Spigot Tightens on Lumber and Building Materials Supply Line
From PROSALES Online, By Andy Carlo: No sense in burying the lead here. Cash = King.
Cash conservation is and will be the new growth, as least for the visible future.
Builders FirstSource, a Dallas-based lumber and building materials dealer that amassed a distribution and market presence empire on the back of a high volume builder strategy, is in heavy-duty damage control mode. Its new scorecard, reports ProSales magazine senior editor Andy Carlo, is to outperform a free-falling market and try to stick around for the eventual and inevitable salad days ahead. Survival is tantamount to a rocket ride to top-tier status in the LBM sector, but no one’s saying it’s going to be easy.
Carlo gleaned statements from Builders FirstSource CEO Floyd Sherman for perspective on the survival plan.
Floyd Sherman, CEO Builders FirstSource, link to Q4 financials
“We felt the impact of these difficult conditions on our 2008 results although we were able to limit it through our action plan,” said Floyd Sherman, Builders FirstSource CEO.
“Our action plan principally consisted of growing market share, reducing physical capacity, adjusting staffing levels, implementing cost containment programs, managing credit tightly, and, most importantly, conserving cash,” he added.
The dealer closed or mothballed 14 facilities during 2008 while lowering its average headcount by over 1,600 to 4,850 in 2008, a decrease of 25.2 percent from 2007. Our headcount at December 31, 2008, was down over 2,100 to 3,274, a 39.3 percent decrease from the beginning of 2008, the dealer said.
As of today, Builders FirstSource operates 58 distribution centers and 57 manufacturing facilities in 11 states.
During a Friday conference call to discuss Q4 financials with analysts CFO Charles Horn was asked about the ability of builders to pay their bills. He said the larger builders still have been paying their bills, but at the same time BFS is seeing more regional and small builders moving toward an orderly liquidation. He said this is because a number of builders’ operations are structured for tax purposes so that the losses incurred by the construction company can flow back to the company’s owner. “I think you’ll see more and more builders say ‘I’ll take the tax refund and wind down operations’,” Horn said.
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Meanwhile, CEO Floyd Sherman said it’s apparent that banks are forcing their private builder borrowers to stop any spec construction, and are requiring builders to reduce inventories before they get any more loans. “We’re going to see some really diminished inventories over the next few months,” he said. Sherman (who appeared to base his forecasts in part on Harvard Joint Center for Housing Studies numbers), said Builder FirstSource doesn’t expect any upturn until at least the third and fourth quarters of this year.
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