BlueLinx (BXC) Stock: Why The Price Surged Today

By Amit Chowdhry ● Nov 3, 2021
  • The stock price of BlueLinx Holdings Inc. (NYSE: BXC) increased 31.46% today. This is why it happened.

The stock price of BlueLinx Holdings Inc. (NYSE: BXC) – a leading U.S. wholesale distributor of building products – increased 31.46% today. Investors responded positively to BlueLinx Holdings reporting its financial results for the three months ended October 2, 2021.

Q3 2021 Highlights:

— Net sales of $971 million, an increase of 11%

— Net income of $47 million, a decrease of 14%

— Adjusted EBITDA of $79 million, a decrease of 2%

— Strong cash flow from operations of $104 million, up 70%

— Net leverage ratio reduced for the sixth consecutive quarter to 1.3x

— Completed $300 million 6.0% senior secured notes offering in October 2021

Q3 Financial Performance

For the three months ended October 2, 2021, BlueLinx had generated net sales of $971 million, an increase of $100 million, or 11%, when compared to the prior-year period. And BlueLinx reported third-quarter net income of $47 million, or $4.74 per diluted share, versus $55 million, or $5.72 per diluted share, in the prior-year period. The year-over-year decrease in net income is due primarily to the significant decline in the market value of higher-cost commodity wood product inventory sold during the third quarter and to a lesser extent, an approximately $8 million, non-recurring gain on the sale of property recorded in Q3 2020.

The net sales of specialty products — which includes engineered wood, industrial products, cedar, moulding, siding, metal products, and insulation — increased $145 million year over year, or 29%, to $641 million in the third quarter. The specialty products gross profit increased $62 million year over year to $148 million, resulting in a gross margin of 23.0%, up 560 basis points. And these increases in both net sales and gross profit were primarily driven by price increases reflective of both continued robust demand and ongoing supply constraints. The specialty products experienced a low double-digit sales volume decline year-over-year due to widespread supply chain disruptions. Sales volume increased year over year in some key high-value categories, including industrial products, moulding and siding.

The net sales of structural products – which includes products such as lumber, plywood, oriented strand board, rebar, and remesh – declined $45 million year over year, or 12%, to $330 million in the third quarter due to significant price deflation for commodity wood products. This price deflation had adversely impacted the market value of higher cost commodity wood product inventory sold through the first two months of the period. For the quarter, gross profit was 1.7% of net sales with gross profit improving to 7.0% in September.

The adjusted EBITDA was $79 million in the third quarter, compared to $81 million in the prior-year period. And the company generated cash flow from operations of $104 million and free cash flow of $102 million in the third quarter 2021, up 70% and 66%, respectively, from the prior-year period. The free cash flow is net of $2.5 million of capital expenditures in the period as the company continued to increase investments in its trailer fleet and distribution facilities to drive efficiency and scalability.

As of October 2, 2021, the total debt and net debt were $500 million, which included the balance on the revolving credit facility and $271 million of long-term finance lease obligations. And the net leverage ratio, which is calculated as the ratio of net debt to trailing twelve month Adjusted EBITDA was 1.3x, down from 4.1x in the prior year period.

On October 18, 2021, the company had completed an offering of $300 million aggregate principal amount of its 6.0% Senior Secured Notes due 2029. In connection with this transaction, the capacity under the company’s revolving credit facility was reduced to $350 million, down from $600 million. And a majority of the proceeds of the offering were used to pay down all outstanding borrowings under the company’s revolving credit facility.

Following these actions, as of October 29, 2021, available liquidity was $433 million, including $87 million of cash on hand and approximately $346 million of available capacity on our revolving credit facility. Total debt was at $577 million and net debt was $490 million. The net leverage ratio remained at approximately 1.3x.

BlueLinx is committed to driving a culture of profitable growth within new and existing product lines and geographies, while positioning the company for long-term value creation. And the following initiatives represent key areas of management focus:

— Foster a performance-driven culture committed to profitable growth. And BlueLinx is currently focused on enhancing the customer experience; accelerating organic growth within specific product and solutions offerings where the company is uniquely advantaged and deploying capital to drive sustained margin expansion, grow cash flow, and maintain continued profitable growth.

— Migrate revenue mix toward higher-margin specialty product categories. And BlueLinx expects to pursue a revenue mix increasingly weighted toward higher-margin and in-demand specialty product categories. Management intends to expand on value-added service offerings designed to simplify complex customer sourcing requirements, together with marketing, inventory and pricing services afforded by the company’s national platform.

— The company is maintaining a disciplined capital structure and pursue high-return investments that support growth. On a trailing 12-month basis, BlueLinx has significantly transformed its balance sheet, underscored by a material reduction in its net leverage and improved access to liquidity. So the company expects to accelerate capital investments designed to improve the efficiency and reliability of existing assets, including distribution centers and fleet assets. For the fourth quarter, the company expects to invest up to $10 million in its trailer fleet and distribution facilities to improve operational performance and productivity. And the company also continues to evaluate potential acquisition targets that complement its existing capabilities, customer exposure, geographic reach, or as a combination.

Q4 Trends

— The domestic residential construction activity remained elevated, which contributed to sustained demand for construction materials across the company’s end-markets.

— The specialty products gross margin in October remained consistent with Q3 given continued robust demand and favorable pricing dynamics across key product categories.

— The structural products gross margin for October was in the lower double digits, up sharply versus Q3. And the company continues to prudently manage structural product inventories, mitigating spot market price exposure.

KEY QUOTES:

“As a leading wholesale distributor of building products, BlueLinx continues to deliver a differentiated value proposition across the growing regional markets we serve, one that leverages our deep supplier relationships, diverse product offerings and integrated support services to provide an exceptional customer experience.”

“Our excellent third quarter performance was highlighted by continued growth in specialty product sales and robust cash flow generation. We delivered specialty product gross margins well above historical averages as we continue to capitalize on supplier-led price increases and our value-added services. In contrast, our structural product gross margins were significantly impacted by the historical decline of over 60% in commodity wood prices that began at the end of the second quarter. Despite that, we managed inventory and pricing exceptionally well, quickly absorbing the impact and finishing the quarter with strong structural gross margins.”

“Looking ahead, our focus remains on developing world class employee engagement and customer service to drive growth within higher-gross margin product and service categories,” continued Gibson. “The demand outlook for construction materials remains strong, with expectations for continued growth in domestic new home construction and renovation activity over a multi-year period.”

— Dwight Gibson, President & CEO of BlueLinx

“We generated strong cash flow from operations of $104 million in the third quarter, an increase of approximately $43 million versus the prior-year period. In addition, we continued to reduce our net leverage for the sixth consecutive quarter. In October, we issued $300 million of 6.0% senior secured notes due 2029, increasing our access to long-term capital at an attractive fixed rate. This offering had no impact to our net leverage profile, as a majority of the proceeds from the offering were used to reduce the outstanding balance on our existing revolving credit facility. Following this transaction and our strong cash flow generation in the third quarter, we now have $433 million of available liquidity from cash on hand and excess availability under our revolving credit facility to support the continued growth of the business.”

— Kelly Janzen, CFO of BlueLinx

Disclaimer: This content is intended for informational purposes. Before making any investment, you should do your own analysis.