and the effective tax rate in the third quarter was up 40 basis points to 23.9% year-over-year.
- Net income was $738.0 million, or $4.72 earnings per diluted share, compared to net income of $613.1 million, or $2.98 earnings per diluted share, in the same period a year ago.
Adjusted Net Income
- Adjusted net income was $814.0 million, or $5.20 adjusted earnings per diluted share, compared to adjusted net income of $696.7 million, or $3.39 adjusted earnings per diluted share, in the prior year period. The 16.8% increase in adjusted net income was primarily driven by an increase in net sales and gross margin, partially offset by higher income tax and SG&A expense. The adjusted earnings per diluted share increase was primarily driven by share repurchases, which contributed $1.24, or 69% of the $1.81 change.
- Adjusted EBITDA increased 20.1% to $1.2 billion, primarily driven by net sales growth, a higher mix of sales from value-added product categories, and disciplined pricing.
- Adjusted EBITDA margin improved by 260 basis points from the prior year period to 20.3%.
Builders FirstSource Capital Structure, Leverage, and Liquidity Information
- For the nine months ended September 30, 2022, cash provided by operating activities was $2.6 billion, and cash used in investing activities was $0.8 billion. The Company’s free cash was an inflow of $2.4 billion, primarily driven by higher margins and sales increases from core organic growth and acquisitions.
- Liquidity as of September 30, 2022 was $1.3 billion, consisting of approximately $1.2 billion in net borrowing availability under the revolving credit facility and $0.1 billion of cash on hand.
- As of September 30, 2022, LTM Adjusted EBITDA was $4.5 billion and net debt was $3.1 billion, resulting in the debt to LTM Adjusted EBITDA ratio decreasing to 0.7x, compared to 0.8x in the third quarter of 2021.
- In the third quarter, the Company repurchased approximately 11.2 million shares of its common stock for $658.2 million at an average stock price of $58.57 per share. During the nine months ended September 30, 2022, the Company repurchased approximately 31.7 million shares at an average price of $61.03 per share for a total cost of $1.9 billion.
- In addition, the Company repurchased approximately 1.8 million shares in October 2022 for $111.9 million at an average stock price of $61.54 per share. The Company has approximately $0.5 billion remaining in the current $2 billion share repurchase authorization from May 2022.
- Since August 2021, the Company has repurchased approximately 61.0 million shares of its common stock, or approximately 29.5% of its total shares outstanding, at an average price of $62.23 for a total cost of $3.8 billion.
Operational Excellence Productivity
- Year to date, the Company has delivered approximately $73 million in productivity savings.
- The Company continues to believe it will deliver over $100 million in productivity savings in 2022.
- On July 1, 2022, the Company acquired HomCo Lumber and Hardware (“HomCo”), a highly profitable provider of building products in Flagstaff, Arizona. HomCo was founded in 1975, employs a workforce of nearly 100 team members, and had approximately $44 million in sales in 2021.
- On September 1, 2022, the Company acquired Trussway, a leading manufacturer of floor and roof trusses headquartered in Houston, Texas, with approximately $291 million in sales in 2021. Trussway has nearly 1,000 employees across six manufacturing locations in the Central and Eastern U.S.
- On September 1, 2022, the Company acquired Fulcrum Building Group (“Fulcrum”), a multi-brand operator of pro-focused lumberyards and millwork facilities in the Florida Panhandle and Alabama Coast. Fulcrum will provide the Company with additional resources and capacity in the high growth markets of the Gulf Coast. Fulcrum had approximately $140 million in sales in 2021.
- On October 3, 2022, the Company acquired the Arizona businesses of Pima Door & Supply (“Pima”) and Sunrise Carpentry (“Sunrise”). Pima and Sunrise will provide the Company with dedicated millwork capability in the high-growth Phoenix metro area. Pima and Sunrise had approximately $10 million in sales in 2021.
2022 Total Company Outlook:
For 2022, the Company expects significant improvement in its full-year financial performance compared to 2021, including the following:
- Net sales to grow to a range of $22.5 billion to $23.0 billion, or approximately 13% to 16% over 2021 sales of $19.9 billion.
- Adjusted EBITDA to be in a range of $4.2 billion to $4.4 billion, or approximately 35% to 42% over 2021 Adjusted EBITDA of $3.1 billion.
- Adjusted EBITDA margin to be in a range of 18.5% to 19.5%, or approximately 310 to 410 basis points over the 2021 Adjusted EBITDA margin of 15.4%.
2022 Full Year Assumptions:
The Company’s anticipated 2022 performance is based on several assumptions, including the following:
- Within the Company’s geographies, single family starts are projected to be down low double-digits, multi-family starts up low-double digits, and R&R projected up low-to-mid-single digits.
- Acquisitions completed within the last twelve months are projected to add net sales growth of 7% to 8%.
- Two less selling days in the fourth quarter of 2022 versus 2021, or approximately 0.7%.
- Depreciation and amortization expenses in the range of $480 million to $500 million, including approximately $180 million of amortization related to intangible assets acquired in the BMC merger. Total depreciation projected to be $195 million and total amortization projected to be $295 million for the full year 2022.
- Total capital expenditures in the range of $250 million to $300 million.
- Free cash flow in the range of $3.1 billion to $3.3 billion, assuming average commodity prices in the range of $750 to $850 mbf.
- Interest expense in the range of $190 million to $200 million.
- An effective tax rate between 23.0% to 25.0%.
Builders FirstSource will host a conference call Tuesday, November 8, 2022, to discuss the Company’s financial results and other business matters. The teleconference will begin at 8:00 a.m. Central Time and will be hosted by Dave Flitman, President and Chief Executive Officer, and Peter Jackson, Chief Financial Officer.
To participate in the teleconference, please dial into the call a few minutes before the start time: 800-267-6316 (U.S. and Canada) and 203-518-9708 (international), Conference ID: BLDRQ322. A replay of the call will be available at 12:00 p.m. Central Time through Tuesday, November 15, 2022. To access the replay, please dial 888-219-1264 (U.S. and Canada) or 402-220-4944 (international) and refer to pass code BLDRQ322. The live webcast and archived replay can also be accessed on the Company's website at www.bldr.com under the Investors section. The online archive of the webcast will be available for approximately 90 days.