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Builders FirstSource, Inc. (BLDR)·Q2 2024 Earnings Summary

Executive Summary

  • Q2 2024 net sales were $4.46B (-1.6% YoY), gross margin 32.8% (-240 bps YoY), GAAP diluted EPS $2.87 and adjusted EPS $3.50; adjusted EBITDA was $0.670B with a 15.0% margin (up 110 bps sequentially) .
  • Management lowered FY 2024 guidance: net sales to $16.4–$17.2B (from $17.5–$18.5B), adjusted EBITDA to $2.2–$2.4B (from $2.4–$2.8B), and adjusted EBITDA margin to 13.4–14.0% (from 14.0–15.0%), citing softer housing and commodity weakness; Q3 guide: net sales $4.3–$4.6B and adjusted EBITDA $0.575–$0.625B .
  • The Board authorized a new $1.0B share repurchase plan after buying back ~$990M in Q2 (5.8M shares at ~$170.01 average), reinforcing capital return as a support for the stock amid guidance cuts .
  • Core organic sales fell 3.8%: Single-Family +1.1%, R&R/Other +1.5%, Multi-Family -31.3%; mix shifted toward affordability (smaller/simpler homes, lower per-start dollar value) while margins remained resilient .
  • Digital platform adoption continues to ramp (>$250M orders placed since late Feb; $45M incremental sales YTD), supporting share gains and medium-term growth targets ($1B incremental sales by 2026) .

What Went Well and What Went Wrong

What Went Well

  • Sustained margin resilience: adjusted EBITDA margin at 15.0% in Q2, up 110 bps sequentially, demonstrating operational leverage even as gross margin normalized .
  • Strong cash generation: cash from operations $452.1M and free cash flow $366.7M in Q2; LTM adjusted EBITDA ~$2.71B with net debt/LTM EBITDA 1.4x supporting flexibility .
  • Capital deployment: nearly $1B buybacks executed into price weakness and multiple tuck-in acquisitions completed; new $1B authorization underscores confidence in strategy .
    Quote: “Leveraging our fortress balance sheet and exceptional financial flexibility, we executed nearly $1 billion of share repurchases and made three tuck-in acquisitions…” — CFO Peter Jackson .

What Went Wrong

  • Guidance cut across revenue and EBITDA reflecting softer-than-expected housing and commodities; FY net sales cut by ~$1.1B at the midpoint, adjusted EBITDA by ~$0.3B .
  • Multi-Family normalization a significant headwind: -31% core organic sales YoY; management expects ~60 bps gross margin headwind in 2024 and ~50 bps in 2025 tied to Multi-Family .
  • Per-start dollar value declined due to affordability-driven mix shifts (smaller/simpler homes, product substitutions like EWP vs trusses), dampening sales despite unit activity; Phoenix example: ~+45% homes supplied but only ~+15% dollar sales .

Financial Results

Quarterly Performance

MetricQ4 2023Q1 2024Q2 2024
Net Sales ($USD Billions)$4.20 $3.891 $4.456
Gross Margin %35.3% 33.4% 32.8%
Adjusted EBITDA ($USD Billions)$0.686 $0.541 $0.670
Adjusted EBITDA Margin %16.5% 13.9% 15.0%
GAAP Diluted EPS ($)N/A$2.10 $2.87
Adjusted Diluted EPS ($)$3.55 $2.65 $3.50
SG&A as % of Sales23.5% 23.8% 21.8%

Q2 2024 vs Prior Year and Prior Quarter

MetricQ2 2023Q1 2024Q2 2024Consensus (S&P Global)
Net Sales ($USD Billions)$4.529 $3.891 $4.456 N/A – S&P Global consensus unavailable
Gross Margin %35.2% 33.4% 32.8% N/A – S&P Global consensus unavailable
GAAP Diluted EPS ($)$3.16 $2.10 $2.87 N/A – S&P Global consensus unavailable
Adjusted Diluted EPS ($)$3.89 $2.65 $3.50 N/A – S&P Global consensus unavailable
Adjusted EBITDA ($USD Billions)$0.769 $0.541 $0.670 N/A – S&P Global consensus unavailable

Product Category Mix and Value-Added

CategoryQ2 2023 Net Sales ($USD Billions)Q2 2024 Net Sales ($USD Billions)YoY Change %Q2 2024 % of Net Sales
Manufactured Products$1.294 $1.055 -18.5% 23.7%
Windows, Doors & Millwork$1.092 $1.115 +2.2% 25.0%
Specialty Building Products & Services$1.082 $1.091 +0.8% 24.5%
Lumber & Lumber Sheet Goods$1.060 $1.195 +12.7% 26.8%
Value-Added Products (Total)$2.386 $2.170 -9.0% 48.7%

End-Market Core Organic Net Sales (YoY)

End-MarketQ2 2024 YoY Change
Single-Family+1.1%
R&R/Other+1.5%
Multi-Family-31.3%

KPIs and Balance Sheet

KPIQ4 2023Q1 2024Q2 2024
Value-Added Products % of Net Sales52% 51.6% 48.7%
Cash from Operations ($USD Billions)N/A$0.317 $0.452
Free Cash Flow ($USD Billions)N/A$0.228 $0.367
Liquidity ($USD Billions)~$1.3 ~$2.4 ~$1.7
Net Debt / LTM Adjusted EBITDA (x)~1.1x ~1.1x 1.4x
Productivity Savings ($USD Millions)N/A~$40 ~$37 (Q2); ~$77 YTD
Share Repurchases (Shares, $USD Millions)1.6M; $209 0.1M; $19.6 5.8M; $989.6

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net SalesFY 2024$17.5–$18.5B $16.4–$17.2B Lowered
Gross Profit MarginFY 202430%–33% 31.5%–32.5% Narrowed upward midpoint
Adjusted EBITDAFY 2024$2.4–$2.8B $2.2–$2.4B Lowered
Adjusted EBITDA MarginFY 202414.0%–15.0% 13.4%–14.0% Lowered
Free Cash FlowFY 2024$1.0–$1.2B (commodity $400–$440) $1.0–$1.2B (commodity $380–$400) Maintained range; lower commodity assumption
Average Commodity (MBF)FY 2024$400–$440 $380–$400 Lowered
Total CapexFY 2024$400–$500M $400–$500M Maintained
Interest ExpenseFY 2024$205–$215M $205–$215M Maintained
Effective Tax RateFY 202423%–25% 23%–25% Maintained
D&AFY 2024$525–$575M $525–$575M Maintained
Net SalesQ3 2024N/A$4.3–$4.6B New quarterly color
Adjusted EBITDAQ3 2024N/A$575–$625M New quarterly color

Earnings Call Themes & Trends

TopicQ4 2023Q1 2024Q2 2024Trend
Digital platform adoptionTarget: $200M incremental 2024; $1B by 2026 IBS launch, market-by-market rollout; back-half “hockey stick” expected Orders >$250M since late Feb; $45M incremental YTD; $1B by 2026 still targeted Accelerating adoption
Supply chain and pricing normalizationExpect continued normalization in margins and multifamily Vendor price cuts in doors/millwork; commodity pass-through discipline Further normalization; disappointment in lumber competitors’ pricing discipline Ongoing normalization
Multi-Family dynamicsTailwind in 2023, expected to normalize in 2024 Anticipated declines each quarter in 2024 Significant headwind: ~60 bps gross margin in 2024, ~50 bps in 2025; sales and margins down Normalizing down
Affordability/mix shiftsEarly-cycle products improving; margins resilient Weather headwind; normalized margins in competitive markets Smaller/simpler homes; per-start dollar down; EWP substitution vs trusses Shift to affordability
Regional activity (Phoenix example)N/AN/A~+45% homes supplied vs ~+15% sales dollars Unit growth > dollars
Install services~15% of 2023 base business; plans to expand Playbooks to grow install Install sales +15% YoY; focus on labor pain points Growing
Capital deployment2023 buybacks ~$1.8B; M&A pipeline healthy Issued $1B 2034 notes; buyback capacity ~$990M buybacks in Q2; new $1B authorization; multiple tuck-ins Active, supportive

Management Commentary

  • CEO: “Maintaining a mid-teens EBITDA margin…demonstrates the strength of our differentiated business model…While we continue to see…slowing Multi-Family…and broader housing affordability challenges, we are executing our strategy by…value-added solutions…and driving adoption of our industry-leading digital platform.” .
  • CFO: “We executed nearly $1 billion of share repurchases into stock price weakness and made 3 tuck-in acquisitions…We are lowering our 2024 guidance given a softer-than-anticipated housing market and weaker commodities.” .
  • On mix and affordability: “We have seen a meaningful decline in the sales opportunity of a start in 2024 as the size, complexity and value of the average home has fallen…Phoenix: supplying ~45% more homes but dollar sales up only ~15%.” .
  • On margin trajectory: Exit 2024 gross margin around ~31%; expect ~100 bps additional headwind in 2025 split between Multi-Family and core operations (directional color, not formal guidance) .

Q&A Highlights

  • Gross margin path: management expects ~31% exit rate in Q4 2024; into 2025, ~100 bps additional headwind (≈50 bps Multi-Family, ≈50 bps core operations), while reiterating long-term 30–33% gross margin at normalized starts .
  • Multi-Family normalization: ~60 bps gross margin headwind in 2024 and ~50 bps in 2025; continued sales/margin pressure; still profitable as mix shifts within value-added .
  • Mix/affordability impact: smaller homes, fewer basements/garages, price reductions from vendors in select categories; substitution toward EWP lowers sales dollars but margins hold due to manufacturing efficiency (one-shift) .
  • Market share strategy: targeted, disciplined share gains via bundled packages and leveraging idle capacity, avoiding pure commodity price wars .
  • Digital ramp and M&A: maintaining $200M incremental digital sales target in 2024 despite tougher backdrop; pipeline of small tuck-ins remains healthy .

Estimates Context

  • Wall Street consensus estimates via S&P Global for Q2 2024 and Q3 2024 were unavailable at time of query due to data-access limitations. As a result, “vs. estimates” comparisons are not included and will be updated when S&P Global consensus data is accessible.

Key Takeaways for Investors

  • Margin resilience amid normalization: sequential adjusted EBITDA margin improvement to 15.0% despite lower gross margins underscores operating leverage and cost discipline .
  • Guidance reset is a near-term overhang: reduced FY net sales and EBITDA ranges reflect softer housing and commodities; watch Q3 execution against $4.3–$4.6B sales and $575–$625M EBITDA .
  • Capital return as support: nearly $1B Q2 buybacks and new $1B authorization provide downside support and EPS accretion potential, especially with shares outstanding down to ~116.5M .
  • Mix/affordability dynamic: unit activity may outpace dollars per start; expect continued pressure on sales dollars with margins buffered by manufacturing efficiency and value-added offerings .
  • Digital/installation growth drivers: >$250M digital orders since launch, $45M incremental YTD, and install sales +15% YoY support medium-term share and margin expansion as adoption scales .
  • Multi-Family headwinds likely persist into 2025: plan for ongoing YoY pressure from Multi-Family normalization; monitor signs of stabilization and timing of project starts .
  • Trading implications: near term, the combination of guidance cut and commodity weakness may pressure the stock; medium term, buybacks, digital ramp, and disciplined share gains can re-rate as housing normalizes and margins settle within the 30–33% long-term range .