In the 1990′s, homebuilders began to grow by acquisition, creating large national competitors. It was inevitable that manufacturers and homebuilders also consolidated and experienced the same trend. Builders FirstSource (NASDAQ: BLDR) was born from this industry evolution. Its driving force was the desire to provide professional class building services to the country’s homebuilders and remodelers.
It made its first acquisition in March 1998. Since then, Builders First Source has acquired and integrated twenty-six companies. Completing its initial public offering of its common stock in June 2005, JLL Partners continued to own a majority of the company.
The company offers a broad range of products to help customers with their building effort. It creates wall panels, FSC lumber, engineered lumber, and Energy Star qualified windows and doors. It also manufactures prefabricated structural components such as roof trusses, floor trusses, as well as interior and exterior doors and windows. The company has developed the expertise to tailor its manufactured products to the needs of its market.
In its 2012 third quarter report, sales were $291.8 million, an increase of 34.3 percent when compared to the third quarter of 2011. For the second consecutive quarter, it reported positive Adjusted EBITDA, finishing with $3.0 million for the quarter as compared to an Adjusted EBITDA loss of $0.7 million in the third quarter of 2011. On a year-to-date basis, its Adjusted EBITDA improved from a loss of $11.7 million in 2011 to positive $3.0 million in 2012. Gross margin percentage was 19.8 percent, down from 20.5 percent, a 0.7 percentage point decrease. Specifically, its gross margin decreased 1.5 percentage points largely due to commodity lumber inflation during the quarter relative to fixed customer pricing commitments and was offset by a 0.8 percentage point gross margin improvement due to increased sales volume.
“We are seeing stronger sales trends as the housing market continues to recover, and our recent market share gains have also certainly contributed to our improving sales. Our sales growth and increased operating efficiencies drove the improvement in our financial results for the quarter,” said Builders FirstSource Chief Executive Officer Floyd Sherman.
Its year-over-year sales growth exceeded 30% in each of the past four quarters, and the company currently sees no signs of its sales pace slowing. Consequently, it was prompted to proactively seek additional liquidity to support its higher working capital requirements. It sought for $93 million of incremental liquidity to be provided to enable it continue growing market share and take further advantage of improving demand for housing.
With a market cap of $553 million, Builders FirstSource trades around $6.40 per share. In other words, with plenty of room for growth, increasing revenues, and a low share price compared to its competitors, Builders FirstSource is a great stock pick for investors expecting the economy and the housing industry to continue their upward trend.