Q4 2021 Bluelinx Holdings Inc Earnings Call
Greetings welcome to the Bluelinx holdings fourth quarter and full year 2021 results conference call.
At this time all participants are in a listen only mode.
Question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad and please note that this conference is being recorded.
I'll now turn the conference over to Ryan Taylor, Vice President of Investor Relations.
Thank you you may begin.
Thank you good morning, everyone and welcome to the Bluelinx Holdings fourth quarter and full year 2021 conference call.
With me on the call today are president and CEO , Dwight Gibson, and Chief Financial Officer, Kelly Janzen.
Our fourth quarter and full year 2021 news release and Form 10-K were issued last night.
Along with our webcast presentation.
These items are available in the investors section of our website links <unk> dot com.
We encourage you to follow along with the detailed information on the slides during our webcast.
As a reminder, today's discussion contains forward looking statements actual results may differ significantly from those forward looking statements due to various risk factors and uncertainties.
Including the risks described in our most recent SEC filings.
Today's presentation includes certain non-GAAP and adjusted financial measures that we believe provide helpful context for investors evaluating our business.
Reconciliations to the closest GAAP financial measure can be found in the appendix of our presentation.
At the conclusion of our prepared remarks, we will open the line for questions with that I'll turn the call over to do it.
Thanks, Ryan and good morning, everyone. Thank you for joining our call today.
2021 was a remarkable year for bluelinx and extra ordinary in many respects.
We finished the year on a high note reporting double digit net sales growth and record gross margin for the fourth quarter, reflecting strong operating execution and positive market tailwind.
Before diving into the details I wanted to first anchor teammates for their dedication resiliency and adaptability.
Teammates like Benny raw material handler, Lawrenceville, Georgia, who celebrated his 40 year anniversary with Bluelinx last year.
And teammates like Lisa Rodriguez, our operations manager in Miami, who has done a tremendous job building a highly engaged and productive team after a branch.
And a year filled with uncertainty and change I'm incredibly proud of the entire organization's effort and execution.
We significantly improved our operating performance, while capitalizing on dynamic market conditions.
As a result, we achieved record full year profitability in 2021.
Achieving all time highs in gross profit adjusted EBITDAR and EPS underscores the benefits of fostering a performance based culture and focusing on a few critical strategic initiatives.
Specifically, we implemented actions to emphasize growth in higher value specialty products.
Leverage centralized purchasing and pricing teams and importantly drove a disciplined approach to inventory management for structural products.
These actions underpinned our incredible <unk> 2021 financial performance.
For the full year net sales grew 38% to $4 $3 billion gross margin expanded 280 basis points to 18, 2%.
And adjusted EBITDA increased 172% to $464 million, which is nearly 11% net sales.
We generated $131 million of free cash flow to reduce net debt by 19% or $115 million and recapitalized our debt structure.
We ended the year in a strong flexible financial position with net leverage at one one times and available liquidity over $430 million.
With our balance sheet fortified we're increasing investment in our people and our fleet and in our distribution branches to support our best customers and drive profitable growth.
Beyond that we have ample liquidity to create additional value through disciplined strategic capital allocation.
We continue to build out a world class leadership team to drive transformational growth by leveraging our scale and increasing stickiness with our best customers through the quality of our delivery the relevance of our specialty product portfolio and our value added service capabilities.
I believe a consistent.
Full customer experience reaches its highest potential to interaction with talented and engaged employees.
Developing this culture remains at the core of everything we do at Bluelinx.
We began 2022 with positive momentum in our business and favorable tailwind in the U S housing market.
In January net sales were up more than 20% year over year and gross margins exceeded 20%.
We are poised for another strong year and enthusiastic about our long term future.
Taking a closer look at Q4 net sales grew 12% year over year to $973 million.
This growth was led by specialty products net sales, which were up 29% year over year due comprised 66% of total net sales in the period.
We achieved record gross margin of nearly 20% and delivered $112 million of adjusted EBITDA.
Which is 11, 5% of net sales.
Overall, we delivered results that exceeded expectations for the quarter and further demonstrated our ability to capitalize on strong demand amid ongoing supply constraints and continued volatility in wood based commodity prices.
Moving on now to the U S housing industry.
End market trends remain favorable and demand for building products continues to be robust.
Single family starts were up 13% in 2021 and are expected to grow further in 2022 based on multiple industry projections.
Repair and remodel activity remains elevated as rising home equity levels and aging U S housing stock and flexibility to work from home have combined to drive homeowner investment.
And although mortgage rates have risen recently they remain historically low.
Even with the anticipated rate increases by the fed we believe the mortgage market will continue to provide financing at historically attractive levels.
As demand remains strong the housing industry continues to experience ongoing supply constraints with no signs of abatement in the near term.
As such volume has remained stable in the majority of our supply of specialty products remains on allocation from vendors.
Even so we are focused on expanding relationships with key suppliers to align with our strategy as we look to increase net sales and specialty product categories expand our value added capabilities and extend our national presence.
Through this strategic focus we secured approximately $200 million of incremental specialty product supply in 2022 from about a dozen select vendors.
This includes product categories, such as Cedar AWP and decking.
And structural products, our focus remains on efficiently serving our best customers, while effectively mitigating risk from ongoing commodity price volatility.
And we will continue to aggressively manage our structural product inventory.
This approach has served us well as illustrated by our gross margin performance in the second half of 2021.
Over that six months period lumber prices per thousand board foot range from 1000 to $390, even with this volatility our structural products gross margin was 9% over the second half of 2021, consistent with our average historical gross margin for structural products.
In addition to supply constraints and fluctuations in commodity pricing, we have effectively managed rising input cost competitive labor market and extended lead times on imports, which represents approximately 20% of our overall vendor supply.
Summarize our view of the market near term demand for building products remains positive the healthy economy, rising wages and ongoing desire for home ownership and renovation.
We expect to continue capitalizing on this robust demand are vigilantly monitoring and controlling commodity risk.
Parallel we are executing our long term strategic initiatives.
These initiatives are focused on commercial excellence and continuous operating improvement, which are core levers for profitable growth.
In support of these initiatives, we continue to develop a performance driven culture underpinned by data driven decision, making and standard repeatable processes.
In January we launched the bound scorecard to drive accountability to Kpis focused on people process and performance.
From a sales perspective, we have narrowed our strategic focus on increasing our mix of specialty product sales growing our private label business and expanding our value added service capabilities.
On the supplier side, we are working with select vendors to partner on key specialty products and categories, such as engineered wood cedar molding outdoor living siding and industrial products.
Our ultimate goal is to drive profitable sales growth and expand gross margins through the combination of an engaged and accountable workforce commercial excellence and continuous operating improvement.
I believe we are in an opportunity rich environment to deliver on this goal.
We continue to strengthen our world class leadership team with proven executives from diverse backgrounds on this front I want to highlight a few recent additions in.
On January 31st South Freemont joined as VP of marketing and communications.
<unk> has over 25 years of experience, leading integrated brand and marketing strategies. He joins us from American family insurance, where he served as a VP of brand and marketing experience.
Integrated analytical approach to our marketing and communications efforts will focus on elevating the bluelinx brand and driving employee and customer engagement through multiple channels.
On February 14th we added Sean Dwyer, Chief strategy, and corporate development Officer B.
He joins us from West rock, where he built and led the corporate development function.
Sean has a proven track record in his addition gives us dedicated internal resources to accelerate growth.
And just last week, we announced that Kevin Henry's joining our team on March 1st as Chief people Officer.
Kevin brings over 30 years of strategic and operational human resource leadership experience to our team.
Previously he served as executive Vice President Chief of staff and Chief people Officer for extended stay America earlier.
Earlier in his career he served in CHL or roles at Snyder's, Lance Coca Cola bottling and nationwide credits.
Kevin is also a current board member for Saia incorporated a publicly traded logistics and distribution company.
He is a highly accomplished business leader, who will bring a strategic focus for our human capital efforts and spearhead the acceleration of establishing our performance based culture.
We are excited with the additions of SaaS, Sean and cabinet and they will play critical roles in driving our enterprise strategy.
In addition to investing in our people. We are also increasing our capital investment in the business.
Last year, our capital investments grew to $14 million about three to four times our historical levels.
In 2022, we continue to focus on enhancing the safety and sustainability of our assets and as such we have earmarked at least $25 million of capital to further upgrade our fleet and continue to improve our distribution branches.
We also plan to upgrade a large portion of our traditional gas fueled forklifts with state of the art higher efficiency forklifts, many of which will be electric.
Additionally, we are investing in technology upgrades to support branch optimization process enhancements and scalability.
From an M&A perspective, we are building a pipeline for opportunities that either expand our specialty product sales mix increase our relevance to key customers or suppliers or extend our geographic reach.
With respect to acquisitions, we intend to be thorough and disciplined as we evaluate strategic fit integration effort.
And return on investment.
That concludes my opening remarks at this time I'll turn the call over to Kelly for a more detailed discussion of our financial results and capital structure.
Following that I'll provide closing remarks before we take your questions.
Kelly.
Thanks, Ray and good morning, everyone I'll begin with the fourth quarter. Our Q4 results reflect continued positive momentum in our business and strong underlying demand fundamentals in the markets we serve.
Fourth quarter net sales were $973 million up 12% year over year. This growth was driven by specialty product not to pay out which increased 29%. This was partially offset by a 10% decline in structural product net sales.
Total gross profit was $194 million, resulting in a 19, 9% gross margin and all time high on a quarterly basis net income was $74 million and diluted EPS was $7 30 per share the fourth quarter tax rate was 25, 2%.
In line with our expectation.
Adjusted EBITDA was $112 million or 11, 5% I've not fail. These.
These excellent results reflect the benefits from our operational improvements and demonstrate our ongoing ability to capitalize on favorable market conditions.
For the full year net sales were $4 $3 billion up 38% compared with the prior year Bruce.
Gross profit was $778 million, an increase of $301 million or 63% and gross margin expanded 280 basis points to 18, 2%.
Our net sales growth and improved profitability for the year were largely attributable to robust demand for building products I've made ongoing supply constraints.
T J pricing action, and our strong execution and selling a higher margin mix of specialty building products, along with continued disciplined structural inventory management.
Notably our specialty product net sales grew 35% year over year with incremental gross profit of 37%.
And our structural product net sales grew 43% when compared to the prior year.
The incremental gross profit on this growth with 11%.
Net income for the full year with $296 million and diluted EPS was $29.99 per share.
The effective tax rate for the year was 24, 8%.
Given the significant gross profit adjusted EBITDA for the 12 months was $464 million up 172% year over year or 10, 8% of net sales.
2021 with no doubt the best annual financial performance, we've ever achieved and despite unprecedented market conditions. We believe that many of the fundamental improvements. We made last year will also support us in the future.
Now I'll discuss the product categories for the fourth quarter, beginning with specialty products.
Net sales were $641 million up 29% or $143 million when compared to the prior period.
Gross profit increased $54 million to $140 million and gross margin expanded 450 basis points year over year to 22%.
The net sales growth and improved profitability were again, driven by strong execution of strategic pricing actions consistently across our branches, reflecting our ability to continue to capitalize on favorable market dynamics.
This growth was modestly offset by lower overall net sales volume, which we attribute to ongoing supply chain disruption.
Despite that the net sales volume in strategic categories, such as millwork and sighting increased year over year.
Through the first half of Q1 of 2022 specialty products gross margin was in the range of 20% to 23%.
And with current market conditions, where demand is continuing to outpace supply in several specialty product categories. We expect these margins to stay relatively consistent throughout the first quarter.
Now moving onto structural products.
Net sales for the fourth quarter with $331 million down, 10% or $35 million as compared to the prior year period.
Gross profit was $53 million or 16% of net sales.
This compares with gross profit of $38 million or 10% of net sales in the fourth quarter of 2020.
During Q4 wood based commodity prices recovered from Q3 loads up to averages of $702 per thousand board, but for framing lumber and $715 per thousand square foot structural panels per random lengths.
Consistent with the approach that we've taken since the onset of the pandemic during the quarter, we continued to leverage centralized purchasing and pricing decisions to ensure we maintained disciplined inventory management and position ourselves to effectively mitigate the risk related to commodity price volatility.
These actions allow us to continue to optimize structural products financial performance, while also enabling us to have sufficient supply for our customers.
In the first quarter, thus far average commodity prices have climbed to $1207 for lumber and 1147 for panel roughly at 72% and 60% increase from the end of Q4.
Even these increases we've experienced greater than 20% gross margin for structural products in the first quarter to date.
Touching briefly on SG&A for the fourth quarter, SG&A was $83 million down 6 million year over year and for the full year SG&A was $322 million up 8 million from 2020 for both Q4 and the full year the changes in.
SG&A were due primarily to fluctuations in variable incentive compensation related to net sales and profitability.
Yeah.
In Q4, we generated operating cash flow of $18 million and free cash flow of $9 million capital investments increased to $9 million in the quarter as we anticipated.
This investment is $6 million related to 100, new curtain side trailers, which are safer than flat bad for our drivers and provide enhanced protection for the products we deliver.
And $3 million was invested at several of our distribution branches as we continue to upgrade and maintain our infrastructure to support safety sustainability and productivity.
For the full year, we generated $145 million of operating cash flow at $131 million of free cash flow at an attractive yield to our market cap.
Capital investments for the full year totaled $14 million and net working capital and that's not what the hundred and $78 million. This working capital investment included $146 million of inventory with approximately $115 million attributable to inflation.
At year end, 80% of our inventory balance related to specialty products consistent with our sales strategy.
This composition of our inventory demonstrates continued progress on our goal to shift our sales mix towards specialty products.
Days sales of inventory increased by 11 days in the fourth quarter versus the prior year period, and six days as compared to the third quarter of 2021. Other inventory continues to be more concentrated in specialty products, which turns out a lower velocity than our structural inventory.
Moving onto our balance sheet.
White mentioned, we recapitalize their debt in 2020 , one which included retiring our 8% term loan in the second quarter amending our credit facility in the third quarter, which reduced our interest rate and extend it out the maturity date from 'twenty to 'twenty, two to 2020 six.
And issuing $300 million of senior secured notes at 6% that mature in 2029.
These actions significantly improved our debt structure and strengthened our financial position to support future growth.
At the end of fiscal year 2021 cash on hand was $85 million total debt was $575 million and net debt was $490 million.
Net leverage was just over one times down from three five times at the end of 2020 avere.
Available liquidity at year end was $432 million when considering our cash on hand, and undrawn revolver capacity of $346 million.
Given our strong start to 2022 and favorable market tailwind, we anticipate generating positive free cash flow again this year.
Overall I'm proud of the work our team has done to recapitalize, our balance sheet and significantly improve our financial position over the last year.
Our new capital structure is balanced and flexible and we believe we have ample liquidity to support investment in our operations and strategic growth.
As we evaluate investment we will be thorough and disciplined with value creation centered on the highest return on investment opportunities aligned to our business strategy.
Looking now at Q1 through the first seven weeks of 2022 market conditions in the U S housing industry remain generally favorable with robust demand for specialty building product and commodity prices well above Q4 average it.
These dynamics in combination with our disciplined approach to inventory management and strategic pricing actions have had a positive impact on Q1 gross margin as I mentioned earlier quarter to date, our gross margin for both specialty and structural products exceeded 20% with specialty projects gross margin modestly about second half 'twenty.
21 level, we expect our Q1 tax rate to be in the range of 24% to 28% and in terms of capital expenditures, we expect to significantly increase our investment in 2022, when compared to historical levels, we anticipate that our cash spending will exceed $25 million this year.
2 million of which is planned in the first quarter as we continue to upgrade our fleet improve and in some cases expand our facilities well also invest in more technology.
This marks an exciting inflection point in our company's history, and we have ample liquidity to invest in our business to optimize operational performance and accelerate organic growth.
In summary, 2021 was a milestone year for our team as we set record profitability for key metrics, including gross profit and margin net income and EPS and adjusted EBITDA and EBITDA margin, we recapitalized, our balance sheet and strengthened our financial position.
I'm proud of what we accomplished and excited for our future and at this time I'll turn the call back over to Dwight for closing remarks.
Thanks, Kelly and clothing, it's an exciting time for Bluelinx.
We are in a central park with a complex supply chain and a value added partner to our customers in an industry that has positive fundamentals.
In 2021, we significantly improved our operating performance and demonstrated the ability to capitalize in a dynamic market environment.
We are creating a performance based culture emphasizing growth in our specialty products and driving continuous improvement throughout the business.
Our financial position is strong and we are investing for profitable growth.
As we look to the future I believe we're in an opportunity rich environment to create long term value for all stakeholders and we are steadfastly committed to that goal.
Yeah.
That concludes our prepared remarks at this time, we're happy to answer any questions.
Thank you at this time it would be conducting a question and answer session. If he would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue. You May Press Star two if you would like to remove your question from the queue and for participants using speaker equipment, it may be necessary to pick up there.
Handset before pressing the star keys.
One moment, please while we poll for questions.
Our first question comes from the line of Greg Palm with Craig Hallum Capital Group. You May proceed with your question.
Great. Thanks, sorry, good morning, everybody and congrats on the continued progress here.
Yeah.
Thank you. Thank you good morning.
I guess.
Starting off with some commentary by by segment and you know, maybe maybe starting with specialty.
So if my math is right I mean nice growth in Q4, but pretty significant growth on a year over year basis, and I'm just trying to figure out how much of that was driven by volume versus price and you know more importantly, just based on supply chain. My guesses there was still quite a bit that was probably left on that.
Tables, so just trying to dig into that a little bit more.
Sure I'll go ahead and start with that so we discussed in the materials, you'll see is they spend more time on that today that we most of that is price, we really had a little bit of a reduction in volume year over year and that's exactly what it is attributable to the supply chain disruption that we continue.
Q2 experience.
And specifically, we see a little softness in more of our AWP business as well as industrials, Although we had some nice upside see low single digit and the millwork and sighting areas our specialty business. So as a whole we felt good considering the situation in Iraq are right around our volumes and then very excited about.
Our our pricing.
And that kind of segways into my next.
Just in terms of sustainability of pricing you know how how much do you think that this might be a little bit temporary just based on where supply chains are versus something.
Something that's maybe more more structural and something that's going to hold over time.
Yeah. This is why I'm you know that is that is a critical point something that we're spending a lot of time on.
That.
We have.
Demonstrated the ability to really secure.
Pricing, particularly on the specialty side of the business and that's a function not only of the supply constrained environment, where also some of the work we've done as a business to really understand what our customers' needs are and make sure. We're providing a service that allows them to be successful whether it be around our responsiveness additional things we do to the <unk>.
Got to get it to them the way they want it when they want it how they want it. So we do believe there will be some stickiness around pricing, particularly on the specialty side as Kelly alluded to over the past few calls and holding at a higher level than you've seen historically.
Well it continues.
I just want to say, we'll continue to maintain you know that we and we've said this the last couple of quarters that we believe that our specialty margins should stay in that kind of 19% to 20% range as the normalized normalized rate I don't we don't have a different feel got right now.
Okay, perfect and just on structural you know my guess is you know the the average price was significantly higher than in the December quarter versus Q3.
So I'm assuming that most of that.
You know sort of delta between a lot higher price and flat revenue as is on purpose. It's just sort of purposefully you know.
Holding back you know volume in inventory.
Can you confirm that and it sounds like it's just a continued focus here you know not only in the near term, but basically going forward as well right.
Yeah, Yeah, I can I can absolutely confirm that we are focused on being really disciplined as to how we treat and manage our structural product inventory, we want to make sure we have sufficient product to meet our customers' needs, but we're not looking to chase the market up and we want to make sure. We can kind of manage it and turn it quickly and that will be the play.
We continue to run.
And the business.
And Kelly are you willing to give us what the margin for structural was in January alone you said quarter to date I'm running over 20%, but what was it specifically in January can you tell us that.
We've had a consistent margin rate you know kind of week week over week throughout the throughout the first quarter. So I don't plan to give a specific for January but it was not materially different than the quarter to date number.
Okay, Great all right I'll hop in the queue, Thanks, and good luck going forward.
Thank you.
Our next question comes from the line of Kurt Yinger with D. A Davidson you May proceed with your question.
Great. Thanks, and good morning, everyone.
Just wanted to go back to the specialty pricing you know if if you look at the 2021 performance, hoping you could maybe just talk a bit about how much of that was kind of supplier driven price increases versus you know your own internal pricing strategies.
Sure. So you know of course, we are continued as well.
Well if everyone in the industry to see supplier driven price increase distance actually towards the end of 2020, we started seeing that in the fourth quarter of 2020 and and throughout 2021.
So while that is part of what's behind that I think what our team has done an excellent job of taking those pushing those through through all the way through to the end customer process and really capitalizing on that and really showing that the premium we can get on these products that are very high.
And then in very specialized so am I I think it's a both answer and that we feel that it's a good bet that's sustainable as it relates to our pricing strategy and of course, the underlying impetus says it's for everyone.
For everyone just thought there's been supplier.
Supplier hikes as well and the other thing I'd add to that in addition to that the team has really been intentional around just improving our pricing.
Approach and rigor.
We're really looking at our portfolio you know, we're a items there'd be items, you see items or the items and making sure they're priced appropriately minimizing leakage driving better discipline and stronger governance around how we do pricing and looking at that for more of a centralized perspective and a more decentralized perspective suggests the quality.
And the complete the support pricing has improved in addition to the points of carry as mentioned and we will continue to drive that across the business going forward.
Got it Okay. That's helpful and then I thought the callout of the specialty inventory investment in Q4 was kind of interesting and why do I think you've touched on a 200 million dollar number kind of along those same lines. So maybe you could just I guess clarify what that 200 million dollar number.
There was talk a little bit more about the inventory investment as well as how you think about you know the ability to start growing segment volumes against what don't look like particularly challenging comps from 'twenty one.
Yeah, no it's a it's a <unk>.
Point, Hey, as we mentioned are driving our mix is an important part of our approach going forward and really strategic for us we want to shift our mix in terms of the percentage of volume that we that we sell to be more specialty business. So that's an intentional thing as we think about inventory, we bring in and how we want to get.
That out to our customers and obviously, we were operating in and an allocated environment. So getting more product is an important part of making that happen. So you know the team has been really.
Potential reaching out to some of our core vendors in terms of our core categories. So if you think about AWP. If you think about outdoor living theater I'm trying to secure more supply and that's what that $200 million, representing so it's split between kind of our private label brands a good portion of the DWP decking from Cedar and we're trying to be.
More product in that kind of supports that mix effort across the business.
Gotcha. Okay. That's helpful. And then you know you touched on some of the different specialty categories that you're kind of focusing on wondering if you could just highlight you know one or two where you see the most runway or feel like you're kind of most underpenetrated.
And then as you think about going after that opportunity is it a downstream kind of sales and marketing push expanding brands or product to new locations and maybe you can just walk through that.
Yeah, So hey, I really like our outdoor living segment scenario, where it's it's really consistent with where all the energy you see in the in the market right now around particularly on the repair and renovation side people thinking about their homes differently place not just to live but a place to work in the play in and invest in those.
And in a meaningful way and an outdoor living decking and other things in particular is a really hot area that I think we could have a lot of value to it.
We have the opportunity to offer that portfolio of products across more of our network. We don't have that across the majority of her network mouse that creates market opportunity and we've built some really good relationships with a couple of vendors.
And brands moisture show being a good example that rarely seen pretty significant growth in 2021, and we're looking to drive even more growth in 2022, and a part of that incremental volume.
Supportive of that as well so I think that's a category that the runway is long the demand environment is really robust and we have a lot to offer.
Got it Okay. That's helpful and just last one for me on specialty margins I mean, it sounds like you know kind of bouncing back up sequentially. Thus far in Q1, but as you think about kind of coming off the peak in Q2 and coming down to about 22% in Q4.
Or maybe you could just touch on what the Big driver was there was it mix or some other factor in.
How we should think about that going forward.
Sure, yes, the the volatility we see I'm in a fairly tight range. It really is around Max so and it really is driven by you know two quarters ago. We had some really nice strength in AWP allocations have taken more of an impact in the last quarter or so we also see some treated lumber and panels and our specialty business.
I thought you had a little bit of fluctuation. So certainly there's a mix element as it relates to specialty which is why we give that kind of floor on the on the margin front normalization perspective.
Okay, well I appreciate all the color and good luck here in the remainder of Q1.
Thank you.
Our next question comes from the line of Reuben Garner with the Benchmark Company. You May proceed with your question.
Thanks, Good morning, everybody.
Hmm.
No.
The back half of the year.
<unk>.
The.
If I'm doing my math, right and specialty business accounted for about two thirds of <unk>.
Revenue and something like 83% or so of gross profits and and that's despite kind of the elevated price environment for the commodities is there any way you could tell us kind of roughly what.
Price you realized in your structural business over the back half of the year. So that is we're trying to figure out a normalized earnings run rate for your business. We could just kind of make an adjustment there because it seems to be you know the gross margin is kind of in line with your historical average the specialty business is much more stable that's kind of the only component we'd need to adjust to.
Kind of see what maybe you would've earned if lumber was that.
$500 instead of $800.
Yeah, well the way our pricing works for structural it.
It's really taking that on random lengths price and then putting on top of that our margin and some freight costs I'm kind of afraid at all so that's really how we ultimately price and while we don't disclose the actual prices that you know.
That's really the way that we you can get to that number.
Okay.
Sure.
And.
Maybe a different way to ask the question that was asked earlier I think Craig asked about the <unk>.
Quench old moving in structural business. It was down 9% year over year can you disclose how much I assume price was likely up year over year can you tell us how much volume, maybe you walked away from or what we're unable to serve because of the supply chain issues.
On the structural side.
On the strike last time.
Yeah. So for one I just want to make sure. We're clear that I don't think we walked away from business because of supply chain issues on the structural business I think that really at lower volume I'm really is coming out of the result of us really maintaining that lean lower inventory to mitigate the risk of it related to the volatility and too.
And so we've been pushing on margin over volume.
As it relates to our structural business and I would say, it's in the 10% ish range. Its where we are on a kind of a year over year.
As it relates to that impact as we continue to really more continue to focus on the specialty side and and continue to hone in on that inventory approach.
Okay, perfect and then to be clear, that's what I, that's what I meant to say so no other questions.
That's faulty.
Margin profile. So a lot of talk about gross margin and I know you guys don't disclose EBIT or EBITDA, but <unk>.
<unk> can you help us with maybe.
How to think about specialty versus structural in terms of profitability further down the line or are there higher a cost to serve in one or the other you know swings in commodity prices, obviously can impact operating expenses with the structural business. So anything you could tell us about maybe what the margin profile looks like maybe you have them.
EBIT or EBITDA level between the two businesses.
Sure well.
So we talked to and for the fourth quarter gross profit, especially there's about 70, a little over 70% of our gross profit and and our cost to serve are are really there might be some small nuances, but at the end of the day, our distribution branches serve both structural and specialty together, we often even have those products on the same truck.
So we don't have a distinction really and the cost to serve as it relates to one versus the other wishes, which is important. So I think you can kind of think about it that way as you're really kind of see how it trickles down into the to the EBITDA number.
Okay, and then I guess as a quick clarification or a final question on that note how does rising prices impact your cost to serve so in other words specialty prices up.
Call. It 30 plus percent year over year does that if that number were volume increasing 30% would that have a different impact on on your SG&A expenses.
It would not directly having an immediate impact on that we you know.
Our SG&A is relatively stable and mostly fixed we do have variability I relate to labor you know pricing labor cost and some fuel costs in there, but it's not directly correlated to the pricing of our product.
Okay, great Congrats guys on the strong results and good luck moving into the.
The rest of the point too.
I appreciate it thank you.
Our next.
Western comes from Jeff Stevenson with loop capital you May proceed with your question.
Hi, Thanks for taking my questions today, and congrats on the great quarter.
Thanks, so much.
Uh huh.
Sure sure. So my first question is just on specialty volume growth in the first half of the year given the supply constraints remain elevated do you expect it to be kind of a similar level of declines as the fourth quarter of war, maybe it'd be a little higher due to tougher first half comps.
Yeah, I think you know.
I think we will see continued challenges on the supply side, you know I was having some conversations over the past couple of weeks some of our large vendors also had the opportunity to meet with him again at the builder show I'm not.
Not too long ago, and here's the reality I mean, they got hit pretty hard.
In the late December early January from a labor perspective, with the army crime variant in many instances. They had you know absenteeism in the 20% range.
All of that with some of the struggles you've seen on the transportation side, either weather, driven or or trucker, driven freedom convoy in Canada and some other challenges is really put a.
A damper and their ability to get product out to the extent. They wanted to so I think we're going to feel some of that through the first quarter for sure and hopefully see that easing a bit as we move into the second quarter, but I think on overall basis, I'm expecting supply environment not to be significantly different than it was second half of 2021 hopefully.
We'll see some improvement as we move into the second half of 2022.
Got it no that makes sense.
Then just ask a different way on specialty products margins, obviously in the first quarter, they're going to remain elevated due to continued supply constraints and also you'll get some tailwind from more commodity prices since yes, 10% to 15% exposure there, but as you looked at kind of more normalized 19% to 20% levels and I know this is.
Probably hard to answer right now, but do you think that normalization.
Holt occur maybe more in the second quarter or will it be more of a later back half story.
Yeah, I mean, I really don't think we can tell [laughter] not because we know we I think we don't know.
You know I think that the outlooks that we see and what we've read and I've seen in the research recently he says that we expect supply chain disruption to continue for.
Recent amount of time, maybe you know definitely through the first half maybe into the second half, but that's just what we read we don't officially now so I think as long as we have that situation, we're going to see a.
Similar to what Duane said, a consistent output coming out of specialty.
Got it that makes sense.
And then lastly between the added flexibility to come October step offering and our recent appointment of a chief strategy officer. It seems like Bluelinx was looking at a return to M&A sooner than later, but I was just wondering if you could talk about kind of where things stand there and when will they maybe we could expect.
Oh deal could come at some point here in 2022.
Yeah, absolutely hey that that if you look at our business when you look at.
The levers we pull them fair value I think our scale is one of them and I think we have opportunity to fill out our footprint.
Certain markets, where we like.
The end market profile, and we think we got off to a really good value there based upon our expertise and our capability. So that's that's a that's something that we're looking at as we think about inorganic opportunities. In addition to anything that accelerates our <unk>.
Movement, a stronger specialty focused indoor allows us to service our really core customers are key customers in a more holistic.
Holistic way so that's kind of the thesis as we think about M&A, it's an interesting market out there there's.
Activity.
But we want to make sure that it's something that we're excited about that kind of fits in checks. Some of those boxes that we that I just mentioned and that we feel that we can integrate well and in a really tough one plus one and three so we're active we're looking or in conversations and.
You know, we're optimistic that we'll be able to kind of move the ball down the field and of course, we're trying to.
Great to hear best of luck moving forward.
Thank you very much.
Our final question comes from the line of Kurt Yinger D. A Davidson you May proceed with your question.
Great. Thanks, and I appreciate you taking the follow ups.
Just wanted to go back to the comments on operating expenses. So you know if the costs are spread there between segments and and you know both sets of products on a truck why not maybe lean into more commodity volume at at some stage and I'm, not saying go out and load up on lumber at 1200 Bucks.
You know if we saw prices come back down with the improved balance sheet and liquidity position.
How do you think about maybe.
More aggressively going after that business and leveraging that largely.
Fixed SG&A.
Yeah, so listen I want to be clear we did.
Structural business is something that we appreciate and allows us to really be a full service partner for our customers. So we're going to look to continue to make sure that we are able to service them well and we have availability that's appropriate.
That being said you know if you look at our results. If you look at what generates margin for us and he looks at what generates cash for us. It's a specialty business. So we want to make sure that we're investing in that appropriately.
Well that kind of meet the needs and get growth there in a consistent basis.
We like our our operational capabilities and our cost to serve we think there's opportunity to kind of leverage that.
<unk> across both parts of the business and we'll continue to do so.
But we're going to do it in a thoughtful way we can do in a way that kind of place. The most value for the organization that allows us to deliver the best experience for our customers, we're not going to chase structural volume.
Make sure we have sufficient that we can perform at a high level.
But you know we're going to really look to kind of be balanced and really drive a mix to specialty and a consistent.
Pat.
Got it Okay. That's helpful. And then you guys talked about M&A, a little bit, but maybe you could just touch on how youre thinking about potential kind of greenfield organic expansions in the puts and takes there and then you know what type of kind of level you think.
As appropriate in terms of cash to hold on the balance sheet.
Yeah. So hey, we are we are ramping up our investments in organic activity. So you know we've talked about increasing our capex investments we're excited about that.
We we are we absolutely believe that the best investment you can make is in organic investments in driving our business forward, so whether that be new equipment or that'd be increasing capacity in our branches, whether it be technology to drive efficiencies, we're focused on that and we have a healthy pipeline.
Pipeline in place of Capex activities and projects that we're gonna be executing in 2022 and beyond inclusive of no consolidating branch locations are expanding branches and adding more capacity, where we have the space. So we're excited about that and we're going to lean into that we think that will create the opportunity to drive growth and service our customers better.
And you know where all the way it's going to be thoughtful about other opportunities inorganic in particular that can accelerate progress on our strategy, but we're excited about the opportunity to really lean into our business and make it better.
Okay, Alright, well I appreciate the color and good luck again.
Thanks again appreciate it.
Thanks, Kurt This is Ryan I want to thank God all of our analysts for the thoughtful questions and for joining us today on the call I. Appreciate all those that also joined us on the webcast.
At this time, we're going to conclude our Q4 and 2021 full year earnings call. We appreciate the support Alexandra and I will be available through the rest of the day and throughout the remainder of the week to answer any follow up questions. You may have thank you. So much for joining US we'll talk to you next time.
This does conclude today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a great day.