Why Is Builders FirstSource (BLDR) Down 8.3% Since Last Earnings Report?
A month has gone by since the last earnings report for Builders FirstSource (BLDR). Shares have lost about 8.3% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Builders FirstSource due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Builders FirstSource’s Q1 Earnings Beat Estimates
Builders FirstSource reported better-than-expected results in first-quarter 2024. Both earnings and net sales surpassed the Zacks Consensus Estimate.
However, earnings declined year over year and net sales rose slightly from the prior year. A weakening Multi-Family market and higher mortgage rates driving affordability challenges were major headwinds.
On an impressive note, BLDR generated approximately $40 million in productivity savings related to operations excellence and supply-chain initiatives in the first quarter. For 2024, it expects to deliver $90-$110 million in productivity savings.
Earnings & Revenue Discussion
The company reported adjusted earnings per share (EPS) of $2.65, which beat the consensus mark of $2.42 by 9.5%. The reported figure declined 10.5% from the year-ago EPS figure of $2.96, due to lower adjusted net income, partially offset by share repurchases.
Net sales of $3.89 billion topped the consensus mark of $3.81 billion by 2.2% and inched up marginally on a year-over-year basis. Commodity deflation of 1.7% was offset by a 1.9% contribution from acquisitions. Core organic sales were essentially flat from the prior-year period. Single-Family increased 4.3%, despite R&R/Other and Multi-Family’s respective fall of 4.7% and 13.4% year over year.
Sales According to Product Category
Value-Added Product Sales: For the quarter, sales of value-added products (comprising 51.6% of total net sales) were $2.01 billion, down 5.2% from the prior year (declined 3.4% organically). Within the segment, Manufactured products decreased 9.4% and Windows, doors & millwork fell 0.8% from a year ago.
Specialized Product & Other: Gypsum, Roofing & Insulation products sales (comprising 23.2% of total net sales) increased 1% from the year-ago quarter to $901.5 million.
Lumber & Lumber Sheet Goods: For the quarter, segment sales (comprising 25.2% of the quarterly net sales) rose 12.4% year over year to $980.6 million.
Operating Highlights
Gross profit of $1.3 billion fell 5.2% compared to the prior-year period. Gross margin of 33.4% contracted 190 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.
Selling, general and administrative expenses or SG&A increased 2.4% to $926.3 million, primarily owing to additional expenses from operations acquired in the last 12 months. As a percentage of net sales, SG&A rose 50 bps to 23.8%.
Adjusted EBITDA fell 14.4% on a year-over-year basis to $540.9 million due to lower gross profit and higher operating expenses due to acquisitions. Adjusted EBITDA margin also declined 240 bps year over year to 13.9%.
Financial Details
As of Mar 31, 2024, Builders FirstSource had cash and cash equivalents of $697.5 million, up from $66.16 million at 2023-end. The company had liquidity of $2.4 billion in March-end, including $1.7 billion in net borrowing available under the revolving credit facility. Long-term debt — net of current portion, discounts and issuance costs — was $3.7 billion, up from $3.18 billion at 2023-end. As of the first-quarter end, net debt to trailing 12-month adjusted EBITDA ratio was 1.1x compared with 0.8x in the prior year.
Net cash from operations was $317.2 million versus $654.4 million a year ago. Free cash flow was $$227.6 million in the first quarter. BLDR repurchased 0.1 million shares of its common stock at an average price of $202.67 per share for $19.6 million. It had 122 million or approximately $980 million worth of stocks remaining in its share repurchase authorization on Mar 31.
2024 Guidance Maintained
For 2024, BLDR expects net sales between $17.5 billion and $18.5 billion, up from $17.1 billion reported in 2023. Acquisitions completed within the last 12 months are projected to contribute 1-1.5% in net sales growth. Geographically, Single-Family starts are likely to be up in the mid-single digits and R&R is projected to be up in the low-single digits but Multi-Family starts are expected to be down by 20-30%.
Gross margin is likely to be in the range of 30-33% versus 35.2% generated in 2023. Adjusted EBITDA is expected to be between $2.4 billion and $2.8 billion, down from $2.9 billion reported in 2023. Adjusted EBITDA margin is expected to be in the range of 14-15% compared with 17% in the prior year. Free cash flow is expected to be in the $1-$1.2 billion range, assuming average commodity prices between $400 and $440 per thousand board feet (mbf).
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
The consensus estimate has shifted -16.67% due to these changes.
VGM Scores
Currently, Builders FirstSource has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. 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. It's no surprise Builders FirstSource has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
Performance of an Industry Player
Builders FirstSource is part of the Zacks Building Products - Retail industry. Over the past month, Beacon Roofing Supply (BECN), a stock from the same industry, has gained 5.8%. The company reported its results for the quarter ended March 2024 more than a month ago.
Beacon Roofing reported revenues of $1.91 billion in the last reported quarter, representing a year-over-year change of +10.4%. EPS of $0.41 for the same period compares with $0.67 a year ago.
Beacon Roofing is expected to post earnings of $2.83 per share for the current quarter, representing a year-over-year change of +6.4%. Over the last 30 days, the Zacks Consensus Estimate has changed +0.2%.
Beacon Roofing has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of B.
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Builders FirstSource, Inc. (BLDR) : Free Stock Analysis Report
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