Builders Firstsource leaves New Jersey, stockpiles cash
Citing a lack of “long-term potential” in the state’s housing market, Builders FirstSource announced its decision to leave the New Jersey market on Oct. 16, closing down facilities in East Brunswick, East Hanover, Lanoka Harbor, Maple Shade, Monroe Township and South Brunswick.
“It was a very painful decision to make,” company CFO Charles Horn told investors on an Oct. 24 conference call. But when Builders FirstSource evaluated all its worst-performing locations and ranked them by estimated future losses over the next three to five years, “New Jersey, unfortunately, was at the top of the list.”
The announcement came six days before the release of Builders FirstSource’s third-quarter results, which posted a $19 million loss and $288.3 million in sales, a 30.3 percent drop over the previous year. The Dallas-based chain of lumberyards, No. 9 on the Home Channel News Top 350 Pro Dealer Scoreboard, hopes to add $5 million to $7 million in liquidity as a result of the closures.
Builders FirstSource also closed two other facilities, in South Carolina and Ohio, during the third quarter, which ended on Sept. 30. New Jersey was a total market pull out, however, involving a lumberyard, three showrooms and a manufacturing facility. Several were located near New York City, which has been especially hard hit by layoffs in the financial market.
“Up until [September], the marketplace was doing relatively well,” observed Rick Alampi, executive director of the New Jersey Building Materials Dealers Association, a state wide trade group. Energy-saving retrofits, especially new windows and doors, were keeping local lumberyards busy, along with decks and other remodeling projects. “Then came the Wall Street crash, which is going to affect New Jersey more than the housing crisis,” Alampi said.
But for Builders FirstSource, residential construction has always been the main course. About 50 percent of the prodealer’s revenues come from the nation’s top 100 home builders, according to company officials. In New Jersey, building permits for new housing units declined 64 percent in August 2008, compared to the previous year.
John Dobrzynski, president of Eighteen Lumber in East Brunswick, N.J., served the same geographical market as two of the Builders FirstSource New Jersey locations but found himself with a different set of customers. “[Builders FirstSource] was only interested in the big accounts,” said Dobrzynski, who heard that the minimum purchase was set at $25,000 a year. “They didn’t want to sell 2-by-10s all day. They wanted to ship out trucks.”
At the Oct. 24 conference call, Builders FirstSource executives told analysts they are increasing their involvement with national builders, especially in markets where competitors are closing down. Although these customers of ten require “aggressive” pricing, at least they pay the bills on time.
“It’s more the smaller builders who are having their lines of credit pulled away from them,” said CFO Horn, following a question about the company’s 7 percent past-due rate on accounts receivable. “I can’t tell you that we’re having any issues with our larger customers.”
The company’s pursuit of multi-family and commercial work is beginning to pay off, according to CEO Floyd Sherman, who spoke of two $5 million-plus projects where Builders FirstSource is providing materials and labor. The company is involved in several other big-ticket commercial jobs, Sherman said, adding: “It’s a business that we had to learn and [put in] costs upfront.”
Company officials stressed their liquidity, bolstered by a $60 million borrowing against a $350 million revolving loan right before the quarter ended. “We are more than two years into the downturn, and our cash remains strong at $131.2 million,” Sherman said. With acquisitions remaining off the table for now, the company can rely on that cash to see it through the challenging times ahead, which he estimated would “persist through mid-2010.”
The company now operates 65 lumberyards and 61 manufacturing plants in 12 states, primarily in the southern and eastern United States.