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DATE

Thursday, April 30, 2026 at 8 a.m. ET

CALL PARTICIPANTS

  • Chief Executive Officer — Peter Jackson
  • Chief Financial Officer — Pete Beckmann

TAKEAWAYS

  • Net Sales -- $3.3 billion, a decrease of 10%, primarily due to lower organic sales and commodity deflation, partly offset by acquisition growth.
  • Core Organic Sales -- Decreased 11% in single-family, and 1% in both multifamily and repair and remodel segments.
  • Gross Profit -- $0.9 billion, a 17% decrease; gross margin was 28.3%, down 220 basis points, attributed to a declining start environment.
  • Adjusted SG&A -- $740 million, down $31 million, driven by lower variable compensation and headcount, offset by contributions from acquired operations.
  • Cost Actions -- $100 million targeted for the year; $13 million realized in the first quarter and $75 million from year-over-year cost reductions, with $25 million from cost avoidance.
  • Adjusted EBITDA -- $214 million, a decline of 42%; adjusted EBITDA margin at 6.5%, down 360 basis points.
  • Adjusted EPS -- $0.27, an 82% decrease.
  • Operating Cash Flow -- $87 million, down $45 million, mainly due to lower net income.
  • Free Cash Flow -- $43 million, with a trailing 12-month free cash flow yield of approximately 10%.
  • Net Debt to Adjusted EBITDA -- 3.2x, above the company's long-term target, with liquidity of $1.5 billion.
  • Share Repurchases -- 3.3 million shares repurchased for $303 million; Board authorized an additional $500 million, including $200 million remaining under the previous authorization.
  • 2026 Full-Year Outlook -- Net sales expected at $14.6 billion to $15.6 billion; adjusted EBITDA forecast between $1.1 billion and $1.5 billion; adjusted EBITDA margin between 7.5% and 9.6%.
  • Gross Margin Guidance -- Full-year guidance of 27.5%-29%, reflecting ongoing cost and pricing pressures.
  • Free Cash Flow Guidance -- Anticipated between $400 million and $500 million, with working capital expected to drive a $180 million year-over-year swing.
  • Facility Consolidation -- 21 facilities consolidated year-to-date, following 55 consolidations over the previous two years, while maintaining on-time and in-full rates above 90%.
  • Productivity Savings -- $6 million delivered in the first quarter, attributed to supply chain and logistics initiatives; targeting $50 million to $70 million for the year.
  • Digital Platform Activity -- Nearly $800 million in quotes processed through the company's digital platform in the quarter.
  • M&A Since 2021 -- 41 acquisitions completed, representing over $2.3 billion in annual sales.
  • Commodity Price Assumptions -- 2026 forecast assumes $390 to $410 per thousand board foot, aligned with the long-term average.
  • Q2 Outlook -- Net sales projected at $3.75 billion to $4.05 billion; adjusted EBITDA expected between $300 million and $350 million.

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RISKS

  • The company stated, "The housing market remains weak as affordability challenges and muted consumer confidence continue to weigh on demand," creating headwinds not expected to be fully offset this year.
  • Gross margin and profitability pressures are expected throughout 2026, with management noting, "we don't anticipate a meaningful improvement in our multifamily results until next year."
  • Management explicitly cited, "I think the negative number that we're managing, it's probably around $100 million, right? So it's a meaningful number. The impact on the bottom line, I would say right now is a lot less than that based on what we're doing, but it's not zero," identifying a meaningful, nonzero headwind for 2026 margins.

SUMMARY

Management emphasized disciplined execution amid a persistently weak housing market, underscoring continued cost reduction and operational flexibility in response to lower activity levels. Executives highlighted that guidance for 2026 anticipates further volume pressure, with both sales and EBITDA outlooks trimmed as affordability constraints and unfavorable macro dynamics persist. The company reported steady digital adoption and increased share capture, but noted that competitive intensity and price/mix pressures, particularly in specialty products, are expected to continue impacting margins through the year.

  • Management indicated that "install" services and value-added product categories are outperforming overall market volume but still face pressure relative to single-family starts and declining value per start.
  • Facility consolidation has been further accelerated to maximize cost leverage and maintain service levels, supported by continued investment in automation and AI-driven tools.
  • The company’s substantial share buybacks reflect confidence in liquidity and long-term balance sheet strength, despite temporarily elevated leverage ratios.
  • Executives clarified that guidance incorporates both the current rate of sales improvement and muted optimism for midyear recovery, especially in multifamily and specialty categories.

INDUSTRY GLOSSARY

  • Value-added solutions: Customized products or services—such as manufactured components, installation, or bundled offerings—that provide greater efficiency or differentiation for builder customers.
  • LBM (Lumber and Building Materials): Industry term referring to companies engaged in the distribution or manufacturing of lumber and a wide array of construction products.
  • On-time and in-full (OTIF): A metric measuring the percentage of customer orders delivered both at the promised time and in their complete quantities.
  • EBITDA margin: Ratio of EBITDA to net sales, used to assess core profitability as a percentage of revenue.

Full Conference Call Transcript

Peter Jackson: Thank you, Heather, and good morning, everyone. Our first quarter results reflect the adaptability of our operating model as we delivered strong strategic share growth in weak housing market. Across the organization, we remain focused on the factors within our control, including serving our customers, expanding our differentiated portfolio of value-added solutions and leveraging technology to accelerate growth and drive operational excellence. This disciplined approach continues to strengthen our leading position as a trusted world service partner to homebuilders. By continuing to invest in innovation and the capabilities that matter most to our customers, we are reinforcing our role as the leading building materials provider and extending our competitive advantages.

Our strategy enables us to outperform as the market normalizes and to deliver sustainable long-term value for our shareholders. Let's turn now to Slide 4. Our first quarter results highlighted our agility despite the challenging housing market and seasonally lower time of the year for the industry. We landed at the upper end of the expected Q1 range for sales and EBITDA even if the macro was worse than we expected. We continue to lean on our exceptional team, leading value-added solutions and robust operating model to drive performance. Let me take a moment to share some perspective on the market. The housing market remains weak as affordability challenges and muted consumer confidence continue to weigh on demand.

In recent months, geopolitical tensions have added to market volatility by contributing to higher interest rates and additional inflationary pressure. The surprise of the Middle East conflict and the uncertainty around implications for both affordability and consumer confidence have undermined the spring selling season. While we are managing what's in our control, these conditions have created sales and cost headwinds that we don't expect to fully offset this year. Sales improved in the first quarter, in line with expectations and daily sales continued to build in April. However, sentiment is clearly weaker. As people discuss, our revised full year guidance reflects these dynamics.

Despite ongoing macro challenges, we remain committed to advancing our strategy, including a sustained focus on share growth, continuous improvement and capital allocation. We cannot control the market, but advancing our initiatives will enable us to realize share gains, improve the way we operate and position us to accelerate growth with any level of recovery. We expect to capture single-family share growth by delivering outstanding customer service, bundling our broad product portfolio to drive affordability and leveraging cutting-edge technology. Multi family, quoting activity remains active, but the uptick in interest rates has deferred certain projects. Given the current project pipeline, we don't anticipate a meaningful improvement in our multifamily results until next year.

In response to the current market weakness, we are prudently managing spending and maximizing operational flexibility as outlined on Slide 5. We remain operationally disciplined and have taken actions to reduce costs in line with demand while preserving our ability to partner with our customers and invest in innovation and technology. So far in 2026, we have consolidated 21 facilities following the consolidation of 55 total facilities over the prior 2 years, all while maintaining an on-time and in-full rate greater than 90%. Supported by our industry-leading scale, experienced leadership team and proven ability to operate proactively through the cycle, we are confident in our ability to make the necessary adjustments and continue to deliver exceptional customer service.

On Slide 6, we highlight some of the key initiatives under our strategic pillars. Our capital deployment is strengthening our competitive position and driving long-term value creation. Since the inception of the buyback program in August of 2021, we have repurchased nearly 50% of our total shares outstanding. Operational excellence is crucial to how we run the business. As we develop talent, improve agility and increasingly embed technology into our operations. We generated $6 million in productivity savings in Q1, primarily through targeted supply chain and logistics initiatives. Moving to Slide 7. Our prudent capital allocation strategy focuses on maximizing shareholder returns. In Q1, we deployed $360 million towards return-enhancing opportunities aligned with our priorities.

Our consistent strong free cash flow through the cycle gives us the flexibility to invest in organic growth, pursue strategic M&A and return capital to shareholders. Drilling down into M&A on Slide 8. We remain focused on pursuing acquisitions that expand our value-added product offerings and advance our leadership position in desirable geographies. We have developed substantial and proven muscle memory to grow through M&A and have a track record of successful integration and synergy capture. As a reminder, we acquired premium building components in January, marking our company's first trust and wall panel operations in York.

Since the P&C merger in 2021, we have made 41 acquisitions representing over $2.3 billion in annual sales, the equivalent of a top 6 LBM player. Demonstrating our ability to execute and integrate seamlessly. With the industry still fragmented, we see significant opportunities ahead and are confident that inorganic investments will remain an important driver of long-term growth. Turning to Slide 9. We continue to differentiate by digitally enabling our team members, strengthening customer relationships and advancing value-added product development to support long-term growth. Our investments in automation, AI and digital integrations are focused on simplifying and accelerating the building process for our customers.

In Q1, our digital platform processed nearly $800 million of quotes as we continue to automate key steps of the process. Later this year, we will roll out the next generation of digital solutions. Deploying emerging technologies to support builders across key stages of the homebuilding journey. The platform will include 4 integrated hubs: community, plan, selections and construction. All accessible through mybldr.com with embedded AI capabilities, providing actionable insights through a single unified platform. Builders will have access to connected tools and real-time data to coordinate the build, reduce waste and sell homes faster.

Digital is central to how we operate today, particularly with our sales organization, where these tools create opportunities to capture share, expand product adoption and deepen customer relationships. Recognizing 1 of our outstanding team members each quarter is 1 of my favorite parts of our earnings call. Today, I'm proud to highlight members of our Middletown New York Millwork team. Sam Lane, Dan Livingston, Anthony Legmen and Eddie Walsh, who are recognized by the New York State Police for their compassion and willingness to help a community member in need during dangerously cold winter weather.

Earlier this year, first responders contacted Sam and his team after identifying a local resident whose front door was severely damaged and no longer provided adequate protection from the coal. The officers were seeking to purchase a replacement or to help ensure the individual safety. When our team learned that the situation and the residents need, they stepped in immediate, producing a brand-new prehung door at no cost and assisting with the installation, I'm truly grateful to our Middletown millwork team for living our BFS purpose every day to build a better future for those we serve. I'll now turn the call over to Pete to discuss our financial results in greater detail.

Pete Beckmann: Thank you, Peter, and good morning, everyone. Our first quarter performance reflects disciplined execution in a weak housing market. We remain focused on managing our operations and working capital while advancing key growth initiatives to drive long-term success. Turning to our first quarter results on Slides 10 through 12. Net sales decreased 10% to $3.3 billion, driven by lower organic sales and commodity deflation, partially offset by growth from acquisitions. The core organic sales decrease was driven by an 11% decline in single-family reflecting lower starts activity and reduced value per start and a 1% decline in both multifamily and repair and remodel, consistent with our expectations given muted activity levels and consumer uncertainty.

As we've noted on recent calls, several factors reconciled single-family starts to our organic sales. First, there is an approximate 3-month lag between the start and our first sale. Second, average home value has declined as homes have become smaller and less complex, creating a sales headwind, we believe a comparable start has declined in value by 10% on average since 2019. Third, housing affordability constraints continue to pressure margins across the supply chain. Against this backdrop, we believe we grew share in the first quarter, reflecting our market-leading offerings and continued role as a trusted partner. For the first quarter, gross profit was $0.9 billion, a decrease of 17% compared to the prior year period.

Gross margin was 28.3%, down 220 basis points, primarily driven by a declining start environment. Adjusted SG&A of $740 million decreased $31 million, primarily due to lower variable compensation amid lower sales and lower headcount, partially offset by acquired operations. As we touched on in February, we linked further into our downturn playbook with $100 million of cost actions, which includes $75 million in year-over-year cost reductions and $25 million in cost avoidance. These actions include deeper cuts to overtime and temporary labor, adjustments to incentive compensation plans, reduced merit and overhead spend, additional facility consolidations and tighter controls on discretionary spending. To date, all actions are complete or meaningfully underway.

We realized $13 million in the first quarter and are on track to achieve our cost reductions this year. This positions us to leverage our costs as the market improves. Adjusted EBITDA was $214 million, down 42%, primarily driven by lower gross profit. Adjusted EBITDA margin was 6.5%, down 360 basis points from the prior year, primarily due to lower gross profit margins and reduced operating leverage. Adjusted EPS was $0.27 and a decrease of 82% compared to the prior year. Now let's turn to the cash flow, balance sheet and liquidity on Slide 13. Our first quarter operating cash flow was $87 million, down $45 million primarily due to lower net income.

For the quarter, we delivered $43 million of free cash flow, underscoring the strength and consistency of our cash generation profile. Our trailing 12 months free cash flow yield was approximately 10%. Operating cash flow return on invested capital was 13%. Our net debt to adjusted EBITDA ratio was approximately 3.2x, while higher than our long-term target, we are confident in the strength of our balance sheet with strong liquidity of $1.5 billion. We remain comfortable with our net debt levels and we'll continue to execute our capital allocation priorities with discipline to maximize long-term value creation. Moving to the first quarter capital deployment. Capital expenditures $45 million.

We deployed $12 million on acquisitions, and we repurchased 3.3 million shares for $303 million. Earlier today, we announced that our Board of Directors authorized $500 million in share repurchase inclusive of the $200 million remaining under our April 2025 authorization. On Slides 14 and 15, we outlined our latest 2026 outlook and assumptions, which reflect continued weakness in housing starts, ongoing affordability pressure and a more cautious consumer. Compared to 2025, single-family and multifamily starts are expected to be down 2.5% and repair and remodel down 1%.

As a result, we are adding net sales in the range of $14.6 billion to $15.6 billion, adjusted EBITDA of $1.1 billion to $1.5 billion and adjusted EBITDA margin of 7.5% to 9.6%. We expect our 2026 full year gross margin to be in the range of 27.5% to 29%. Reflecting the below-normal starts environment, we expect free cash flow of approximately $400 million to $500 million. The year-over-year change is driven primarily by a $180 million swing in working capital and lower EBITDA. In 2025, we benefited from a working capital release driven by the lower sales environment exit the year. In 2026, we anticipate the second half to be stronger, which requires investment in working capital.

Our guidance assumes average commodity prices in the range of $390 to $410 per thousand board foot in line with the long-term average of $400. Despite continued end market softness, commodity prices have pushed higher since mid-December, driven by rising input costs. For Q2, we expect net sales to be between $3.75 billion and $4.05 billion and adjusted EBITDA to be between $300 million and $350 million. The shape of the full year implies a heavier second half contribution as we lap the starts decline due to the rapid deceleration of starts to reduce new home inventory levels.

In closing, we are closely monitoring the current environment and remaining agile to mitigate downside risk in the near term while also investing strategically for the future. Supported by a fortress balance sheet and strong free cash flow through the cycle, we continue to manage capital with rigor, drive for organic growth and productivity savings and pursue M&A. We remain well situated to compound value through our strategic initiatives. With that, I'll turn the call back over to Peter for some final thoughts.

Peter Jackson: Thanks, Pete. We are the nation's largest supplier of building materials to homebuilders in new residential construction, combining unmatched scale with deep global execution across every major housing market we serve. We are #1 in manufactured components, windows, doors and millwork, providing significant value to builders. Our footprint, digital platform and install capabilities create an unparalleled structural advantage. With our experienced cycle-tested team, we expect to deliver solid results in the near term and significant upside when the market recovers. Thank you again for joining us today. Operator, let's please open the call now for questions.

Operator: [Operator Instructions] And we'll go first to John Lovallo with UBS.

John Lovallo: Despite the headwinds that you've articulated in housing so far this year, I mean we would argue that the spring selling season has probably been a little bit better than feared and better year-over-year with most builders posting year-over-year order growth. I mean I do recognize there's a 3-month lag from -- for you guys from when you start getting activity. But is this kind of better-than-expected spring part of the driver of the second half step-up that you're expecting? Along with just the easier comps?

Peter Jackson: John, yes, so thanks for the question. We absolutely did see a nice build at the beginning of the year. There were a number of different conversations we were having about the positive momentum, both on the public and the private side. It's important to remember that we generally see the headlines for the public builders, but they're a significant, but not universal coverage of the industry. That momentum at the beginning of the year, I think, has been good. It's just not -- I don't think able to withstand negative headwinds around uncertainty. That's what we called out here. I still think we'll see a good year.

I just think it will be a little bit weaker than what we anticipated and that has led to pressures throughout the business, whether it be on the inflation side or just the competitive dynamics side.

John Lovallo: Makes sense. And then maybe just digging a little bit deeper. The outlook implies a pretty nice improvement in margin in the second half at the midpoint, I think a 26% adjusted EBITDA margin would be 9.6%, which is, I think, 200 basis points higher than the first half. I mean what are you kind of expecting to be the big drivers of this improvement?

Pete Beckmann: Yes. Thanks for the question. So it's really driven by the leverage that we gain out of the summer selling seasons, with the strength in our sales flowing through some of it's related to the sequential performance and management of our cost structure. We outlined our productivity was $6 million in the first quarter. We're still targeting our $50 million to $70 million for the full year, as well as the cost actions that we've outlined. So the $100 million of cost actions are well underway. We've completed most actions. Now it's just realizing those benefits as we move forward, which should help accelerate some of that leverage we would see in the back half of the year.

Operator: Our next question comes from Charles Perron-Piche with Goldman Sachs.

Charles Perron-Piché: First, I just want to draw a more into the gross margin guidance embedded for the balance of 2016. I think you mentioned last quarter, Q1 would be the low point for the year. But obviously, it sits on the midpoint of the revised range. So how does it inform your expectations for the balance of the year? And what drives your expectations for the high end versus the low end of that range?

Pete Beckmann: So what we had signaled last earnings call is Q1 would be the low watermark as we were anticipating a stronger build in the selling season as Peter had mentioned, with the uncertainty as well as the increase in input costs, specifically around fuel, a lot of that inbound is still unknown that we're anticipating from our supply partners. It's not nominal amount of impact that it will have on the cost. We've left the margin range fairly wide. We look to navigate what that looks like as we move forward. At the same time, we do expect to pass through where a distributor passed through those cost increases, but some of it is timing related.

And as we work through that, it's probably going to have a muted impact on our margins. So we had signaled a build in margins as we go through the year and we leverage our fixed costs and cost of goods sold. That's still the case. We still anticipate that, but maybe not to the same degree, given the sales volume expectations.

Charles Perron-Piché: Got it. Okay. That's helpful color. And considering the challenging housing backdrop and the profitability outlook you've highlighted, I would imagine some of your competitors are struggling significantly at these levels. I guess how are you seeing some of them behave in this market environment? And are you seeing some smaller players exiting capacity?

Peter Jackson: Yes, it's a great question, Charles. The answer is, yes, there's a ton of pressure. And there are smaller players that are certainly struggling. There are players that have closed down a lot of facilities. We've obviously talked about it publicly, but they're doing it privately. We've seen that in the market. We've seen a lot of turnover. People are making significant headcount reductions, talent coming on to the market in some instances, we've seen aggressive behavior, certainly, a mix, as you might expect, right? The bell curve of performers in this market is what we see in terms of reactions. Some people are trying to pursue product categories perhaps that they haven't before.

So new entrants and new competition in certain buckets. We've seen irrational behavior where people will throw numbers out and then not be able to fulfill and have to back off. And so churn in the market. And just in general, a lot of very aggressive behavior. So people alluded to it. I think sometimes it's hard to -- it's hard to relate to what people are seeing in the market, but we're -- volume levels or starts that would be comparable to 2019, but the content of the house is even smaller by another 10%.

So we're certainly seeing a market that's at substantially lower levels of volume running through it even after having an additional 5 years of capacity adds and things going on. So the market is absolutely adapting. Capacity is coming out -- some of the weaker players are really struggling. We're hearing rumors of not being able to pay bills and delays and layoffs, but we'll see how it pans out. We're still strong in this. We're still able to, I think, take advantage.

We alluded to that a little bit, we're sort of leaning in a little bit this quarter, harder than we have and taking advantage of some of those opportunities. it's not easy right now, but I'm absolutely proud of this team for what we've been able to do. We're still strong in this market, even though it's not.

Charles Perron-Piché: Got it. Peter, and good luck with the quarter.

Operator: Our next question comes from Rafe Jadrosich with Bank of America.

Rafe Jadrosich: I just wanted to start on the share repurchase in the quarter. You are above the sort of target, the long-term target leverage range, but you bought back $300 million. Can you just talk about that decision and strategy going forward?

Pete Beckmann: Sure. Yes, when we talk about our capital deployment strategy, it's very consistent with what we've seen. I would say, the way I would frame that is, first, making sure that our balance sheet and our debt is rock solid. We have plenty of liquidity. Second, that we're investing in the core of the business, continuing to make sure we have what we need from a capital investment perspective. Third, looking at the M&A environment, the inorganic opportunities and what high return targets are out there for us to consider and then finally, what does it make sense to lean in and buy back shares.

And I think we saw the dip this quarter in reaction to the dynamics of what was going on in the Middle East and saw it as an opportunity to pick up shares of BFS at a tremendous discount. We have a lot of confidence in our balance sheet and where we stand on the leverage perspective, certainly with the decline in EBITDA levels, it's resulted in some of the multiples. The leverage multiple as you mentioned, is being a bit higher but it's not an area of concern for the business. We're going to remain disciplined. We're going to remain thoughtful about how we do it.

And at no point are we going to impair our strength on the balance sheet or our liquidity position.

Rafe Jadrosich: That's helpful. And then just on the inflation side, how are you -- could you just help us understand how you handle sort of higher diesel costs and some of the inflation. Does that get passed along to your customers through surcharges? And maybe just talk about the exposure in terms of the transport on the fuel side.

Pete Beckmann: Yes, absolutely. And we certainly saw, as did everyone else in the space and across the world, increases in fuel costs, diesel specifically, we take those costs as inputs, and we will surcharge our customers passing along. And sometimes it's embedded in the way that we price our product and how to service our customers. So it's all embedded and we do pass that through. We evaluate it very closely. And like I mentioned on a prior question, it's not an insignificant amount on the inbound and it's not insignificant on the outbound. We do take that very serious and passing it through.

Operator: Our next question comes from Ryan Merkel with William Blair.

Ryan Merkel: I want to go back to gross margins. What was the biggest surprise in the quarter because you did beat the street on sales? And then on the guidance, how did you think about that? Did you just extrapolate what you saw in the first quarter or did you add a little bit of incremental weakness to the guide?

Peter Jackson: Ryan, yes, thanks for the question. So I think the challenge that we face in this current environment is the variety of products that we're selling and the dynamics that are happening in each 1 of those categories. What I would say in Q1 is if you look at the trends, the core of the business is pretty well leveled out. They're certainly hand-to-hand combat in certain areas, in certain parts of the country, so you get sort of the normal variability. If you think about lumber commodity and the value add where I think we were surprised is in the specialty products and the other categories. That was where it was certainly more challenging, more volatile than we expected.

Not happy about it, recognizing it for what it is and trying to account for that on a go-forward basis. But that's the core of the story.

Pete Beckmann: So Ryan, if I could add to that. What's also working really well is our funding program. Where we picked up a little bit of mix is on the lumber and sheet goods. So as we've been successful with our manufactured or value-added sales, we picked up a little bit more on the lumber and sheet which is a lower margin category, which had a little mix impact. So that's all evidence of some of the share that we've been able to capture on the lumber side, leveraging that value-added capability.

Ryan Merkel: Got it. Okay. And then just back on the guide, I know it's an uncertain environment. So did you just extrapolate sort of the trends in 1Q? Or did you add a little bit of cushion in the guidance. Curious how you thought about it.

Pete Beckmann: I would say we don't just extrapolate we're looking at our buildup from the bottoms up as we think about our sales projections for the year, what's in the pipeline what we're hearing from our customers, the economists, we take all things into consideration as we develop our guide. And we have a normal seasonal curve. So it's a little more muted than what we had communicated last quarter -- or last quarter. But it's still a seasonal curve and we're seeing certain parts of the country saw out and start to gain momentum as we get into the summer selling season. We're playing closer to the pin, Ryan.

Operator: Our next question comes from Mike Dahl with RBC Capital Markets.

Michael Dahl: I want to follow up on the kind of strategic share comment. So I think in the past, you've talked about others have been more competitive on the lumber and dirty side, not necessarily wanting to share that way. It doesn't sound like this is specifically the goal of, let's win back share in lumber, it's more kind of a function of some other strategy. But can you just elaborate a little bit more on kind of the shift that you've made there? And then if there's any way to quantify when we think about the mix in the act gross margin, what that really cemented the quarter and in the guide?.

Peter Jackson: Thanks, Mike. Listen, man, there was a lot of feedback there. So I think I got it, but if I don't, please just correct me in the answer. So your question was about what's the bundling -- a little bit more on the bundling, what do we think that's doing in terms of the margins and the business. So our bundling is really sort of the culmination of all the work we've done to offer the variety of products.

It's the ability to come in and say, to a builder, we can make your life simpler and more efficient and put together an affordability package for you if you're interested in buying lumber plus trust plus millwork, plus Windows or whatever we're offering in that particular market. The opportunity there is to have some sort of back end or some sort of combined pricing that allows us to fill capacity, keep our operations humming. But by combining it offer a superior value while at the same time offering or capturing more gross margin dollars for ourselves. So pretty straightforward in that regard.

The mix impact right now, I think Pete alluded to it in the past, I think we've walked away from more of the lumber than maybe we have to right now. We can kind of pick that up, has a little bit of a negative impact on margins by virtue of mix. I would tell you that's not the biggest impact or a negative mix in this quarter -- sorry, or negative margins this quarter. I think the primary issue is what I was outlining before about the other products, the specialty products. It's just gotten tighter I would say, surprised us how quickly it got tight in the quarter.

But the core of the business, the lumber and lumber sheet and the value-add, I think, is performing largely in line with what we expect.

Michael Dahl: Yes, that's helpful. Sorry, Chris. Hopefully, the follow-up comes in clearer. The -- just then to kind of dovetail understanding those comments in terms of that's not really the main driver. Some of the public builders have commented about cost increases are not taking cost increases or want to push them off. We have heard some concerns about kind of players like yourselves being caught in the middle in an inflationary environment. Obviously, historically, there's been sufficient ability to pass through costs, given your position in the market. But maybe specifically on the commodity pricing right now, there have been periods of time where you might be a quarter or 2 of margin compression as commodities rose.

I think you moved away from a lot of the longer duration contracts. So that's been a little less of an issue in recent years. But can you talk through whether there's any timing differentials on -- I know you mentioned fuel, but also on the commodity side that might be pressuring margins in the near term?

Peter Jackson: Yes. No, that's a good question. So I'll start with the commodity side. You're right. We have largely moved away from those long-term contracts. And we're accurately we, I think, done a better job of matching our commitments to our customers with our purchasing profile and the way we're bringing it in. So certainly, it's a little bit of that, but if it was big enough to mention I'd be calling it out. So it's fairly modest in terms of the number.

The broader question I think you asked is probably the more urgent one and it has to do with, well, builders are saying they're not going to take price increases and vendors are saying, well, we're going to get price increases. So that's going to leave us holding the bag. I'd say that's not true. I think we're pretty good at this. And the balance here is we provide a value to this market on behalf of both of those parties. And there's a level of profitability that we're going to need to see in order to continue to participate.

So to the extent we have good long-term partnerships and the market wants product there's going to be a pass-through of whatever it needs to be. Now do we play a mediating role in that Absolutely, right? We're in the discussions between vendors and builders and builders and vendors, depending on the dynamic. It's very clear to us that we have an affordability problem, right? We are trying to help the builders achieve that goal in any way we can. But at no point does that involve us becoming a charitable institution and losing money in order do it. So there's a balance, right? And I think they understand I've had conversations with a number of them.

And I think they're going to do what they need to do and they're going to press and we're going to do what we need to do, and we're going to hold the line where it's appropriate. But in the middle, there's a lot of value and a lot of work to be done, and I think we're particularly good at navigating that.

Operator: Our next question comes from Matthew Bouley with Barclays.

Matthew Bouley: Just sticking on the gross margin topic. So this guidance change of hundred basis points or so. I heard you mention several drivers. You had the competitive environment, change in your starts assumption from flat to down low single digits. It sounds like price cost due to fuel, talked about lumber mix, and then the specialty products and other margin. My question is really is any 1 of those, the biggest issue? Or maybe you can kind of rank order the drivers of that change? Obviously, what I'm trying to do is get conviction on what it would take to sort of halt that decline in gross margin.

Peter Jackson: Thanks for the call, Matt, for the question, Matt. Yes, I think the answer is, if I'm scaling the level of impact, the biggest one is the specialty. I think the second piece is, it's a lot of different stuff in the inflationary component is an important one. It's kind of the impact of fuel and what we're trying to do to manage it. That's more of an outbound cost thing that we're managing. It's certainly, I would say the others are more comparable in size for the starts impact the competitive dynamic mix impact and the fuel on the gross margin side.

Matthew Bouley: Got it. No, that's -- got it. Perfect. That's helpful. And then the second one, the cost savings, the $100 million in 2026. It's the same number from last quarter. Obviously, your overall earnings rejection has come down. So my question is, is there any more room to press on that? And how are you thinking about the balance of hanging on to cost, hanging on to labor, et cetera, versus what it would take to kind of press on more, I guess, austerity type measures?

Peter Jackson: So I think that the short answer to that is we're always looking at changing the size of the business and cutting costs in a market like this. The primary focus remains on the variable side to ensure that we're matching the people doing the work with the work that we have. And that is the biggest dollar amount by far that you're going to feel in our results. We're working through and as Pete mentioned, largely through most of the cost outs. I think at least initially, we need to digest the impact of that and make sure that we're able to deliver on the things that we're committed to delivering before we take another pass.

That said, we will continue to look at it. And as the year progresses, we'll see what we need to do. We're not announcing anything today, nothing new to that.

Operator: Our next question comes from Keith Hughes with Truist.

Keith Hughes: Thank you with the margin hit on specialty. It seems like it's now everything you do. Has it changed the relative margins amongst the products, the pressures of the downturn are they still kind of rank order the same top to bottom.

Peter Jackson: They're still rank order pretty much the same. I think what you see, Keith, in its the academic in me is kind of fascinated by you actually saw the wave of cost reductions and competitiveness flow through our P&L similar to the way you would see it hit the job side. It started with the lumber. It's a commodity move quickly. It reset quickly all the margins reset quickly, then it worked through some of the value-added products as you get into the structure and we're seeing it, we're all the way through to some of the dogs and cats on the back side of the build that we deliver.

So the relative performance, still very similar, but the timing at which we saw the resets was kind of in that order and why we're seeing the specialty now is just a bit more than we thought.

Operator: And our next question comes from David Manthey with Baird.

David Manthey: Guys, I'm wondering if you're expecting to see any relief in the size and complexity of homes as rates are more or less stable here. I mean at some point, I think maybe it just mix up naturally as buyers would skew more affluent because of the affordability, but maybe not. Could you just discuss the second derivative rate of change and any expectations you have that as sort of a leading indicator ahead of unit volumes going up?

Peter Jackson: Yes, Dave, thanks for that question. It's a fascinating one. We debated it internally going back and forth. I think that the dynamic we've seen up until now is very much a bifurcation of the market, right? You've got strength at the large-scale, the more affluent buyer, the cast fire, if you will. But on the counter, you have a lot more homes shrinking and using in complexity at the bottom end. So the starter homes are more starter. They're simpler. There's less in them. There are also -- not only is it square footage, but it's single pipe stand-alone to the townhouse offering as well, right? So those dynamics we think have played out pretty aggressively.

It is our opinion that stability to improvement in the market will likely lead to a reacceleration of some of those factors, meaning people would prefer to live in it would be welcome. I think you'll see more stability through the middle and upper tiers of the market, and we will see a little bit of that.

David Manthey: Okay. And if you could just update us on the ERP, how far are you? And what does the time line look like from here?

Peter Jackson: Yes, sure. So for those of you who don't recall, we're in the midst of an SAP implementation. We are doing it in a very incremental way. So it's not a risk to the overall business. We did a preliminary pilot last year and have been doing some work to dial it in so that we can scale it. We're going to test those changes later on this year with another rollout. And then the expectation is it will start to accelerate in 2027 for the next kind of few years, I guess, based on the current schedule. We'll see how it goes as we start to trigger it.

But we think we're ready to have a really nice rollout later this year to prove it out to prove out a new training regime and some of the other stuff we built. But that's kind of the thinking around it. It's going well. It's slow process. I'm very impatient, but I think the team is doing a good job.

Operator: Our next question comes from Trey Grooms with Stephens.

Trey Grooms: Everyone. So a little bigger picture here, I guess. I think installed products are something around kind of high teens or so of your sales with the install including the products you're selling, clearly. It seems like that's a value-add area that builders are willing to pay for. How are you thinking about installed generally, is this an area you can lean into in the current environment? And maybe where do you see your install offering going here over time.

Peter Jackson: Thanks, Trey. Yes, I think install is still a compelling offering. It's got the combined benefit of taking work off of the builder, making the job site more efficient and capturing the off-site benefits of all the other things we're able to do. Right? So whether that be installed trust, installed windows, we do some install framing, we leverage ready frame, there's a bunch that we do. I believe that even in a market like this, where there's depressed volumes, we're doing quite well with it. It's growing or it's performing better than market. put it that way, right?

It might be down, but it's down less than the overall starts, where I think it's really going to shine though is as this market starts to turn. I'm a firm belief that the lack of skilled labor will continue to be a challenge for this country in this industry for a long time. And I think the efficiencies captured in the installed model that we offer will be a differentiator and a competitive advantage as the market begins to accelerate again.

Trey Grooms: Got it. That makes sense. And then on the -- with cash flow and on the balance sheet, Pete, you guys are -- you mentioned you're expecting second half to be stronger, which will require investment in working capital. Any additional color you can give us there on what that use could be or what you're baking in there for working capital as a use of cash with your updated free cash flow guide for the year?

Pete Beckmann: Yes. So the working capital increase is going to be generally around or your receivables. So as we have higher sales per day as we exit the year, we'll have higher receivables that will carry over that finish line. I think we highlighted last quarter that the year-over-year changes in the change in working capital, specifically year-to-year was going to be about $300 million. Because of the lower guidance, we pulled that back, we're looking at about $180 million in the change in working capital year-on-year which is that change is helping to offset the lower EBITDA that we had outlined.

And then there's some other docking cats with the CapEx guidance that we had changed that kind of make up the delta. But that's really the bigger pieces of it. Now if you also think about inventory with higher inflationary costs on a relative basis point to point, inventory cost is going to be a little bit higher as well. So we try to factor in all the real working -- operating working capital pieces as well as the things around it. I hope that helps give the frame.

Operator: Our next question comes from Kurt Yinger with D.A. Davidson.

Kurt Yinger: Great. Thanks, and good morning, everyone. Just looking at kind of the base business, it looks like kind of the current guide is down on sales, 4% to 5%, a little bit more than the drop in end market assumptions I think last quarter, you had kind of assumed a certain level of share gains this year. Have you dialed that back at all? Or how does maybe inflation play into that as well?

Pete Beckmann: Yes. Thanks for the question. So when you're looking at the base business and the trend, you have to also factor into the margin change, the price because that's going to weigh on the top line as well. No, we have not pulled back on our share gains or organic growth. We're still driving that forward in addition to what we had talked about earlier on the bundling and going after strategic share gains where it makes sense and where it's profitable. So that's all baked into the base business trend that you're looking at. But that weight from price is certainly a factor on the sales line.

Kurt Yinger: And that would be, I guess, a component of competitiveness on gross margin, not necessarily an assumption of kind of vendor-led price decreases. Is that the right way to think about it?

Pete Beckmann: That's correct. But we've talked about all the factors that weigh into that margin performance. So, the competitive nature is certainly 1 of Peter has mentioned the specialty and what we've seen on the specialty side, a little bit of the mix that we talked about. So yes, the competitive environment is still active and with a lower start environment, it's going to continue to persist.

Kurt Yinger: Okay. Great. And then just on manufactured products kind of price cost, lumber has been on a nice low run here through Q1 kind of stabilizing at higher levels in Q2. Did you feel like on the trust side, you're able to fully pass that through or maybe how do you balance that price cost dynamic with the desire to fill up capacity and make sure you're covering more of those fixed costs going forward?

Pete Beckmann: Yes. The fixed cost dynamic is certainly a volume aspect that we talked about with seasonality and fill in the plants and making sure that we're utilizing as much as we can. That factors into some of our facility rationalization Peter mentioned in his remarks that we had closed 21 locations so far this year. Some of those are manufacturing operations where we're trying to make sure we're consolidating and maximizing that utilization. As far as the trust, we are passing the cost through, there's a little bit of lag on a trust design because you design and that cost basis is built in typically when you're co-inhibiting.

So it's a little more extended than just the short term on the lumber and sheet goods However, that resets with each trust that you're bidding and quoting. So it's got a little bit of a lag, but it's something that we're proud of on how our margins have performed and how well the team does with the product that we deliver to our customers. it's going to continue to be a higher-margin category for us as we look in the future.

Operator: Our next question comes from Sam Reid with Wells Fargo.

Richard Reid: I actually wanted to circle back to a comment that was made in the prepared remarks on April. I believe if I heard correctly, you saw a little bit of a sales improvement in April. I was just curious, is that a function of the macro and maybe just contextualize that April sales improvement in the context of normal seasonality.

Peter Jackson: Yes, I think you hit it there. It's normal seasonality. We do see sustained growth from January through at least May and then it sort of ebbs and flows throughout the rest of the year, depending on the month and the sort of the focus that the builders have in terms of what they're trying to accomplish and the reactivity to the selling season and how well it's gone. But given the kind of normal seasonality around the country, this is what it's supposed to do. And it's doing it. I think for all of us, we just like it to be a little bit better and a little bit broader.

Richard Reid: That makes perfect sense there. And then switching gears, maybe going down a little bit on that install piece. We've been hearing from a lot of the builders that they're getting concessions on labor, that's 1 of the key components that some of the big guys have indicated is driving thick and brick savings. I'm just curious for your installed business, do you see any of those benefits there potentially flowing through the P&L? Just talk through that implication.

Peter Jackson: Well, I'd say good news and bad news on that. Yes, we're seeing it and no, it doesn't flow to the P&L. It flows through to the job site, right? I mean that labor has a relatively modest margin, well, I guess, everything has a relatively modest margin these days. But it's dominantly a baseline competitive component, much like commodity lumber in the space. We're adding value by virtue of our efficiency. So there's some benefit there, but a lot of that is passing through.

Operator: Our next question comes from Phil Ng with Jefferies.

Philip Ng: Well, Peter, I guess to kind of kick things off, your sales in 1Q and even 2Q somewhat backward-looking in terms of starts and starts have actually been grinding higher a little bit. Curious what are you hearing from your customers on spring selling fees because you're calling for a better back half. The public guys have been pretty -- I mean it's out there, but just any color on that with the private customers you deal with day to day.

Peter Jackson: Yes. Thanks, Phil. So yes, I mean, like to recap at the beginning of this year, I think you saw a differentiated performance. You saw some builders who have been more successful in that effort, see really nice start, right? We have a couple of builders who are doing candidly some of their best business ever because they are able to start with a clean sheet, build exactly what the current consumer is looking for and putting it into the ground at pace. Others are still worried about the burn off. And so there's a mix. Now that characterization that I just gave you is really a public builder storyline and largely what you saw.

So I think in general, not too bad, pretty decent year. On balance, I would probably say that it's neutral to negative, but it's neutral to where they were, and there's some optimism in that number. When I go to the other side of this equation though is the private guys, which is still 40%, 45% of the starts. The impact of uncertainty, the impact of the war and the volatility in the stock market. I think you've had some people just say, you know what, let's just wait a little bit. And I don't think that was the tone earlier I think before the war, there was a bit of a sense of, hey, this isn't too bad.

Mortgage rates look pretty good. When it crossed [ 599, ] there was some optimism -- but I think that has pulled back and slowed down. Again, I don't think that -- it's not the lights have turned off. I don't want to call an end to anything. But it's a bit more tepid than we were hoping for, given what we had seen earlier on in the year. So trying to reset around that, putting our best foot forward as to what we think is going to play out. But Hopefully, that's helpful.

Philip Ng: Yes, that's very helpful, Peter. Really appreciate the color. And let me preface this question. I have a necessary seen, it's not clear to me yet the merit of going vertical, horizontal, I mean, for some of these larger distributors that have made big investments recently. But one of them in particular, made a splash with during the LBM market now as well as the insulation side of things.

I'm just curious, does that give you a rethink in terms of your approach, which has been more targeted around your core or you're considering actually going more horizontal, how does that like perhaps change the competitive landscape and how you go to market just given what you're seeing in the broader industry at large?

Peter Jackson: Yes. Thanks, Phil. I hadn't heard anything about what you're talking about. Yes, just didn't. So I think our comments on this have, I think, been pretty consistent. Hopefully, we'll be familiar. We really like the business that we've been able to put together. We've done some of these other things over the years. I think it's public record. We spun off our [ chips in ] business. We do very little in insulation. We do very little in roofing isn't to say we don't do it. There are certain markets where it makes sense to include it in our offering, but it's not an area of focus for us.

And we think that's because there's very little overlap in terms of the benefit that these products can provide by virtue of the way that they're provided and by virtue of the customer that is purchasing what they're selling. So not true in every instance, but we think this is the right place for us. We feel very good about our ability to compete in our core market and to win. We think our strategic advantages in our core market are the things that are -- that have benefited us in the past and will continue to. I am not intimidated by any player in our market right now by virtue of what they can do.

Some are far better than others at telling the story. And I can absolutely offer my admiration for a good storyteller. I love that since up. So I'll get better at it, but let's just agree that we are the biggest, we are the best and -- of anybody.

Operator: Our next question comes from Reuben Garner with the Benchmark Company.

Reuben Garner: I appreciate you squeezing me in. If this is a repeat, I apologize. I had some feedback earlier on the call, but you mentioned specialty margins a couple of times. I was wondering if you could give a little more color on what you're seeing there. Is it specific products within specialty? Is it just broad-based kind of price cost pressure? What's driving the margin headwind there?

Peter Jackson: Well, specialty for us by virtue of what we cover is a list about as long as you are. It's everything we sell outside of those primary categories. So it's things like siding, roofing, it's the gypsum, it's cement. It's anything that we're doing is a long list. So it's that culmination of a bunch of small hits that is the outline that we're providing around the specialty that other category, if you look at our investor presentation materials. That's where it's being hit.

Reuben Garner: Okay. So just to be clear, it's not necessarily the digital or install piece with -- that I believe is within that segment as well. It's more the kind of the long list of products that you sell?

Peter Jackson: It's not the it will be too small to move the needle. I mean, install is in there, but it's not a -- that's not a meaningful change from what we're able to drill down into it and it's that long list and a bunch of slices. Sorry, it's just hard going forward there. The rest of the day, trying to part it all out for you. I don't think that makes sense.

Operator: Our next question comes from Min Cho with Texas Capital Securities.

Min Cho: Just a couple of quick questions here. Peter, you mentioned that value per start was down in the quarter, but have you started to see any stabilization there? Or do you expect it to kind of decline for the intermediate term?

Peter Jackson: Well, the callout was 10% versus 2019. So it's a longer-term decontenting. I would say it's fairly leveled out we are -- we might see a point of movement in any given quarter. But it's not moved as dramatically as it did about 1.5 years, 2 years ago.

Min Cho: That definitely makes sense. And also, your value-added sales remains a similar percentage of overall revenue, and I'm assuming that those margins are probably holding up better. But as long as pick back up, can you expect the value-added part of that -- of your business to grow faster or slower? And I know you had mentioned installation will probably grow faster, but just in terms of your just overall value-add products.

Peter Jackson: No question. Value-add has historically been our high-growth area. We've got better capacity, better service levels and particularly in a market that's labor-constrained, which it will be as this market turns, we will absolutely see better growth in value.

Operator: Our next question comes from Adam Baumgarten with Vertical Research.

Adam Baumgarten: Just on -- I think you mentioned maybe not being able to recoup all the cost inflation, I assume that maybe relates to fuel in 2026. Can you give us a sense of the magnitude of the headwind you're expecting for 26 at this point?

Peter Jackson: Well, I mean, it blows down to that fundamental question of affordability and how much can you pass through and how much to eat. So the answer is in broad. It's market-specific depending on local profitability. I would tell you that we're taking it a bunch of different ways. Like Pete was saying, some of it's embedded into the cost that we're providing on the material side, particularly on the inbound cost. On the outbound, we're taking it in a couple of different ways, whether it's pass-through surcharge or part of the negotiation. I think the negative number that we're managing, it's probably around $100 million, right? So it's a meaningful number.

The impact on the bottom line, I would say right now is a lot less than that based on what we're doing, but it's not zero.

Operator: And our final question today comes from Ketan Mamtora with BMO Capital Markets.

Ketan Mamtora: Just a couple of questions. On the competitive dynamics, you talked about sort of specialty, but it struck me that you didn't talk about sort of on the trust side and the EWP side. Is it fair to say then that you're starting to see stabilization there?

Peter Jackson: Yes. Yes. I mean it continues to be competitive at a given quarter could be up or down within a small range. But yes, I think the -- our belief is that we have better clarity on the lumber and stability is starting to appear the manufactured product category, the broader value add cap.

Ketan Mamtora: That's helpful.

Peter Jackson: I'm going to be careful, right? This is a broad statement, but I think that's generally directionally correct.

Ketan Mamtora: I see. Okay. And then just on leverage. I understand it's sort of a function of just how the EBITDA is moving through this year. But on the multiple side, is there a number where you feel that you don't want to go in terms of whether there's a 4 handle on it or whether it is sort of towards the high end of 3, is there a way to sort of think about that in general?

Peter Jackson: I mean the short answer is our comfort zone is 1% to 2%. So anything north of 1% to 2% is challenging. The threshold for us is always back to where do we believe the market is, where is our balance sheet, how do we manage that in a very thoughtful and strategic way in comparison to the opportunities that were presented. So I don't want to put a hard range around it, but we keep a very close eye on it. The Board keeps a very close eye on it. And ultimately, our commitment is to have a full improved balance sheet with sufficient liquidity to do what we need to do.

Operator: Thank you. This brings us to the end of today's question-and-answer session as well as Builders FirstSource First Quarter 2026 Earnings Call. We appreciate your time and participation. You may now disconnect.