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BMC Stock Holdings, Inc. (NASDAQ:BMCH)
Q1 2019 Earnings Call
May. 01, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good morning and thank you for standing by. You are joining BMC's first-quarter 2019 earnings conference call. This call is being recorded today, May 1, Wednesday, 2019. Carey Phelps, vice president of investor relations for BMC will now provide the company's opening remarks.

Please proceed.

Carey Phelps -- Vice President of Investor Relations

Thank you, Latanya. Good morning and welcome. After my opening statement, Dave Flitman, our chief executive officer; Jim Major, our chief financial officer will discuss our key priorities and our operating results for the first quarter of 2019. In addition to our prepared remarks, a slide deck is available on our website at ir.buildwithbmc.com.

This is also where you can find today's press release, which was issued earlier this morning. The results discussed in this call will include GAAP and non-GAAP results adjusted for certain items. We provide these non-GAAP results for informational purposes and they should not be considered in isolation from the most directly comparable GAAP measures. The reconciliation of these non-GAAP measures to the corresponding GAAP measures and a discussion of why we believe they are useful to investors can be found at the back of the press release and in the slide presentation.

Our remarks in the press release, the slide presentation and on this call contain forward-looking and cautionary statements within the meaning of the Private Securities Litigation Reform Act and projections of future results. Please review the forward-looking statement section in today's press release and in our SEC filing for various factors that could cause our actual results to differ in a material way from forward-looking statements and projections. With that, I'll turn the call over to Dave.

Dave Flitman -- Chief Executive Officer

Thanks Carey. Good morning, everyone, and thank you for joining us. Following our exceptional performance in 2018, I'm very pleased with our strong momentum carried forward into this year. In the face of challenging weather conditions and lumber price deflation, we delivered solid results for the first quarter.

Organic growth of 3.2%, which was fueled in part by market share gains on our value-added product categories, helped to offset most of the sales declines from commodity price deflation and one less selling day compared to a year ago. Sales per day were up slightly compared to the first quarter of 2018, while profitability improved nicely. Our strategy is working, including our efforts to grow our value-added offerings and drive operational and pricing excellence. The BMC operating system and our commitment to achieving continuous improvement has changed how we operate, and is now a fundamental part of our culture.

Gross margin held up well during the quarter and helped us to deliver strong results, including 32% growth in net income, 15% growth in adjusted EBITDA and 90-basis-point expansion in adjusted EBITDA margin to 6.6% and more than three times the amount of cash generated from operations to $78 million as compared to $23 million a year ago. In addition, utilizing what we believe as one of the strongest balance sheets in the industry, we continue to make key investments during the quarter to further our growth strategy and return value to our shareholders. As a reminder, Slide 5, lays out our four strategic pillars, including one, organically grow our value-added product offerings; two, drive efficiencies and enable outstanding customer service through the BMC operating system and our operational excellence initiative; three, build a high-performance culture and four, pursue the right acquisitions to expand our geography, increase our capacity andor enhance our value-added offerings. Towards this end, during the first quarter, we continued to make key investments in our processes and equipment to expand capacity and drive efficiency in our manufacturing facilities with upgraded equipment, automation and continued investment in the training and development of our associates, utilizing the key tenets of lean manufacturing and what we have deemed as six S and eight wastes, which both now include a focus on safety.

We are pleased to announce that our second automated truss plant is now up and running and will help drive improved productivity in our Austin market in 2019 and beyond. The previously announced automated truss facility in Salt Lake City should start phasing in production in the early part of this summer. And we are now announcing that we will add this same technology in a fourth market, Seattle, where we are scheduled to launch production in time for next spring's building season. Although adverse weather conditions impacted sales out west and in the Intermountain region, ready-frame continued to show strong growth in Texas and our Eastern markets and is still poised to deliver double digit volume growth this year.

We also continued our partnerships with several of the nation's largest builders, working together to identify and innovate time and money saving construction techniques to address the needs of our customers. Our drive to achieve pricing excellence, fixed cost productivity, and procurement savings continue to yield solid results this quarter and are expected to continue to help offset general cost inflation at both the cost of sales and SG&A levels. We are also continuing to invest in the training and development of our team. During the quarter, 20 additional associates participated in a lean, Six Sigma bootcamp to further hone their skills to drive productivity throughout the organization.

In addition to organic investments and internal improvement initiatives, we also successfully bolstered our market position in Charlotte, North Carolina through the acquisitions of Barefoot & Company and Locust Lumber during the first quarter. And finally, taking advantage of what we deemed as undervalued share prices, w repurchased approximately 900,000 of our shares during the quarter at an average price of $17.07. I'd like to thank the entire BMC team for their unwavering commitment to accelerating our growth and profitability, while remaining focused on delivering long term shareholder value. Serving as a foundation to these efforts is our strong balance sheet, which provides tremendous flexibility and a competitive advantage as we reinvest in our business to drive both organic and inorganic growth.

As I have done on past calls, I'd like to shine the spotlight of one of our valued long term associates, Wyatt Strickland. Wyatt is a production supervisor and 45-year veteran at BMC Smoot in the D.C. market. With a rich history that dates back to 1822, our Smoot operation provided much of the distinctive trim and millwork and numerous Washington D.C.

landmarks, including the White House, the Smithsonian museums, the Supreme Court building, Mount Vernon and many others. Today, Smoot remains a highly respected name in the D.C. market, in large part due to talented associates like Wyatt. With a strong sense of commitment and through his personal determination Wyatt began his career as a driver for Smoot, moved to sales and was later promoted into management.

Currently serving as the production supervisor over the entire millwork shop, Wyatt embodies the core values of BMC, focusing on the needs of our customers, while also serving the community. When he is not at BMC Smoot, where he is fortunate enough to work alongside his son, Greg, Wyatt it is busy serving as an EMT and as president of the board and deputy fire chief of the Shenandoah Shores Volunteer Fire Department in Front Royal, Virginia. We are honored to have Wyatt on our team and appreciate his commitment to BMC and to the community around him. Before I pass the call to, Jim, I'd like to briefly touch on our current macro environment.

Based on robust employment levels, recently lower mortgage rates, continued growth in household formation and builder commentary indicative of seasonally improving buyer traffic, we believe total housing starts across our footprint for the full-year 2019 will be roughly in line with 2018 levels, despite the year-over-year declines reported in the first quarter. Affordability issues will likely continue to pressure average house size. But the underlying demand for our products and services remains strong. Our customers continue to project solid demand and we believe that we are gaining share in a number of our key markets.

Jim will provide our detailed expectations for the full year shortly. But we like our momentum and are optimistic that 2019 will be another good year for BMC. With that, I'll turn the call over to Jim for a detailed look at our first-quarter results and our outlook.

Jim Major -- Chief Financial Officer

Thanks, Dave. I too am very pleased with our start to the year. Excluding commodity deflation and the impact of one less selling day, we delivered solid organic growth and another strong quarter for gross margin at 26.2%. This enabled us to drive substantial growth in net income, adjusted EBITDA, adjusted EBITDA margin and cash generated from operations.

Looking at the details of our financial results, as highlighted on Slide 7 of our presentation, net sales for the first quarter decreased 1.1% to $825.4 million. We estimate that net sales decreased 4.7% from lumber & lumber sheet goods price deflation, 1.6% from one less selling day versus the prior-year period and 1.2% from the disposition of the Coleman Floor business. These decreases were partially offset by an increase of 3.2% from the acquisitions of Barefoot & Company, Locust Lumber and Shone Lumber, and 3.2% from other organic growth. Lumber prices have remained around $350 in recent weeks, largely in line with the level we spoke to during our prior earnings call.

As a result, our sales of lumber & lumber sheet goods declined 14.7% per selling day during the first quarter, but we continue to see solid growth in millwork, doors & windows and structural components, which were up 6.2% and 5.7% per selling day, respectively. Demand for our structural components products remained high, but revenue growth was impacted this quarter by declining lumber prices and harsh weather conditions in many of our Western markets where we have some of our strongest truss operations. ready-frame sales were similarly impacted in totaled $51.3 million for the quarter, compared to $50.2 million a year ago. While total ready-frame growth was impacted by weather in our Western markets, we achieved revenue growth in excess of 20% in Texas and our Eastern markets.

Looking at our sales by customer category, excluding deflation and the impact from one less selling day, our growth in single-family was approximately 4.6% for the quarter, well in excess of recent housing market trends. Multi-family commercial and other contractor sales, which are more concentrated in our Texas and Eastern markets, were up an impressive 14.8% on a per day basis, and excluding deflation. Net sales to remodeling contractors declined approximately 2.3% on a per day basis, excluding deflation, as we faced the tough comparable against the prior-year surge that resulted from the Hurricane Harvey recovery efforts in Houston, and wetter than normal weather in the L.A. market this quarter.

Despite the slower start in 2019, we are continuing to invest in key resources with strong pro remodel expertise to further strengthen our value proposition, processes and product assortment for this important customer type. Professional remodeling is an attractive higher margin customer category, which we intend to grow over time both through organic and inorganic investments. Moving now below the top-line results and gross profit increased 8.6% to $216.1 million for the first quarter, while gross margin improved 230 basis points to 26.2%. This result reflects a 310 basis points year-over-year improvement in gross margin within the Lumber & Lumber Sheet Goods category and a 570-basis-point improvement within structural components.

SG&A expenses during the first quarter rose $9.7 million to $169.9 million. $5.4 million of this increase related to SG&A expenses from our recent acquisitions of Barefoot, Locust and Shone, and approximately $4.7 million of this increase related to variable compensation, such as sales person commissions, stock-based compensation, profit-based incentives and related payroll taxes and benefits. Aside from these two factors, we believe the continued development and implementation of the BMC operating system, helped to offset inflationary pressure, particularly around labor costs and enabled us to deliver a modest reduction in other SG&A expenses. For the quarter, SG&&A as a percentage of sales was 20.6%, compared to 19.2% a year ago, primarily as a result of lower revenues caused by commodity price deflation.

Our team's exceptional commitment to drive continuous improvement in operational productivity, enhance our pricing excellence and increased purchasing rigor, drove our profitability higher during the quarter. Net income increased 32.5% to $20.4 million or $0.30 per diluted share as compared to $0.23 per diluted share in the same period last year. Adjusted net income for the first quarter increased 27.9% to $25 million or $0.37 per diluted share, compared to $0.29 per diluted share in the prior year. Adjusted EBITDA improved $7.2 million or 15.3% to $54.4 million as organic growth, increased gross margins and acquisitions, more than offset the $7.3 million decline related to lumber & lumber sheet goods price deflation.

We were especially pleased to deliver another quarter of strong operating cash flow, which more than tripled the $77.8 million, compared to $23.2 million a year ago. While the first quarter of the year is normally a period of working capital investment, we leveraged lower commodity prices to minimize our inventory build. This allowed us to fund our capex requirements, acquisitions and share repurchases, and still finished the first quarter with $141.6 million of cash on hand. Total liquidity, which also includes excess availability on our revolver, was $459.3 million on March 31.

With a net debt to adjusted EBITDA ratio of 0.7 times we continue to maintain one of the strongest and most flexible balance sheets in the industry. We have no long term debt due within the next five years. And as we've said on our last call, intend to keep investing in our business through a combination of the following. First, we intend to make key investments in automation, upgraded fleet and enhanced equipment to drive organic growth in our value-added products and services.

For this and other replacement needs, we are targeting to spend approximately 1.5% to 2.5% of sales in total capex annually, and $80 million to $90 million in 2019. Second, we are encouraged by the extensive number of opportunities to complete strategic bolt-on acquisitions and expect to continue to utilize this avenue of growth to augment our value-added capabilities and offerings, as well as enhance our geographic footprint. Over the next three to five years, our target is to add an average of 100 -- $250 million in net sales annually from acquisitions, while still maintaining the flexibility to evaluate larger opportunities should they arise. And finally, since the inception of our share repurchase program in November 2018, we have bought back 1.1 million shares at an average purchase price of $16.92.

As of today, we have approximately 66.5 million common shares outstanding, and approximately $55.7 million of capacity remaining under this program to opportunistically return value to our shareholders. Turning our attention to our full-year expectations for 2019. We recognize that certain aspects of the macro backdrop remain uncertain, but we believe that we are beginning to see a fairly normal seasonal development of demand. We are well-positioned in our markets and are executing well against our strategic pillars and making key investments to enhance and grow our value-added products organically and through the completion of bolt-on acquisitions.

On Slide 9, we have provided our assumptions for full-year 2019. First off, as Dave mentioned, we are planning our business based on the assumption that 2019 total housing starts in our markets will be similar to 2018 levels with some declines primarily in California, offset by growth in other markets. Based on that macro assumption and despite smaller average home sizes, we would expect to achieve 2019 organic net sales growth in the low single digits, excluding the impact of commodity deflation. In addition to organic growth, we expect our recently completed acquisitions, net of the Coleman Floor disposal, to deliver 1.5% to 2% growth in our total net sales.

We expect lumber & lumber sheet goods pricing to continue to be a headwind for us this year. Having only averaged $355 year to date, we are now working under the assumption that the full-year average lumber composite pricing will be between $350 and $375, thereby creating a 6.5% to 8% headwind to our total net sales for the full year, and an even larger impact of 8% to 11% in the second and third quarters of 2019. The combination of these assumptions results in a full-year 2019 net sales outlook in the range of $3.5 billion to $3.65 billion. Our sales and sourcing teams have done a remarkable job, maintaining gross margin well above average as commodity prices have declined.

However, we began to see gross margin normalize within the Lumber & Lumber Sheet Goods and structural components product categories during the tail end of the first quarter, and we expect that to continue as we move forward. As a result, we expect full-year gross margin to be in the range of 24.5% to 25.5%. Combining this net sales and gross margin outlook with a continued focus on expense management and productivity, we expect full-year 2019 adjusted EBITDA of $225 million to $250 million. I'm excited about the opportunities available to us in 2019, and our team is executing at a level I've not seen in quite some time.

We are motivated, undistracted and eager to drive additional enhancements in our customer service, product offerings and operating productivity, that we believe will result in solid levels of profitability and drive shareholder value. So with that, I will turn the call back over to Dave for some brief closing remarks.

Dave Flitman -- Chief Executive Officer

Thank you, Jim. I couldn't agree more. Our team is executing exceptionally well. Using the foundation provided by BMC operating system, we remained focused on driving the financial and operational improvements that we can control.

We are gaining share and are reinforcing our position as a recognized leader in innovation and value-added solutions. And homebuilders are increasingly partnering with us to evaluate ways to reduce inefficiencies in the building process. Together, we are developing new solutions to solve some of the builder's most prominent problems, creating a win-win for both the builder and for BMC. With an intense focus on our four strategic pillars, as well as our capital allocation priorities, we look forward to delivering another year of very solid results.

With that, I thank you again for joining us today and will ask Latanya, to please lead in us in the Q&A.

Questions & Answers:


Operator

[Operator instructions] Our first question comes from Mike Dahl with RBC Capital Markets. Please proceed.

Mike Dahl -- RBC Capital Markets -- Analyst

Good morning. Thanks for taking my questions and nice results. Dave and Jim, I wanted to ask a couple of questions around ready-frame and structural. My first question is -- forgive me if I missed this.

But these categories, in addition to weather, presumably would have been impacted by some price deflation. Can you give us a sense of how volume shook out year on year for structural as a whole and then ready-frame within that?

Jim Major -- Chief Financial Officer

Yes. It's difficult to give you a precise numbers in that regard. Mike, just as you probably know, every dollar that runs through there is basically custom built for that particular job site, so giving precise numbers around volume and deflation become very difficult. But conceptually speaking, certainly over time, there's some impact of commodity deflation within those categories as well and we would have expected to see some of that, but probably at a at a lower rate than the commodity -- the pure commodity categories that we report upon.

Mike Dahl -- RBC Capital Markets -- Analyst

Got it. I guess, then the second one, bigger picture question is, the overall rate of structural components growth exceeded the growth in ready-frame. And it also seems like not that you're de-emphasizing ready-frame within your business, but in terms of some of the messaging, it seemed like maybe there's a greater emphasis on your structural components platform as a whole versus just ready-frame. Can you give us couple of more details or thoughts around kind of what you expect for the rate of growth in structural and ready-frame over the course of the year.

Have we kind of normalized between kind of the growth you've pushed through some of the other categories like automated trusses where we should start seeing the ready-frame growth kind of normalize a bit lower, but the other structural components accelerate, and so more closely matching one another?

Dave Flitman -- Chief Executive Officer

Yes, well, let me start, Mike, then I'll turn over to Jim. Let me just from a big picture standpoint just say that, ready-frame and structural components are equally important to our future and we have not de-emphasized any of that. I think, as we alluded to in the formal comments, weather impacted little bit of the growth out West relative to ready-frame. Our automation continues to be the underpinning of how we're going to continue to drive productivity and provide a consistent product around trusses for the marketplace.

And we also said in our comments that we do expect volume growth in ready-frame this year to be double digits which is consistent with what we said last quarter and nothing has changed there. Jim?

Jim Major -- Chief Financial Officer

Yeah, I just think, Mike, more on the kind of the Q1 results specifically. I wouldn't draw too many conclusions from that sort of growth rate of ready-frame versus structural components. As we tried to point out in our remarks, we have a higher mix of ready-frame out West where the weather was more challenging and probably a higher mix of truss in the East, where the weather was a little more favorable or neutral. So I don't think the Q1 trends and that sort of mix of ready-frame versus structural components in Q1 is necessarily indicative of the full year.

Mike Dahl -- RBC Capital Markets -- Analyst

OK. Understood. That's helpful. Last one from me, just quickly on the environment you're talking about for starts -- single-family starts, you're saying flat in your markets.

I think you made a comment that the size of the homes you expect to continue to shrink a bit. So just to be clear, when you're looking at your total market opportunity for single-family this year, are you expecting your market opportunity to be down slightly year on year given kind of flat units, but smaller size?

Jim Major -- Chief Financial Officer

Yeah, I think if you were to take -- if you were try to turn the starts number into a total square footage number, then yeah, it'd be a couple points less than whatever the starts number ends up being. I think, generally, we've seen the median square feet of a new home decline 1% to 2% a year here in recent years, and we would certainly expect that to continue.

Dave Flitman -- Chief Executive Officer

Again, as the size of the home shrinks, that really plays to the structural component offering that we bring to the market. And so we still like the opportunity very much.

Mike Dahl -- RBC Capital Markets -- Analyst

Right, right. OK. Thank you.

Operator

Our next question comes from Susan Maklari with Credit Suisse. Please proceed with your question.

Susan Maklar -- Credit Suisse -- Analyst

Thank you. Good morning, everyone.

Dave Flitman -- Chief Executive Officer

Good morning.

Jim Major -- Chief Financial Officer

Good morning.

Susan Maklar -- Credit Suisse -- Analyst

My first question is, you've made the comment that you're increasingly seeing builders coming to you looking to partner with a lot of the things that you're offering them. Can you just talk to -- as you've seen this moderation, is it coming from publics that are increasingly looking for solutions, private builders Just some color on where you're seeing that share gain come from?

Dave Flitman -- Chief Executive Officer

Well, I would just say that we've got partnerships with some of the largest builders. We've said publicly before that 13, I think, of the top largest 15 builders are already using our ready-frame offering across the country. Many of those are covered with NDAs, so I can't really say a lot of specifics about it. But increasingly, as the market has tightened relative to the size of homes, labor challenges and productivity, our offerings play really well to that.

And some of the partnerships we have are working on next generation of ready-frame and other offerings that we can develop to help meet those builder's needs.

Susan Maklar -- Credit Suisse -- Analyst

OK. Thank you. And then when we think about the gain -- the share gains and some of the other factors that are coming together, how are you thinking about pricing outside of some of your commodity products looking out for the year?

Jim Major -- Chief Financial Officer

Yeah, I think in non-commodity products, you generally would see CPI type of inflation and price increases. I think probably everybody's struggling with a little bit of labor cost inflation out there in the marketplace, given how strong the job market is. And so, certainly building products manufacturers are looking to recover some of that through just normal annual increases.

Susan Maklar -- Credit Suisse -- Analyst

OK. So it sounds like pricing has not changed meaningfully even with the shifts in the broader sort of macro or housing markets?

Jim Major -- Chief Financial Officer

Not that we've seen.

Susan Maklar -- Credit Suisse -- Analyst

OK. All right. Great. Thank you.

Operator

Our next question comes from Matthew Bouley with Barclays. Please proceed with your question.

Marshall Mentz -- Barclays -- Analyst

Good morning. This is actually Marshall Mentz on for Matt. Thanks for taking the questions. I wanted to go back to the structural components theme for a minute here.

It's just -- you called out pretty healthy gross margin increase in that piece of your business. Could you maybe just talk through the components of that Is it mix driven Is that you ramping into your new facilities What are the various pieces that drove that big year-over-year increase?

Jim Major -- Chief Financial Officer

Yeah, I think certainly pricing remains fairly healthy. But if you think about the underlying dimensional lumber that goes into some of those products, obviously that cost has fallen rapidly here since last summer. And then in addition to that, there's a healthy labor and manufacturing indirect type of cost component to that. And so, as we've driven the BMC operating system through our manufacturing plants, invested in automation, things of that nature, certainly that drives a considerable amount of productivity in terms of direct and indirect labor to produce those products.

Marshall Mentz -- Barclays -- Analyst

Thank you. That's helpful. And then Jim, I think last quarter, you called out gross margins kind of peaking mid to late 4Q, and you expected them to run down into 2Q from there. Is there -- could you give us a sense -- is that still the right way to think about gross margin progression And maybe how we should think about the second quarter relative to the first quarter here?

Jim Major -- Chief Financial Officer

Yeah, I think as we said in the prepared remarks, as Q1 progress, certainly the tail end of Q1, we started to see that normalization of commodity and to a lesser extent structural component gross margins and we would expect that to continue in the Q2 and really for the balance of the year.

Marshall Mentz -- Barclays -- Analyst

That's helpful. Thank you and good luck.

Operator

Our next question comes from Trey Morrish with Evercore. Please proceed with your question.

Trey Morrish -- Evercore ISI -- Analyst

Thanks, guys. Great quarter really across all metrics. The first thing I would talk about is -- you talked about gaining share across footprint with flat start. But considering how tough of the starts environment the beginning of the year was, you're only really looking for low single-digit you put up a 3% volume -- organic volume number in the first quarter.

So can you help us think about why that number isn't essentially higher? Why aren't you looking or reaching potentially for something in the mid-single digit range given how well you started off the year?

Jim Major -- Chief Financial Officer

I mean, I think, generally you can't get too hung up on an individual month or quarter of starts. I mean, clearly, starts where weaker there in the fourth quarter. But as we said on the last call, we still entered the year with a pretty health backlog of orders, so the builders entered the year with a pretty healthy backlog of orders. And so we tend to look at more at the trailing six or nine months trends and those at least to this point are still kind of flattish.

And obviously there's still quite a lot of year left and some pretty tough comparables as you think about how strong Q2 and Q3 were last year for us. So, bottom line is, we feel very good about where the market is and that 2019 is going to be another very good year for us in terms of overall demand and performance. But those are some of the reasons that maybe cause us to still be a little bit cautiously optimistic, I guess, in terms of volume growth overall.

Dave Flitman -- Chief Executive Officer

Rest assured, Trey, we are focused on taking share in our key product categories and our team is energized around doing that across the globe.

Trey Morrish -- Evercore ISI -- Analyst

OK. And then you talked about how you're partnering with homebuilders beyond just your standard ready-frame and what you're selling to them, to explore the challenges and solutions to the constrained construction environment. We're wondering if you could give us a couple examples of some of these initiatives. Or just conceptually, if you're not comfortable talking about exactly what you're doing, what you're doing around how you're trying to solve some of these issues.

Dave Flitman -- Chief Executive Officer

Yeah, I think I said about as much as I care to say right now around that, Trey. We do have these relationships covered by NDA. But just suffice it to say that, as our builders continue to be challenged on many fronts around productivity and labor costs, they are continuing to look for ways to drive efficiency in that building process. We are viewed as a leader in innovation.

And so they come to us, they ask for our support, and together we're going to create the solutions that are going to help them solve those problems. And it varies by builder in terms of what their specific challenges are and what they're asking us to do. But we feel very good about those partnerships and being asked to participate with the homebuilders.

Trey Morrish -- Evercore ISI -- Analyst

OK. Thanks very much, guys. And good luck going forward.

Dave Flitman -- Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from Trey Grooms with Stephens. Please proceed with your question.

Trey Grooms -- Stephens Inc. -- Analyst

Good morning.

Dave Flitman -- Chief Executive Officer

Good morning.

Trey Grooms -- Stephens Inc. -- Analyst

And I have to echo, great work in the quarter.

Dave Flitman -- Chief Executive Officer

Thanks a lot. Thanks, Trey.

Trey Grooms -- Stephens Inc. -- Analyst

So Jim just to get a little bit more clarity and make sure we're understanding the comment you made on the gross margin. So, I think, it's pretty well understood that it's going to step down, so I'm here in the 2Q. But you mentioned something about through the balance of the year. Is that -- so does it step down to that normal kind of level in in 2Q and then flatten or does it kind of trail off as we go through the year.

So just when do we hit kind of the trough for the year, I guess, is the question.

Jim Major -- Chief Financial Officer

Yeah, I mean, obviously, it gets tougher to predict what might happen in the back half of the year just as who knows what the commodity market might do by then.

Trey Grooms -- Stephens Inc. -- Analyst

Sure. But just --

Jim Major -- Chief Financial Officer

Yeah, if you assume that commodity prices just stayed static with where they are today, I think you would see, obviously, step down in Q2 and maybe a little more step down in Q3. And by then, one would expect that some of these nearer-term benefits have run their course. Yes, I think what would remain, obviously, as we've talked about I think in the past is, these prices. Lumber remains a lower percentage of our overall sales mix and so that does keep you at a level perhaps above what you would have seen in the earlier part of 2018.

And as we said in our prepared remarks, for the full year, we would expect our gross margins to range anywhere from 24.5% to 25.5%.

Trey Grooms -- Stephens Inc. -- Analyst

Right. OK. That's super helpful. Thank you.

And then also kind of sticking with just kind of cadence. You guys had a great start, run out of the gate for the year here, especially given the -- some of the headwinds with the macro and then also some of the deflation. Can you talk about 2Q I know you said you started seeing the typical seasonal uptick. But any more color you can give us kind of on the demand picture, as we sit here today in 2Q?

Jim Major -- Chief Financial Officer

Yeah. I mean, it's still, obviously, pretty early in Q2 here, Trey. I think, certainly, what our builders are reporting is a pretty normal seasonal uptick and maybe even a little bit of a rebound given that mortgage rates have come back down from the levels that were -- that seemed to be curtailing demand there late last year and even the first few months of this year. We're seeing little bit of weather, that's still dragged into April.

But I feel like the pent up demand is pretty good there heading into Q2, and we'll certainly look forward to serving that once the sun starts shining a little more consistently.

Trey Grooms -- Stephens Inc. -- Analyst

And you mentioned in the prepared remarks that Western weather impacted the quarter. Is there any way to quantify maybe number of days or anything like that on maybe what that weather impact was? I know it was very wet out west in California and other areas as well.

Jim Major -- Chief Financial Officer

Yeah. I mean, I think for the overall business, I'm not sure that it was much of an impact. I think it was more a case of being a mirror image of last year where last year the West was very mild and dry and this year it was quite wet, and frankly, more indicative of a normal winter. And then sort to some extent, maybe the flip happened in Texas and the East Coast where -- or at least relative to last year, it may not have been quite as wet.

And so, for the overall company, I don't feel like weather was particularly a significant factor on the Q1 results year over year, just a couple of geographic differences.

Trey Grooms -- Stephens Inc. -- Analyst

OK. That's great. And then last one for me. Multi-family clearly has been a focus for you guys.

With the macro backdrop that we're seeing and that continued efforts you guys are putting forth in that segment. Is this an area where you continue to think that you will outpace as you have been? Or how should we think about the multi-family side looking through -- over and above just the overall macro environment. But you guys seem to be taking quite a bit of share on that front.

Dave Flitman -- Chief Executive Officer

First of all, Trey, I would say we have a strong team in multi-family business that is squarely focused on driving growth. And as we mentioned last quarter, we had one of the strongest pipelines we had seen in multi-family in quite some time. And I think what you've seen and will continue to see is that pipeline playing out as we continue to focus on that segment and driving growth.

Trey Grooms -- Stephens Inc. -- Analyst

And that top line, generally -- what's the time it takes to generally kind of move through that type of a backlog?

Jim Major -- Chief Financial Officer

It is probably more in the six to nine months range. That was the comment I was going make to follow up on Dave's comment, was that the lag there between start and a lot of what we do is considerably longer in multi-family than it is in single-family. So to some extent you should measure those results against the starts number over the last six, nine months there as well, which has generally held up well, if not grown some versus the prior year.

Trey Grooms -- Stephens Inc. -- Analyst

All right. That's it for me. Thanks, guys and good luck. And thanks again for all the color on the full-year outlook.

Very helpful.

Dave Flitman -- Chief Executive Officer

Thanks, Trey.

Operator

Our next question comes from Jay McCanless with Wedbush. Please proceed with your question.

Jay McCanles -- Wedbush Securities -- Analyst

Thanks. Good morning. The first question I had to dig down on California a little bit more. Are you guys seeing an improvement year over year in terms of California unit demand or is that still trending down versus last year?

Dave Flitman -- Chief Executive Officer

I wouldn't say we're seeing an improvement.

Jim Major -- Chief Financial Officer

Yeah, I think -- as we said on the call, that's probably the market that is perhaps the cloudiest for us. And part of that cloudiness is just the weather impact that we have seen here. It's definitely one of the markets that has not only had a harsh winter overall, but its lingered here even in April. So we think there's certainly some pent up demand there as a result of the weather.

But -- until we get to some more consistently sunny days, it's hard to get a full read on California right now.

Jay McCanles -- Wedbush Securities -- Analyst

So it's -- so, I guess, to follow up to that is, is there any opportunity may be to take some capacity offline or do you guys may give it a little more time before you start thinking about something like that?

Jim Major -- Chief Financial Officer

I think even if it's down some, that's still healthy, right? So I don't think we're talking about capacity reductions of any magnitude. And I think importantly, as we said in the prepared remarks, even if California is down some over the course of the year, we feel very comfortable that there is enough growth in other markets to offset that. You got to Idaho and Colorado and places adjacent to California and to the extent people are perhaps choosing to leave California, those are the states they're going to and we obviously have a nice market positions in those places. So.

Jay McCanles -- Wedbush Securities -- Analyst

And then on SG&A dollars, is the $170 million that we saw this quarter, should we assume that's fairly close to the run rate, assuming there's going to be some flex up with volume through the year. But is that the new normal with these acquisitions you guys have made?

Jim Major -- Chief Financial Officer

I'm sorry. I didn't catch the first part of your question.

Jay McCanles -- Wedbush Securities -- Analyst

Yeah. The SG&A dollars this quarter $170 million, is that going to be the new normal with these acquisitions you guys have made?

Jim Major -- Chief Financial Officer

Well, so in the first quarter -- I don't know, maybe a quarter of that number was related to Shone, which was an acquisition last year that we've now anniversaried going into the second quarter, so it shouldn't be quite as high as the $5.4 million that was mentioned here for Q1.

Jay McCanles -- Wedbush Securities -- Analyst

OK. Great. Thanks for taking my question.

Dave Flitman -- Chief Executive Officer

Thank you.

Operator

Our next question comes from Matt McCall with Seaport Global Securities. Please proceed with your question.

Unknown speaker

Thanks. Good morning and it's actually Reuben on for Matt.

Dave Flitman -- Chief Executive Officer

Good morning.

Unknown speaker

So maybe just a clarification on the organic growth outlook or the volume outlook, I know it's kind of asked in couple different ways. But just want to make something clear. The single-family starts outlook is flat, maybe a little bit of a drag from smaller unit sizes, you're still expecting to grow low single digits. How much of that difference between down a couple of points and up a couple of points is share gains and how much of it is expecting market growth in R&R and multi-family and commercial?

Jim Major -- Chief Financial Officer

Yeah, I'm not sure we provide precise breakdown of that. I think, clearly, multi-family has momentum, clearly structural components and millwork have momentum and so at least in the near term we would expect that to continue. And while remodeling had a difficult comparison here in Q1 as we spoke of as the year progresses, we're not up against some of those Harvey comparisons. You could see a little better growth rate in the back half of the year as we go through 2019.

Dave Flitman -- Chief Executive Officer

Fundamentals are still strong in remodeling. And as Jim mentioned in the prepared remarks, we're continuing to augment our capability with a very strong team in that area.

Unknown speaker

Got it. OK. And then around this time last year, maybe a little bit earlier you started to run into some -- not you, the industry started to run into some transportation issues, getting in particular, wood products out of Canada. Have you -- is there any risk that the same kind of dynamic plays out this year.

Have you seen any early signs or issues on, I guess, logistics front?

Dave Flitman -- Chief Executive Officer

We've not see those challenges so far this year. The lumber market's been extremely stable, I guess, for lack of a better word, traded within a pretty narrow range over last number of months. And so to-date that's not been an issue.

Unknown speaker

OK. Great. Thanks, guys.

Dave Flitman -- Chief Executive Officer

Thank you.

Operator

Our next question comes from Alex Rygiel with B. Riley FBR. Please proceed with your question.

Alex Rygiel -- B. Riley FBR -- Analyst

Thank you. Good morning, gentleman.

Dave Flitman -- Chief Executive Officer

Good morning.

Alex Rygiel -- B. Riley FBR -- Analyst

Has there been any change in the M&A pricing on the marketplace either in what you're willing to pay or what the sellers are interested in getting?

Dave Flitman -- Chief Executive Officer

We haven't seen a lot, pretty stable, and we have a number of ongoing conversations. And we wouldn't say it's materially different than what we talked about last quarter.

Alex Rygiel -- B. Riley FBR -- Analyst

And has the fluctuation in lumber prices over the last year changed sellers' attitudes with regards to selling?

Dave Flitman -- Chief Executive Officer

I don't think so. I don't -- the short term things like that necessarily impact their thinking for what's obviously a generational type of decision for them. So.

Alex Rygiel -- B. Riley FBR -- Analyst

And coming back to ready-frame, I think you previously set a target of about $300 million in sales in 2020 from ready-frame, how do you view yourself to be on track to that number right now?

Dave Flitman -- Chief Executive Officer

I think we're still well on track to that number and certainly even with some of the deflation that's occurred here recently, we still feel like that's a number that's achievable by next year.

Alex Rygiel -- B. Riley FBR -- Analyst

Excellent. Nice quarter. Thank you.

Dave Flitman -- Chief Executive Officer

Thank you.

Operator

Our next question comes from Keith Hughes with SunTrust Robinson. Please proceed with your question.

Keith Hughes -- SunTrust Robinson Humphrey -- Analyst

My questions are answered. Thank you.

Dave Flitman -- Chief Executive Officer

Thank you.

Operator

Our next question comes from Megan McGrath with Buckingham. Please proceed with your question.

Megan McGrath -- Buckingham Research -- Analyst

Good morning. Just a couple for me. As a point of clarification, it sounds like you're not expecting a significant or positive impact in 2Q, like a payback from the bad weather in 1Q.

Jim Major -- Chief Financial Officer

Yeah. Again, as we said earlier, when you look at the overall company across all our geography, I don't know that the Q1 weather picture was all that much different than a typical winter. So I guess, yeah, the short answer is no.

Megan McGrath -- Buckingham Research -- Analyst

OK. Thanks. And then in terms of -- sort of a bigger picture question here. It feels like at least anecdotally reading trade press and things that competition is heating up and continued interest in plant openings from competitors on the structural component side.

And I was curious if you're feeling any kind of increased competition in that, and have you changed your strategy at all either with pricing or products as it seems that everyone's ramping up in this space a little bit?

Dave Flitman -- Chief Executive Officer

I would say competitive intensity is always there. And it really doesn't change what we're trying to get done. I think our products are well received in the marketplace. As you know, we've continued to invest in things that will drive productivity and efficiency and improve the quality of our product like automation.

We're excited about where that is and what we can continue to do across the company for the future. And as we talked about earlier, we announced another market in Seattle were we're adding that automation capability and we'll continue to look at those opportunities over time market-by-market and invest where it makes sense.

Jim Major -- Chief Financial Officer

Again, I would just say, even in a flat start environment there's still ample opportunity to grow structural components by converting builders from spec framing to some of these offsite methodologies. So we view that as some of the competitive actions, in some ways that are positive and indicative of the fact that the demand for structural components we think will continue to grow even in a more flattish starts environment.

Megan McGrath -- Buckingham Research -- Analyst

Great. Thank you very much.

Dave Flitman -- Chief Executive Officer

Thank you.

Operator

Our last question comes from Kurt Yinger with D.A. Davidson. Please proceed with your question.

Kurt Yinger -- D.A. Davidson

Yeah. Good morning, everyone and thanks for taking my questions. First off, is there anything contractually within structural components that would let you hold price longer versus the commodity category? Or is that just more pricing stability associated with you kind of driving the value you think in the products that you're delivering?

Dave Flitman -- Chief Executive Officer

Yeah, the contractual terms are not any different.

Kurt Yinger -- D.A. Davidson

OK. And then, do you have any color on sort of the margin profile or the expectation once the new automated truss facilities get ramped versus first legacy operations or just your overall gross margins?

Dave Flitman -- Chief Executive Officer

We always said around automation is that, it provides us significant uplift in our capacity and that we can produce those components with about a third less labor cost.

Kurt Yinger -- D.A. Davidson

OK. Thanks. And lastly, could you maybe talk a little bit about your inventory levels at present? Do you feel comfortable with where it is kind of ahead of the demand environment you're expecting or maybe how we should think about kind of the abnormal seasonal cash flow benefit there in the first quarter?

Dave Flitman -- Chief Executive Officer

Yeah. I mean, we're certainly comfortable with our inventory positions. So, I think the fact that the lumber market has traded in a pretty narrow range for the last few months has maybe allowed us to unwind some of the higher positions we carried over the last 12 to 18 months. And so that is certainly part of the reasons that our operating cash flow in Q1 was as strong as it was.

We kind of held the line on inventory while accounts payable balance certainly had its normal seasonal increase from just higher purchases as we prepared for the stronger part of the year. So.

Kurt Yinger -- D.A. Davidson

All right. Thank you very much.

Dave Flitman -- Chief Executive Officer

Thank you.

Operator

[Operator signoff]

Duration: 52 minutes

Call participants:

Carey Phelps -- Vice President of Investor Relations

Dave Flitman -- Chief Executive Officer

Jim Major -- Chief Financial Officer

Mike Dahl -- RBC Capital Markets -- Analyst

Susan Maklar -- Credit Suisse -- Analyst

Marshall Mentz -- Barclays -- Analyst

Trey Morrish -- Evercore ISI -- Analyst

Trey Grooms -- Stephens Inc. -- Analyst

Jay McCanles -- Wedbush Securities -- Analyst

Unknown speaker

Alex Rygiel -- B. Riley FBR -- Analyst

Keith Hughes -- SunTrust Robinson Humphrey -- Analyst

Megan McGrath -- Buckingham Research -- Analyst

Kurt Yinger -- D.A. Davidson

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