Please ensure Javascript is enabled for purposes of website accessibility

Why Builders FirstSource Stock Popped 14% Today

By Rich Smith – Updated May 3, 2019 at 5:22PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Commodity prices are weakening. Let's hope the company has a plan to deal with that.

What happened

Shares of Builders FirstSource (BLDR -0.45%) closed 14.1% higher on Friday after the distributor of home construction supplies reported estimate-thumping earnings Thursday evening.

Expected to earn $0.24 per share (pro forma) on $1.6 billion in sales in Q1, Builders FirstSource met the sales target and beat the earnings target, reporting $0.34 per share (also pro forma).

Construction workers reading blueprints

Image source: Getty Images.

So what

Sales of $1.6 billion represented a 4% year-over-year decline in revenue for Builders FirstSource. But adjusted net income was up 44% year over year, beating estimates. Actual GAAP income -- $0.31 per share -- did even better, rising more than 50% relative to last year's Q1.

CEO Chad Crowe called these earnings "solid" and a strong start to 2019. He also noted that while revenue might have been down, sales volume was up nearly 7% year over year, the divergence between the numbers explained by "commodity deflation."

Now what

This could prove a problem as the year progresses. This morning, just hours after Builders' report came out, The Wall Street Journal published an article reporting on the "unseasonable slump" in lumber prices -- which ordinarily are rising this time of year as builders grow inventory in preparation to build houses in the good spring weather.

This year, spring has been unseasonably wet in much of the country, and lumber futures are down nearly half from their May 2018 highs of $639, at just $334.40 per 1,000 board feet. Crowe acknowledges that numbers like these will pose a headwind to Builders FirstSource sales growth in 2019. Of course, if the company keeps growing profits like it did in Q1, investors may not mind that at all.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Builders FirstSource, Inc. Stock Quote
Builders FirstSource, Inc.
$58.20 (-0.45%) $0.26

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/30/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.