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Builders FirstSource (BLDR) Q3 Earnings Beat, Margins Up

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Builders FirstSource (BLDR - Free Report) reported solid results for third-quarter 2021, wherein earnings and net sales surpassed the Zacks Consensus Estimate as well as increased significantly year over year. The results were driven by an increase in net sales and gross margin, partially offset by higher tax and selling, general & administrative (SG&A) expenses.

Following the robust third-quarter results, the stock soared 8.5% on Nov 4.

Dave Flitman, CEO of Builders FirstSource, said, “We remain focused on executing our strategy of investing both organically and through M&A to continue to enhance our portfolio of value-added offerings and faster growth categories. We are excited to welcome the California TrusFrame team to Builders FirstSource, adding substantial and profitable scale to our value- added products business on the West Coast.

"In addition, the BMC integration continues to progress exceptionally well, and our realization of cost synergies remains ahead of schedule. Looking to the remainder of the year, we continue to expect both strong demand in single-family housing and solid execution of our strategy to drive above market growth, all of which are reflected in our upwardly revised 2021 outlook.”

Note: Investors should note that the year-over-year comparison given below is on Combined Non-GAAP Pro Forma basis, unless notified.

Earnings & Revenue Discussion

The manufacturer and supplier of building materials reported adjusted earnings of $3.39 per share, which handily topped the consensus mark of $1.56 by 117.3%. Quarterly earnings grew a significant 358.1% from the year-ago figure of just 74 cents.

Builders FirstSource, Inc. Price, Consensus and EPS Surprise

Builders FirstSource, Inc. Price, Consensus and EPS Surprise

Builders FirstSource, Inc. price-consensus-eps-surprise-chart | Builders FirstSource, Inc. Quote

For the quarter, net sales of $5.5 billion surpassed the consensus mark of $4.8 billion by 15%. The top line grew 62.7% on a year-over-year basis. Core organic sales grew 16.1% from the prior-year quarter. Commodity price inflation contributed 38.6% to net sales. Robust demand nationally was partially offset by material availability constraints.

Core organic customer growth in Single Family increased 27.5%, while that of R&R/Other and Multi Family declined 16.4% and 2%, respectively. R&R was down due to increased commodity costs. Acquisitions, excluding the BMC merger, contributed 8% to net sales growth.

Sales According to Product Category (includes BMC in Q3 2021 and not in Q3 2020)

Value-Added Product Sales: For the reported quarter, sales of value-added products were $2.11 billion, up 151.8% from the prior year.

Specialized Product & Other: Gypsum, Roofing & Insulation products sales increased 64.3% from the year-ago quarter to $989.6 million.

Lumber & Lumber Sheet Goods: For the quarter, sales in the segment increased 181.9% year over year to $2.4 billion.

Operating Highlights

Gross profit for the quarter increased 102.9% year over year to $1.7 billion. Gross margin of 31.1% grew 620 basis points (bps) year over year owing to disciplined pricing in a volatile, supply-constrained marketplace, and effective and timely sourcing. As a percentage of net sales, total SG&A costs decreased 300 bps to 15.9% due to higher net sales and continued expense control.

Adjusted EBITDA increased 244.4% on a year-over-year basis to $975.9 million, primarily driven by solid demand across key customer end markets, commodity inflation and cost leverage. Adjusted EBITDA margin expanded 930 bps year over year to 17.7%.

Other Financial Details

As of Sep 30, 2021, the company had cash and cash equivalents of $224.7 million compared with $423.8 million at 2020-end. Borrowing availability under the revolving credit facility was $1.3 billion at third quarter-end. Long-term debt — net of current portion — was $2.42 billion, up from $1.6 billion at 2020-end.

As of Sep 30, 2021, trailing 12-month adjusted EBITDA was 0.8 of net debt.

Buyouts

On Sep 9, 2021, Builders FirstSource acquired Apollo software assets from a construction technology startup — Katerra — for approximately $4.5 million. The Apollo platform provides design collaboration and workflow, construction budgeting and scheduling as well as field task assignment with mobile functionality

On Sep 1, 2021, Builders FirstSource acquired California TrusFrame, LLC — which was previously the largest independent producer of value-added building products in California — for $193.4 million.

On Jul 26, 2021, Builders FirstSource divested standalone Eastern U.S. gypsum distribution operations to L&W Supply for $76.2 million in cash.

2021 Guidance Updated

For 2021, the company is optimistic about significant improvement in financial performance.

Builders FirstSource now expects net sales in the range of $19.3-$19.8 billion versus $18-$19 billion expected earlier. Also, it expects 51-55% year-over-year growth on a pro-forma basis compared with 41-48% projected earlier.

Adjusted EBITDA is now projected in the range of $2.85-$2.95 billion (up from earlier expectation of $2.2-$2.4 billion). The company anticipates 166-176% growth on a year-over-year basis versus 105-124% projected earlier. It expects to realize cost savings of $90-$110 million from the BMC merger integration and free cash flow in the range of $1.8-$2 billion.

Zacks Rank & Key Picks

Builders FirstSource currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some better-ranked stocks in the Zacks Building Products – Retail industry include Fastenal Company (FAST - Free Report) , Lowe's Companies, Inc. (LOW - Free Report) and The Home Depot, Inc. (HD - Free Report) , each carrying a Zacks Rank #2 (Buy). Fastenal, Lowe's, and Home Depot are expected to generate earnings growth of 5.4%, 27.9%, and 20.5%, year over year, respectively.