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Active Stock Evaluation: Builders FirstSource (NASDAQ: BLDR)

On Friday, Shares of Builders FirstSource (NASDAQ: BLDR) showed the bearish trend with a lower momentum of -0.94% to $15.82. The company traded total volume of 859,895 shares as contrast to its average volume of 1.05M shares. The company has a market value of $1.85B and about 117.15M shares outstanding.

Builders FirstSource, Inc. (NASDAQ:  BLDR) recently stated its results for the fourth quarter ending December 31, 2018.

Fourth Quarter 2018 Contrast to Fourth Quarter 2017:

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Net Sales:

  • Net sales for the fourth quarter ending December 31, 2018 were $1.80B, a 2.1 percent increase contrast to a year ago. The Company had one additional sales day in the fourth quarter of 2018 contrast to the fourth quarter of 2017. Estimated sales unit volume per day grew at 3.3 percent in the quarter, partially offset by about 2.8 percent from the impact of commodity deflation, which resulted in sales per day growth of 0.5 percent. Estimated sales unit volume per day, excluding commodity inflation, grew about 4.5 percent in the single-family homebuilding end market and 1.1 percent in the repair and remodeling/other end market while the multi-family end market declined by 1.8 percent as expected. In Addition To, value-added products sales per day grew by 6.8 percent, counting 4.7 percent in the windows, doors, and millwork category and 9.1 percent in manufactured products.

Gross Margin:

  • Gross margin of $492.80M in the fourth quarter of 2018 increased by $61.60M, or 14.3 percent, over the prior year. Gross margin percentage was 27.1 percent, a boost of about 290 basis points contrast to the fourth quarter of 2017 and a boost of 240 basis points over the third quarter of 2018. The margin percentage increase was attributable to the sharp decline in the cost of commodities during the quarter, relative to our short-term customer pricing commitments, combined with continued pricing discipline and growth in value-added products.

Selling, General and Administrative Expenses:

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  • SG&A in the fourth quarter of 2018 was $402.30M, or 22.2 percent of sales, contrast to $366.40M, or 20.6 percent of sales, in the fourth quarter of 2017. The increase of about $35.90M was mainly because of higher variable costs, counting compensation related to the improved performance. As a percentage of sales, SG&A increased by 1.6 percent as fixed cost leverage was offset by increased commissions and incentives related to the high margins achieved in the fourth quarter.

Interest Expense:

  • Interest expense in the fourth quarter of 2018 was $23.40M contrast to $89.50M in the same period last year. Adjusting for the $56.30M one-time premium paid to redeem notes in the fourth quarter of 2017, interest expense declined by $6.60M. The year over year reduction is mostly a result of a gain on debt extinguishment in the amount of $3.20M and the opportunistic refinancing transactions the Company executed in 2017, slightly offset by rising interest rates impacting the floating rate instruments. The debt extinguishment executed in the fourth quarter of 2018 consisted of a series of open market purchases of $53.60M in aggregate principal amount of 2024 notes. In February 2019, an additional $20.40M in aggregate principal amount of the same notes was repurchased.

Income Tax Expense:

  • GAAP income tax expense in the fourth quarter of 2018 was $15.00M contrast to income tax expense of $18.00M in the fourth quarter of 2017. The effective tax rate for the fourth quarter is about 22.4 percent.

Net Income:

  • Net income for the fourth quarter of 2018 was $52.00M, or $0.45 per diluted share, contrast to a net loss of ($42.70)M, or ($0.38) per diluted share, for the fourth quarter of 2017 because of the improved operating results in the fourth quarter of 2018 and the one-time premium paid related to the refinancing transactions in the prior year.
  • Adjusted net income was $53.10M, or $0.46 per diluted share, contrast to $46.60M, or $0.40 per diluted share, in the fourth quarter of 2017. The year over year increase of $6.50M, or 14.0 percent, was mainly driven by improved operating results and lower interest expense.

Adjusted EBITDA:

  • Fourth quarter Adjusted EBITDA grew $28.10M to $125.00M contrast to $96.90M in the period a year ago, a boost of 29.0 percent.  The year over year improvement was mostly driven by the increase in sales, particularly in the value-added product categories, and the Company’s expanded gross margin percentage. As a result, Adjusted EBITDA improved to 6.9 percent of sales in the fourth quarter from 5.4 percent in the same period a year ago.

Full Year December 31, 2018 Financial Information:

Net Sales:

  • Net sales for the full year 2018 were $7.70B, a 9.8 percent increase over the prior year comprised of an estimated sales unit volume growth of 3.2 percent and about 6.6 percent of commodity price inflation. Single-family and repair and remodel / other end market sales unit volume growth in 2018 was partially offset by expected declines in the multi-family end markets. In Addition To, value-added products grew by 10.5 percent.

Gross margin:

  • Gross margin increased for the full year 2018 by $195.50M to $1,922.90M. Gross margin percentage increased to 24.9 percent from 24.6 percent in 2017, a 30 basis point increase. The pressure practiced on gross margin percentage during the first half of 2018, because of rising commodity costs relative to our customer pricing commitments, was more than offset by the sharp decline in commodity costs during the second half of the year.

Interest Expense:

  • Interest expense was $108.20M in 2018, a decrease of $85.00M from 2017. This decrease, which is mostly attributable to the capital management strategy executed in both 2018 and 2017, was partially offset by increased interest expense because of increased market interest rates on our floating rate debt instruments. Interest expense for the year ended December 31, 2018 included a $3.20M gain on debt extinguishment. Excluding the one-time charges of $58.70M related to the debt transactions executed in 2017, interest expense reduced by $26.30M.

Net Income:

  • Net income for the full year 2018 was $205.20M, or $1.76 per diluted share, contrast to $38.80M, or $0.34 per diluted share, in 2017, a boost of $1.42 per diluted share driven by improved operating results for the full year 2018 and the one-time costs related to the refinancing transactions in the prior year.
  • Adjusted net income for the full year 2018 was $221.20M, or $1.90 per diluted share, contrast to $147.20M, or $1.27 per diluted share, for the full year 2017, a boost of $0.63 per diluted share.  The year over year increase of $74.00M, or 50.3 percent, was mainly driven by the Company’s sales growth, improved margin and lower interest expense.

Adjusted EBITDA:

  • Adjusted EBITDA for the full year 2018 grew $82.60M to $501.60M, or 6.5 percent of sales, contrast to $419.00M, or 6.0 percent of sales, for the prior year. The year over year improvement was attributable to cost leverage and the growth in higher margin value-added products partially offset by a boost in variable costs counting sales commissions and incentives related to the profitable growth in 2018.

Capital Structure, Leverage, and Liquidity Information:

  • Net debt as of December 31, 2018 declined by $179.0M to $1,567.0M as contrast to the prior year end. The Company reduced its leverage ratio as compared to December 31, 2017 by 1.1x, to 3.1x net debt / Adjusted EBITDA, achieving a aim declared in 2015 to manage the balance sheet leverage ratio between 2.5x and 3.5x.
  • Because of the substantial conversion of working capital during the fourth quarter, net cash generated in operations and investing was $186.20M for the full year 2018, achieving the guidance to generate $170 – 190.0M for the full year 2018. Cash used in investing activities was $96.60M in 2018 mainly related to facility improvements to expand the Company’s manufacturing capacity and purchase of rolling stock in support of the Company’s sales growth.
  • Liquidity as of December 31, 2018 was $595.40M, consisted of net borrowing availability under the revolving credit facility and cash on hand.
  • In February of 2019, the Company’s Board of Directors authorized the repurchase of up to $20.0M in common stock. We may repurchase shares mainly to offset dilution associated with the Company’s stock incentive plans and other compensation programs. The repurchase plan may also be used for other transactions or for other corporate purposes, if deemed necessary. The program may be suspended or terminated at any time.

The Company offered net profit margin of 2.80% while its gross profit margin was 25.50%. ROE was recorded as 39.10% while beta factor was 2.08. The stock, as of recent close, has shown the weekly downbeat performance of -4.00% which was maintained at 45.00% in this year.

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