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Builders FirstSource, Inc. (BLDR)·Q1 2024 Earnings Summary

Executive Summary

  • Q1 2024 revenue was $3.89B (+0.2% YoY) with diluted EPS $2.10 (down 12.9% YoY) as gross margin compressed to 33.4% on mix shift to lower-margin early-stage products and multifamily normalization; adjusted EBITDA was $540.9M (13.9% margin) .
  • Management reaffirmed full-year 2024 guidance (net sales $17.5–$18.5B, gross margin 30–33%, adj. EBITDA $2.4–$2.8B, FCF $1.0–$1.2B) but raised interest expense outlook to $205–$215M from $190–$200M in February, citing new 2034 notes; Q2 directional guide: sales flat to down low-single digits, adj. EBITDA down high teens YoY .
  • Weather headwinds (3–4% sales impact) and ongoing multifamily normalization (declines expected throughout 2024) weighed on results; single-family core organic grew 4.3% with strength in early-stage products .
  • Strategic catalysts: accelerating digital platform (orders >$60M since late-Feb launch; $200M incremental digital revenue targeted in 2024), install services up 17% YoY, and $40M productivity savings in Q1; liquidity ~$2.4B supports disciplined M&A and buybacks ($980M remaining authorization) .

What Went Well and What Went Wrong

What Went Well

  • Value-added focus and diversified mix supported resilient margins; despite normalization, gross margin held at 33.4% and adj. EBITDA margin remained mid-teens for the 12th consecutive quarter. “Our resilient first quarter results reflect our differentiated product portfolio and scale” — CEO Dave Rush .
  • Digital ramp post-IBS launch: orders grew to >$60M with $10M incremental Q1 sales; management reiterated $200M incremental digital revenue in 2024 and $1B by 2026 .
  • Operational excellence and install services: $40M productivity savings in Q1; install sales +17% YoY addressing customer labor constraints .

What Went Wrong

  • Gross margin fell 190 bps YoY to 33.4% on mix shift toward lower-margin early-stage products and margin normalization, particularly in multifamily .
  • Multifamily declines: -13.4% YoY in core organic sales with consistent year-over-year declines expected through 2024; Q2 adj. EBITDA guided down high teens on continued multifamily normalization .
  • Weather and cost impacts: inclement weather reduced Q1 sales by ~3–4% and cash from operations fell to $317.2M (vs $654.4M prior-year); SG&A rose to 23.8% of sales (50 bps YoY) on added expenses from acquisitions .

Financial Results

Key Financials vs. Prior Periods and Estimates

MetricQ1 2023Q4 2023Q1 2024
Net Sales ($USD Billions)$3.88 $4.15 $3.89
Diluted EPS ($USD)$2.41 $2.83 $2.10
Adjusted EPS ($USD)$2.96 $3.55 $2.65
Gross Margin %35.3% 35.3% 33.4%
Adjusted EBITDA ($USD Millions)$631.7 $685.5 $540.9
Adjusted EBITDA Margin %16.3% 16.5% 13.9%
SG&A as % of Sales23.3% 23.5% 23.8%
Net Income ($USD Millions)$333.8 $350.7 $258.8
Cash from Operations ($USD Millions)$654.4 $611.7 $317.2

Note: Wall Street consensus estimates (S&P Global) were unavailable due to data access limits; beat/miss assessment cannot be provided.

Product Category Net Sales (Q1 2024 vs. Q1 2023)

CategoryQ1 2023 Net Sales ($USD Millions)Q1 2023 % of Net SalesQ1 2024 Net Sales ($USD Millions)Q1 2024 % of Net SalesYoY % Change
Manufactured products$1,080.6 27.8% $979.1 25.2% (9.4)%
Windows, doors & millwork$1,038.1 26.7% $1,030.2 26.4% (0.8)%
Specialty building products & services$892.5 23.0% $901.5 23.2% 1.0%
Lumber & lumber sheet goods$872.1 22.5% $980.6 25.2% 12.4%
Total$3,883.3 100.0% $3,891.4 100.0% 0.2%

KPIs

KPIQ1 2024Context
Value-added product mix~52% Mix supports margin resilience
Productivity savings$40M Operations excellence and supply chain initiatives
Install services growth+17% YoY Addresses builder labor constraints
Digital orders (since late Feb launch)>$60M; $10M incremental in Q1 Target $200M incremental 2024; $1B by 2026
Liquidity~$2.4B (ABL $1.7B + cash ~$0.7B) Supports M&A and buybacks
Net debt / LTM Adj. EBITDA1.1x LTM adj. EBITDA $2.8B; net debt $3.0B
Share repurchase authorization remaining~$980M Q1 repurchased ~0.1M shares at $202.67 avg

Guidance Changes

MetricPeriodPrevious Guidance (Feb 22, 2024)Current Guidance (May 7, 2024)Change
Net SalesFY 2024$17.5B–$18.5B $17.5B–$18.5B Maintained
Gross Margin %FY 202430%–33% 30%–33% Maintained
Adjusted EBITDAFY 2024$2.4B–$2.8B $2.4B–$2.8B Maintained
Adjusted EBITDA Margin %FY 202414%–15% 14%–15% Maintained
Free Cash FlowFY 2024$1.0B–$1.2B (assumes $400–$440/mbf) $1.0B–$1.2B (assumes $400–$440/mbf) Maintained
Interest ExpenseFY 2024$190M–$200M $205M–$215M Raised
D&AFY 2024$525M–$575M $525M–$575M Maintained
Effective Tax RateFY 202423%–25% 23%–25% Maintained
Total CapexFY 2024$400M–$500M $400M–$500M Maintained
Selling DaysFY 2024+2 vs 2023 (~0.7% sales tailwind) +2 vs 2023 Maintained

Earnings Call Themes & Trends

TopicQ-2 (Q3 2023)Q-1 (Q4 2023)Current Period (Q1 2024)Trend
Gross margin normalizationEarly signs; MF over-earning ~125 bps; core margins normalizing Still mid-30s; normalization expected in 2024 Down to 33.4%; normalization continuing; Q2 margins within 30–33% range Normalizing
Multifamily (MF)Tailwind; declines expected starting 2Q24 Strong in Q4; normalize through 2024 -13.4% YoY; consistent YoY declines through 2024 Deteriorating near-term
Single-family demandDown YoY; stabilizing; value-add mix resilient Early-cycle products turning up; optimism for 2024 Core organic +4.3%; early-stage strength; affordability still a headwind Improving gradually
Weather/supply chainNotable in Q3 comps; supply chain normalization underway Weather headwinds expected in Q1; caught up over future quarters ~3–4% sales impact; recoup over ~3–4 months; Houston flooding cited Transitory headwind
Digital platformPreview; launch planned Q1 2024 with “hundreds of millions” sales in first year Full product launch at IBS; $200M 2024 target; $1B by 2026 Orders >$60M; +$10M incremental Q1; adoption building Accelerating
Install servicesCapability expansion; backlog healthy ~$2.5B material+labor installed in 2023 Install sales +17% YoY Accelerating
CommoditiesDeflation across categories; engineered wood pricing giving back OSB/lumber timing effects; “fight” in commodities; prices walking back Commodity deflation (-1.7% sales impact); disciplined pricing Volatile but easing
Regional trendsWest weakest, stabilizing; Central lagging Seasonally healthy in Oct; national builders steady East down mid-single digits; Central flat; West up mid-teens Mixed

Management Commentary

  • “Our resilient first quarter results reflect our differentiated product portfolio and scale… As we expected, a weakening Multi-Family market and higher mortgage rates… were headwinds to start the year” — CEO Dave Rush .
  • “We are maintaining our fortress balance sheet… Our $1 billion senior notes offering priced in February strengthens our financial flexibility to grow organically and remain acquisitive” — CFO Peter Jackson .
  • “Since launch in late February, we have seen orders on the digital platform go from nearly 0 to over $60 million… confident in… $200 million of incremental digital revenue by the end of this year and $1 billion by 2026” — Management .
  • “On a year-over-year basis, we expect Q2 net sales to be down low single digits to flat… adjusted EBITDA… down high teens… given the impact of continued multifamily normalization” — CFO .

Q&A Highlights

  • Gross margin outlook: Normalization continuing; MF margins and sales to decline throughout 2024; company still guides full-year gross margin within 30–33% range .
  • Q2 directional guide: Net sales flat to down low-single digits; adj. EBITDA down high teens YoY; aligns with MF normalization .
  • Commodities: OSB/lumber timing; competitive intensity concentrated in commodities; prices that ran are “walking back” .
  • SG&A/Labor: SG&A leverage improves in summer; bonus dollars lower vs prior year; strong field discipline holding labor vs gross profit targets .
  • Weather impact and recovery: ~3–4% sales headwind; typical catch-up over 3–4 months; regional flooding in Houston noted .

Estimates Context

  • S&P Global Wall Street consensus (EPS, revenue, EBITDA) was unavailable in this session due to data access limits; as a result, we cannot assess beat/miss vs Street. Values would normally be retrieved from S&P Global.

Key Takeaways for Investors

  • Margin normalization is progressing as expected; gross margin reset toward 30–33% is driven by mix (early-stage products) and MF normalization—watch Q2 margin prints for confirmation .
  • Near-term headwinds: Weather and MF declines imply softer Q2 adj. EBITDA; single-family strength and later-stage product pull-through should support back-half recovery trajectories .
  • Digital and install are structural growth levers: tangible adoption (>$60M orders) and +17% install growth provide non-commodity revenue streams that enhance stickiness and margins over time .
  • Capital allocation remains disciplined: ~$2.4B liquidity, net debt/EBITDA ~1.1x, and $980M remaining buyback support opportunistic M&A and repurchases; watch accretive tuck-ins that expand value-added capacity .
  • Guidance intact with higher interest expense: FY 2024 revenue/EBITDA/FCF unchanged; interest raised to $205–$215M reflecting the $1B 6.375% 2034 notes—modestly higher below-the-line drag .
  • Trading lens: Without Street estimates, the narrative catalysts are reaffirmed guidance, Q2 caution, and visible digital traction; stock reaction likely hinges on margin trajectory, MF cadence, and digital adoption updates at upcoming conferences .
  • Medium-term thesis: Continued mix shift to value-add and install, digital platform monetization, and productivity culture underpin sustainable mid-teens EBITDA margins through the cycle despite commodity volatility .