BFS Reports Record Q2, Manufacturing Sales Up 57% YOY
Builders FirstSource, Inc. (NYSE: BLDR) today reported its results for the second quarter ended June 30, 2022.
Second Quarter 2022 BFS Highlights
All Year-Over-Year Comparisons Unless Otherwise Noted:
- Net sales of $6.9 billion for the quarter increased 24.2% driven by double-digit core organic growth, acquisitions and commodity inflation.
- Net income grew 98.5% to $1.0 billion, or $5.75 per diluted share, and adjusted net income increased 86.9% to $1.1 billion, or $6.26 per diluted share.
- Adjusted EBITDA increased 80.3% to a second quarter record of $1.5 billion driven by double-digit core organic growth, commodity inflation, acquisitions and demand in the residential housing market.
- Cash provided by operating activities was $1.1 billion and free cash flow of $881 million. Strong quarter-end balance sheet with a net debt to LTM Adjusted EBITDA ratio of 0.8x and liquidity of $1.0 billion.
- During the quarter, the Company repurchased 16.9 million shares of its common stock for $990.7 million at an average stock price of $58.72.
“During the second quarter, we remained focused on executing our strategy, accelerating value-added product sales and expanding customer solutions, resulting in another quarter of record revenue and EBITDA performance despite the dynamic environment and challenging year-over-year comparisons,” commented Dave Flitman, President and CEO of Builders FirstSource. “We increased sales by 24%, including nearly 32% organic growth in our higher margin value-added products, and increased Adjusted EBITDA by 80%. These outstanding achievements are a direct result of having strong alignment around a clear execution roadmap, the hard work and dedication of our approximately 30,000 team members and their commitment to provide outstanding service to our customers."
Mr. Flitman continued, “In July, we acquired HomCo, a lumber and hardware supplier in Flagstaff, AZ, and are excited to welcome those new team members to the Builders FirstSource family. We look forward to building on HomCo’s strong reputation and presence and leveraging BFS’s value-added solutions for new growth opportunities in the Arizona market.
We were excited to publish our inaugural CSR report in May, which outlines our ESG framework and initial plans to create a more sustainable future for all our stakeholders. As an industry leader, driving sustainability is our responsibility and we look forward to providing updates on our progress and performance.
I remain optimistic on the prospects for our industry over the long term and confident in our ability to outperform the market as we execute our strategy and further invest in margin accretive, value-added products and transformative digital solutions. We also remain fully committed to leveraging our strong cash flow profile to strategically deploy capital toward a combination of high return internal investments, accretive bolt-on M&A and returns to shareholders.”
Peter Jackson, CFO of Builders FirstSource, added, “I am pleased to report that we have again demonstrated our ability to deliver strong financial results in a complex environment generating approximately $900 million in free cash flow. We accomplished this through solid execution of our strategic priorities and, at the same time, returned capital to shareholders through our $991 million share repurchases in the quarter. Looking ahead, we are exceptionally well-positioned to capture organic and inorganic value-enhancing growth opportunities and expand our market-leading positions. For 2022, we remain focused on delivering strong double-digit base business growth and significant free cash flow.”
Builders FirstSource Financial Performance Highlights - Second Quarter 2022 Compared to Second Quarter 2021
- Net sales for the period were $6.9 billion, a 24.2% increase over the prior year quarter. Core organic sales increased by 12.2%, acquisitions contributed net sales growth of 8.1% and commodity price inflation contributed 3.9%.
- Core organic sales in value-added products grew by 32.0%.
- Core organic growth for Single-Family increased 15.8%, and Repair and Remodel (“R&R”)/Other and Multi-Family remained essentially flat.
- Gross profit was $2.4 billion, a 52.4% increase compared to the prior year quarter. The gross profit margin percentage increased 640 basis points to 34.8%, primarily driven by increased sales in our 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 $143.4 million, or 15.9%, compared to the prior year period, driven primarily by additional operating expenses from acquisitions and variable compensation due to the increase in net sales and profitability. As a percentage of net sales, total SG&A decreased by 110 basis points to 15.1%.
- Interest expense increased by $42.9 million to $70.7 million. The year-over-year increase is primarily due to expenses related to the 2027 note redemption in the second quarter and higher outstanding debt balances.
Income Tax Expense
- Driven by higher profitability, income tax expense was $307.9 million, compared to $155.2 million in the prior year period and the effective tax rate in the second quarter was flat at 23.8% year-over-year.
- Net income was $1.0 billion or $5.75 earnings per diluted share, compared to net income of $497.2 million, or $2.39 earnings per diluted share, in the same period a year ago. Adjusted net income was $1.1 billion, or $6.26 adjusted earnings per diluted share, compared to adjusted net income of $574.0 million, or $2.76 adjusted earnings per diluted share, in the prior year period. The 86.9% increase in adjusted net income was primarily driven by the increase in net sales and gross margin partially offset by higher income tax and SG&A expense. Adjusted earnings per diluted share excludes amortization and one-time expenses related to merger and acquisition activity.
- Adjusted EBITDA increased 80.3% to $1.5 billion, primarily driven by core organic growth, commodity inflation, and acquisitions.
- Adjusted EBITDA margin improved to 21.8%, which increased 680 basis points compared to the prior year period.
Builders FirstSource Capital Structure, Leverage, and Liquidity Information
- For the six months ended June 30, 2022, cash provided by operating activities was $1.1 billion; and cash used in investing activities was $0.3 billion. The Company’s free cash was an inflow of $1.0 billion, primarily driven by sales increases from core organic growth and commodity inflation.
- Liquidity as of June 30, 2022 was $1.0 billion consisting of approximately $0.8 billion in net borrowing availability under the revolving credit facility and $0.2 billion of cash on hand.
- As of June 30, 2022, LTM Adjusted EBITDA was $4.3 billion and net debt was $3.4 billion, resulting in a decreased net leverage ratio from 1.0x to 0.8x.
- In the second quarter, the Company repurchased 16.9 million shares of its common stock for $990.7 million at an average stock price of $58.72 per share. During the six months ended June 30, 2022, the Company repurchased 20.5 million shares at a weighted average price of $62.39 per share for a total cost of $1.3 billion.
- In addition, the Company has repurchased 4.4 million shares in July 2022 for $270.0 million at an average stock price of $61.18 per share.
- Since August 2021, the Company repurchased 52.3 million shares of its common stock at an average price of $62.95, for $3.3 billion. The Company has repurchased 25% of its total shares outstanding. There is approximately $1.0 billion remaining in the share repurchase authorization.
Operational Excellence Productivity
- In the second quarter, the Company delivered approximately $40 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 April 1, 2022, the Company acquired both the Texas Panel Truss and East Panel Truss businesses (collectively, “Panel Truss”). The Panel Truss businesses provide building components to the single and multi-family markets throughout the South and Southeast. Panel Truss will provide BFS with additional component capacity in the Company’s high-growth southern markets to support new growth opportunities. The Panel Truss businesses had approximately $138 million in combined sales in 2021.
- On April 1, 2022, the Company acquired Valley Truss Co., Inc. (“Valley Truss”). Valley Truss is a highly successful provider of building components to the single and multi-family markets in Boise, Idaho. Valley Truss will provide BFS with additional component capacity and expand the Company’s value-added offering. Valley Truss sales were approximately $26 million in 2021.
The Company’s anticipated 2022 performance is based on several assumptions, including the following:
- Market change across our geographies in single family starts down mid-single digits, multi-family starts to be up in the low double digits; and R&R projected to be up in the low to mid- single digits.
- Acquisitions completed within the last twelve months are projected to add net sales growth of 6% to 7%.
- One fewer selling day in the fourth quarter of 2022 versus 2021 or approximately 0.3%.
- Depreciation and amortization expenses in the range of $460 million to $480 million, including approximately $180 million of amortization related to intangible assets acquired in the BMC merger. Total depreciation projected to be $190 million and total amortization projected to be $280 million for the full year 2022.
- Total capital expenditures in the range of $275 million to $325 million.
- Free cash flow in the range of $2.5 billion to $3.0 billion, assuming average commodity prices in the range of $700 to $1,000.
- Interest expense in the range of $175 million to $185 million.
- An effective tax rate between 23.0% to 25.0%.
Builders FirstSource will host a conference call Monday, August 1, 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. A copy of the Company’s press release announcing its financial results will be made available at 6:00 a.m. Central Time prior to the market open on Monday, August 1, 2022, in the Investors section of the Builders FirstSource website at www.bldr.com.
To participate in the teleconference, please dial into the call a few minutes before the start time: 800-225-9448 (U.S. and Canada) and 203-518-9708 (international), Conference ID: BLDRQ222. A replay of the call will be available at 12:00 p.m. Central Time through Monday, August 8, 2022. To access the replay, please 800-695-2185 (U.S. and Canada) and 402-530-9028 (international) and refer to pass code BLDRQ222. 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.