It was not a stellar quarter at Builders FirstSource (NASDAQ:BLDR).
How could it have been? When your business is supplying building materials and components to homebuilders, you're unlikely to join the ranks of companies reporting impressive earnings growth this go-round.
For the quarter, the company earned $0.2 million, or $0.01 per share, compared to $19.3 million, or $0.54 per share, in the March 2006 quarter. With management estimating that housing activity declined 36.2% in its largely southeastern markets, Builders' sales dipped 30.2% in the quarter to $411.1 million.
And the soft conditions affected the company's other metrics as well. For instance, EBITDA (earnings before interest, taxes, depreciation, and amortization) slid to $13.1 million, or 3.2% of sales, compared to $43.3 million, or 7.4% of sales last year. But through careful monitoring of its approaches to purchasing and labor, management was able to retain a 25.4% gross margin, as compared to the prior year's 25.5%.
In announcing his company's results, CEO Floyd Sherman was, for my money, unusually informative: "Last fall we outlined our strategy for managing through the housing downturn. This plan includes generating incremental sales through market share gains and new operations, maintaining margins, reducing costs, and conserving capital.... Market share gains had a 9.5% positive effect on our sales."
Builders FirstSource serves markets that span from New Jersey down to Florida in the Southeast, along with Ohio and Texas. Its customers include both local homebuilders and the major public companies, such as Toll Brothers (NYSE:TOL), Ryland (NYSE:RYL), Lennar (NYSE:LEN), and D.R. Horton (NYSE:DHI).
At this juncture, Builders' management "expects the difficult market conditions to negatively affect its operating results at least through the end of 2007 and possibly into 2008." As such, and with the company's share price having slid more than 30% during the past year -- from a high of $24 to Thursday's $16.52 close -- and with management's own assessment that a turn in its business is not imminent, Fools needn't rush to acquire Builders' shares.
At the same time, I urge you not to dismiss the company completely. Builders FirstSource serves comparatively strong markets and boasts both solid management and a sound balance sheet. When the first glimmer of a housing recovery begins to show itself, this company should be worth your attention.
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Fool contributor David Lee Smith does not own shares in any of the companies mentioned. He welcomes your questions or comments. The Fool has a disclosure policy.
