Q4 2022 Bluelinx Holdings Inc Earnings Call
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Greetings and welcome to global hobby.
Fourth quarter.
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A question and answer session will follow the formal presentation.
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Introduce your host Alexandra manager I'll do that.
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Morning, everyone and welcome to the Bluelinx Holdings fourth quarter and full year 2022 earnings call.
<unk> today are Dwight Gibson, President and CEO of Bluelinx, and Kelly Johnson, our Chief Financial Officer.
Our fourth quarter and full year news release and Form 10-K were issued yesterday after the close of the market along with our webcast presentation.
These items are available in the investors section of our website.
With links C O dotcom wave.
We encourage you to follow along with the detailed information on the slides during our webcast.
Today's discussion contains forward looking statements actual results may differ significantly from those forward looking statements due to various risks 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 Dwight.
Thanks, Alexandra and good morning, everyone.
Thank you for joining us on the call today.
Over the past year, our team has built bluelinx into a stronger more profitable and more resilient business, we have transformed our balance sheet.
Average under one times and total liquidity of $645 million.
Despite the softer market environment, we are positioned to continue to execute our strategy, which includes growing our higher value specialty product sales.
Driving operational excellence across our business.
Fortifying, our balance sheet, while investing in profitable growth and.
And building a strong team that is committed to driving a high performance culture and generating long term value.
In 2020 'twenty two.
But market conditions combined with the strategic priorities contributed to us achieving what is the best annual financial performance shoes, and our history in terms of its net sales earnings per share adjusted EBITDA and operating cash flow.
Even as market conditions began to decline late into the year.
For the fiscal year 2022, we delivered $4 $5 billion in sales and $296 million and net income.
This translated into adjusted EBITDA of $478 million, a new record and more than $32 and diluted earnings per share on an adjusted basis.
We also generated a record $400 million in operating cash flows of which approximately 170 million was allocated during the year to acquired Bandon medifast products for $67 million.
Capital investments that improve the effectiveness of our distribution facilities and fleet and acquire 9% of our outstanding shares under our share repurchase program.
For the fourth quarter of 2022, we generated net sales of $848 million and $32 million of net new car.
This resulted in $3 97 per diluted share on an adjusted basis and $53 million for adjusted EBITDA.
We also generated $154 million of operating cash flow a significant increase of $136 million over Q4 last year.
Our fourth quarter results were solid despite lower sales volumes, resulting from a meaningful decrease in overall market demand given the macroeconomic environment.
Even with the softer demand we were able to deliver strong margin performance in both specialty and structural products by staying disciplined with our pricing approach.
We also continue to emphasize efficiency across our distribution facilities and managed our overall operating costs.
We focus on our working capital management, which included a disciplined approach to our overall inventory on hand.
These actions allowed us to deliver strong profitability and robust operating cash flows for the quarter.
In January earnings were in line with our expectations, we experienced softness on the top line and we continue to focus margin maximization.
Now I'll share our perspective on our markets.
Our end markets with repair remodel residential new home construction and to a lesser extent commercial markets all experienced significant growth over the past few years as demand vastly exceeded supply.
Over the past year, however, mortgage rates have more than doubled impac.
Impacting both single family housing and repair and remodel demand as consumers adjust to the higher rates.
Home prices have also appreciated meaningfully contributing to significantly reduced home affordability for most buyers.
Inflation has E sun, but remains elevated.
This lack of housing affordability and general economic uncertainty has led to a significant reduction in new housing starts.
In January single family housing starts declined 27% year over year.
With housing starts down single digit sequentially from December .
As we look at 2023, we believe single family housing starts will continue to be double digit decline as compared to 2022.
As the macroeconomic environment continues to impact the industry and until there is more certainty around mortgage rates.
We are more optimistic regarding repair and remodel and believe recent housing turnover aging housing stock and high levels of home owners equity will support better performance for the repair remodel market during 2023.
Many home owners are also locked in with a mortgage rate below 5% and may not have a desire to move and trade up for house with a higher rate.
I think it will likely seek to customize update and upgrade their existing homes.
We expect to repair and remodel activity to remain relatively flat for 2023.
Despite these market dynamics, we believe that the fundamental under supply iphones and supportive demographic shifts along with H housing stock necessary repair activity and heightened levels of home equity continue to be positive indicators for the housing industry over the medium and longer term.
During periods of market softness we believe it is important to balance the short term needs of the business with our long term strategic priorities.
We will continue to prioritize a fortified balance sheet, managing our cost structure appropriately can match and levels of demand and maintain rigor around our pricing discipline.
We will continue to work closely with our customers and suppliers to navigate the economic cycle.
Our long term strategic priorities remain the same.
We will continue to focus on growing our specialty product sales.
We will continue to optimize our operations to improve efficiency.
We'll further expand our relationships with strategic suppliers and key customers.
And we will continue to create value for shareholders through disciplined capital allocation.
Lastly, these items disciplined capital allocation central to our value creation strategy.
Today, we have significant cash and ample liquidity not only weather a downturn, but also to pursue both organic and inorganic growth investments as opportunities arise.
We view the current softer macroeconomic environment as an opportunity for acquisitions.
We will remain prudent in our approach ensuring we secure quality businesses at a fair valuation.
In summary, we have delivered strong financial results in a challenging environment and made progress in our long term goals.
Our strategy, along with our strong balance sheet and a disciplined approach to capital allocation positions us well to navigate the downturn and to take advantage of the market when it improves.
I'm proud of the entire Bluelinx team for their efforts and contributions to deliver an excellent 2000 2022 results.
That concludes my opening remarks, I'll turn the call over to Kelly for a more detailed discussion of our financial results and capital structure.
With that I'll provide closing remarks before we take your questions.
Kelly.
Thanks, Dwayne and good morning, everyone I'll start with the full year results and then turn to the fourth quarter performance.
That's why I mentioned 2022 was indeed, one of the best financial performances in our company's history for the full year net sales were $4 $5 billion up 4% compared with the prior year.
Gross profit was $833 million, an increase of 7% from the prior year and gross margin expanded 50 basis points to 18, 7%.
Net income was $296 million and diluted EPS was $31 51 per share on.
On an adjusted basis net income was $306 million and diluted EPS was $32 55.
Adjusted EBITA for the 12 months was $478 million up 3% year over year or 10, 7% of net sales.
We generated $400 million in operating cash flow and $364 million of free cash flow. We ended the year with $645 million of available liquidity, along with a net leverage ratio of <unk> six times.
Our full year performance provides us with a fortified balance sheet that positions us well going into my more challenging cycle, while giving us the flexibility to execute on our strategy more effectively.
Now looking at the fourth quarter, our performance was solid despite a shift in market sentiment and a swift decline in volume starting in mid November that continued through the end of the year.
We generated record operating cash and delivered strong margins for both our specialty and structural product categories.
Net sales were $848 million and when we compare this to the fourth quarter of 2021, a period, where we saw significantly strong demand and price inflation net sales were down 13%.
Specialty product sales represented 70% of net sales up from 66% last year.
And they were down only 8% over the prior year, while structural product sales were down 23% due to significant year over year declines in commodity prices as well as decreases in volume.
Gross profit was $151 million for the quarter, while while total gross margin was 17, 8% with specialty margin of 21, 1% and structural margin of 10, 4%.
82% of our gross profit was from specialty product sales up from 72% in the prior year period.
Turning now to the fourth quarter results for specialty products.
Net sales were $592 million down 8% year over year and as I mentioned earlier. This decline was primarily driven by lower volume compared to the prior year period, where demand was very strong.
Gross profit on specialty product sales was $125 million down $16 million given the sales decline.
Specialty gross margin was 21, 1%.
Up 20 basis points, when compared to the third quarter of 2022 and down 80 basis points year every year.
Through the first seven weeks of 2023 specialty products gross margin within the range of 18% to 19% with daily sales volumes down approximately 15% compared to prior year, reflecting the challenging macro environment.
Now regarding fourth quarter results for structural products.
Net sales were $256 million down 23% compared to the prior year period.
This decrease was primarily due to the year over year declines in average composite lumber and panel prices and to a lesser extent lower volume.
Per random length, the average price in the fourth quarter of 2022 for framing lumber was $449 per thousand board foot.
Down 36% year over year.
And the average price for panel was $528 per thousand square foot down 26%.
Structural sales volume decreased approximately 11% year over year, particularly later in the quarter as market sentiment shifted.
Gross profit was $27 million a decline of 50% year over year also primarily resulting from lower commodity prices and gross margin was 10, 4% as compared to 16, 1% in the prior year period.
As of the end of the year lumber prices were down to around $380 per thousand board foot and panel prices declined to about 473 per thousand square foot or 23% and 21% decrease respectively compared to the start of the fourth quarter.
These prices have improved in the first seven weeks of the year and now are 438 per thousand board foot and 507 per thousand square foot.
Our solid structural margin amid steep commodity price declines demonstrates the exceptional job our team does to manage structural inventory through leveraging confinement and utilizing centralized purchasing and pricing decisions to keep structural inventory levels low and mitigate wood based commodity price volatility.
<unk> breadth.
Over the past two years, we have reduced structural inventory.
By approximately 67%.
Which has significantly improved structural margin stability.
Through the first seven weeks of 2023 structural products' gross margin within the range of 10% to 11% with relatively consistent sales volumes when compared to last year.
As a reminder, we estimate our normal structural margin to be approximately 9%.
This range excludes any net impact that could arise from inventory adjustments, we will continue to evaluate market pricing for wood based commodities and adjust accordingly at the end of each period.
For the fourth quarter SG&A was $92 million.
Relatively consistent with the quarterly run rate we've experienced throughout 2022.
For the full year SG&A was $366 million up 14%.
Over fiscal year 2021.
For both Q4 and the full year the year over year changes in SG&A were due to higher delivery costs, along with investments to build capabilities in our workforce and to support our specialty growth.
And improve the effectiveness of our distribution facilities.
Net income was $32 million and diluted EPS was $3 50 per share.
On an adjusted basis net income was $36 million and diluted EPS of $3 97.
The fourth quarter tax rate was 21, 5% in line with our expectation.
For the first quarter of 2023, we anticipate our tax rate to be in the range of 24% to 28%.
Adjusted EBITDA was $63 million or seven 4% of net sales a strong result, given current market conditions.
Turning now to cash flow and working capital.
During the fourth quarter, we generated record operating and free cash flow of 154 million and $137 million respectively.
For the full year, we generated $400 million in operating cash flow and $364 million in free cash flow.
Our fourth quarter cash generation was supported by $122 million reduction in receivables.
And a $68 million reduction in inventory refresh, reflecting some deflation and impact of the softening demand for building products.
We ended the year with $484 million of inventory down 10% sequentially from the third quarter as we continue to manage buying decisions and adjust overall inventory level to market condition.
Since the end of the year, we've reduced inventory by 5% driven by a reduction in specialty inventory.
During the year, we allocated $169 million of capital.
In October we acquired van der Meer Forest products for $67 million <unk>.
Extending our geographic reach to the Pacific Northwest, which provides us a platform for specialty growth.
Capital investments for the full year were approximately $36 million of which $17 million was spent in Q4.
The full annual amount, primarily enhancements to our distribution branches and upgrades to our fleet of rolling stock.
It presents the highest annual capital investment level in our history, and we expect capital investments to remain around $30 million in 2023.
And earlier in the year, we repurchased 9% of our outstanding shares for $66 million.
Of which 60 million was done through our accelerated share repurchase program.
Currently we have $34 million remaining under our authorization for additional opportunistic share buybacks.
As a reminder, our guiding principles for capital allocation remain consistent.
We intend to maintain a strong balance sheet, which enables us to invest in our business.
Through economic cycles, while maintaining a long term target of net leverage of three times or less.
Looking now at our balance sheet.
As of the end of fiscal year 2020 to cash on hand was $299 million a record level.
Total debt was $573 million and net debt was $274 million and we have no material debt maturities until 2029.
Net leverage was two six times down from one one times at the end of 2021.
When considering our cash on hand, and Undrawn revolver capacity of $346 million available liquidity was $645 million at the end of 2022.
Reflecting on the past year, we have been deliberate in our approach to fortify our balance sheet and when combined with our strong EBITDA and cash generation.
Has significantly improved our financial position to weather this more challenging cycle and support our strategic initiatives.
In turn enabling us to expand our capital allocation prospects and invest in high return opportunities such as organic growth investments acquisitions and share repurchases.
As Ray mentioned earlier, we are expecting weaker demand for 2023 that was foreshadowed by the volume decline we saw late in the fourth quarter of 2022.
In the current environment, we expect that volumes will be softer and that specialty pricing will remain under some pressure, which will result in short term margin compression that is slightly lower than our mid term targets.
Our focus remains on executing our strategy, maintaining a strong financial position and delivering long term value to our shareholders.
Now I'll turn the call back over to Dwight for closing remarks.
Thanks Kelly.
Uh huh.
For the fourth quarter and full year 2022, we delivered solid results highlighted by strong margins and record operating cash flow generation.
We continue to make good progress on our strategic initiatives.
<unk> and our higher value specialty product sales.
Optimizing effectiveness distribution branches and building capabilities within the organization.
Our financial position is very strong.
Ample liquidity, no impending material debt maturities and a low leverage profile.
We have built a stronger more resilient business and are prepared to navigate the downturn and continue to progress towards our aspiration to be the leading wholesale building products distributor with a top brands and customers in North America.
We remain focused on the things within our control.
To create long term value for all stakeholders, we are steadfastly committed tobacco.
That concludes our prepared remarks at this time, we are happy to answer any questions.
Thank you.
So my question and answer session. If you would like to ask a question. Please Paul.
On your telephone keypad.
All information.
Your line for questions Kim.
Plus the slideshow Julien.
Julien Michel so on the question Kim.
Yes.
Oh man.
It may be necessary to be comprehensive you saw class E.
One moment.
Wonderful.
Our first question comes from.
Craig Hallum Capital group.
No.
Yeah. This is a journey acreage on for Greg today, Thanks for taking the questions.
Just more broadly on hey, guys I was just more broadly on maybe the overall you know.
Housing environment, maybe your thoughts right now relative to a month or two months ago, you know given what a lot of the homebuilders have been you know comments coming from from their calls maybe I'm a bit better than feared so I guess just looking ahead to 2023, how you're seeing the overall maybe more.
New home construction market relative to what you were thinking a month or two months ago.
Yeah.
Thanks for the question, we still expect.
It could be a challenging market on the new home construction side in 2023.
Think.
The mood is a bit better, but it's still expected to be double digits down year over year, and we think that's appropriate just given the activity levels, we're hearing from the builders and their communities.
Conversations as a part of that at the builder show earlier this year and what we're seeing in our business and what we're hearing from our customers. So we still think it'll be a down year on the new home construction side in our guidance or expectation is kind of in the double digit level mid teens or so.
Yeah.
Got it.
Just digging into one on the specialty margin I appreciate the color on quarter to date, so far in that 18% to 19% range.
Maybe just digging into that a little bit more you know obviously coming from that 21 point.
One percentage in Q4, that's a it's a fairly sizable sequential decline, which you know isn't isn't you know normal seasonality. So maybe whether it's pricing or volumes. Maybe you can just walk in and some of that stuff in a little more color on what's going on with the specialty margin.
So Danny well you know I think we've been saying for a number of months now that we didn't expect the 21% to be a sustainable number when we went to a more normalized environment. We had been talking about that 19% to 20% type of range and of course, we're seeing a bit more impact than what you would consider normal I believe.
But the team has done a great job you know holding price in this rapidly changing demand environment.
And and the primarily primary reason, we're seeing that decline is really around the demand pressure, particularly you know we've had lower demand on AWP recently, that's a high margin product.
However, as Costa just a you know.
As we keep going I think we would expect to stay in kind of a similar range that we're seeing right now that 18 and 19%.
Unless things get you know a lot worse, but right now I think that you know we're kind of coming right in line with what we thought we would be when the when the when the market would correct.
And then you know there's a there's just other dynamics as far as working through market share and inventory management. So so yeah I I I don't think we are surprised by that impact and we're managing it really closely and like I said the team is doing an excellent job on price right now.
Yes.
A bit of color to that I think can recaptured it really well I think the demand environment has really evolved meaningfully in the past 60 days or so and I think the team has been really focused on a couple of things one are making sure we are focusing on our customers and services Pembina and <unk>.
High quality way and so we've done a lot of work around customer segmentation and that's just remains a priority for us than to Kelly's point in the mix. The mix has shifted a bit AWP higher margin category for us, we're seeing fair amount of demand pressure, there and working through that and also the suppliers scenario is very different now than it was.
Order ago and manufacturers are adjusting prices.
To reflect that and we're working to kind of manage through that as well. So you know.
We're confident that the margin profile of our specialty business will continue to be meaningfully better than it was pre pandemic, we want to make sure. We're in a position to be opportunistic protect our share and continue to focus on our customers and a higher quality right.
Alright, it makes sense. Thank you both Hollywood there.
Thank you.
Our first question comes from Scott.
Got it.
Please go ahead.
Great. Thanks, and good morning, everyone.
There's been a pretty consistent theme in building products here in the second half of 'twenty two around channel inventory Destocking and some areas have been impacted more than others, but.
You seem to have completely avoided that dynamic.
Last quarter, you talked about seeing that a bit millwork, but as you kind of look across the different areas within specialty today are there any that stand out to you where you feel like order rates are in.
Really negatively impacted by customers running down inventories or anything of that nature.
Yeah, Kurt Thanks for the question.
We're absolutely seeing different different.
Demand profiles across the specialty categories Interestingly enough millwork is actually holding up pretty well and as well as our industrial categories in pricing. The most pressure on the AWP side and I think that's probably consistent with what.
Manufacturers are saying in the overall market is saying and just given what's happening with starts and things of that nature. So we'll continue to manage through that we've actually had some success in that category in a couple of our regions and we're committed to continuing to position ourselves to be there.
Distributor of choice around that category and all the value add things we do.
To make sure we.
We can continue to support our customers in a high quality way.
Got it I appreciate that but does it seem like you know we've kind of largely moved past that in Q4, and and we're kind of back at normalized levels and it might be.
Ah I might see a little bit of a seasonal bump heading into Q2 or where do you think we are in that.
Kind of Destocking equation.
Yeah, I think listen I think it's still relatively early in the year, we kind of shared what we're seeing through the first seven weeks, which is a volume down in specialty.
Year over year.
The comparable was a pretty strong run.
'twenty two with the big bump up in demand and inflation.
So that's all going to be mindful of but we still think we're not quite all the way there yet I think our customers are still a bit cautious. So we're trying to navigate this uncertain environment and theyre being very.
Very lean in terms of their stocking levels and we're making sure that we are also managing that appropriately so not quite all the way there and again, we'll see how this year goes but we think we're prepared and positioned to navigate it successfully and be ready to pounce, when where you see recovery.
Got it makes sense.
And then just at a high level could you talk about any kind of vendor wins or expansions with key brands that are.
You are particularly excited about in 2023 and do you feel like the current environment is more or less advantageous in terms of kind of the refreshed bluelinx platform starting to resonate with suppliers.
Yeah I mean.
It's a fun topic and I could talk about that a lot. So I'm going to try to rein myself in a bit here. Yeah. The team has worked really hard to make sure that we understand and build deeper relationships with suppliers that we feel are strategic and we've made some some nice progress there so.
<unk> is a good example, where we've been able to kind of really secure some more supply in even a stronger distribution relationship.
And in the Texas market and a few others.
The floor. So it's something we're very very excited about we're continuing to kind of make progress with some other major siding suppliers that we've worked with historically and a couple of other markets is wrong excited around what that's going to do for the business and then we've also looked at partner even more closely with some of our larger suppliers on the AWP side and that's going to.
US and position us well in a couple of regions, where we weren't.
We weren't at the supplier level, but I wanted us to be to make sure we could take care of opportunities. So definitely progress about Shaw feel encouraged by that and then on the customer side as well you know we've spent a lot of time and energy, making sure we understand where our critical customers are both regionally and nationally and we've been able to secure some wins in our specialty categories with them as well.
That position is we're all I think as we move through 2023 again against a broader backdrop of tougher tougher macro could Brian , but I think our supply situation, it's probably in the strong suspicions it's been in a while and we're starting to make some good traction with the customers that we're focused on.
Great Great that's.
That's really encouraging.
And then just my last one could you talk a bit about the contributions you've seen thus far from vandermeer end and any kind of initial learnings or observations regarding that business and deal.
Yeah, we're really excited about having Brandon Muir forest products as a part of the Bluelinx family tremendously.
Tremendously talented team very customer oriented very commercially minded they have great deep high quality relationships and.
Incredibly proud of the progress you've made in a very short period of time.
The thing that's really been very exciting is the opportunity for product expansion in that market. They had really good capabilities in specialty, particularly the siding side, we've had the ability to to improve kind of their AWP offering built bringing some additional products.
They hadn't had access to them, which is creating some good opportunities for growth and we're starting to see that we've been able to kind of grow with some of the existing customers as we've established programs for 2023, and then the operational side they worry.
They didn't own their own trucks that have their own fleet. So they generally are delivered products through third parties, we're starting to put some some.
Some equipment into that market, which provides a little bit more consistency around delivery and we're seeing that translate to growth opportunities as well. So early days, yet, but integration is off to a good start and we're excited about them.
Possibilities of that business overtime, yeah, and I'll, just add that you know it related to the acquisition model, they're actually over delivering to that line and also the financials have been excellent and it's just been a really nice accretive business to our company.
Got it alright, well that's excellent good luck here in Q1 guys. Thank you.
Thank you. Thank you.
The next question comes from Robin, Florida.
Please go ahead.
Thank you and good morning, everybody.
Hi, good morning.
Maybe the follow up on the on the mix.
Duston within specialty as is it safe to say that AWP, probably was down more consistent I guess you could just use the start of this year more consistent with that.
Single family starts decline that you discussed in the month of January and and the other products maybe were you know.
Down, but more much more modestly is that a safe assumption.
Yes, I think it's safe to say that you know the biggest impact we've seen is AWP as it relates to just the finishing up of the pipeline that came out of last year as well as the starts down as you mentioned so I think both of those are contributing.
And that's what we're seeing and then as it relates to other product lines. The other part the other product lines are actually really holding but really hanging in there as a whole are clearly we have year over year variance. That's why I mentioned that are pretty.
A pretty sporty right. So last year, its really not the best benchmark, but I think we are.
You know its certainly more of that than anything else.
Okay, and those other products would be more exposed to the R&R market that youre thinking is more flattish right. So.
And that same thing is there something going on in the structural side to start this year I was a little surprised to see those volumes flat I know you guys weren't exactly chasing business a year ago. So maybe it's just an easier comp.
Dynamic, but any color you could give us is it inventory rebuild that some of your customers. After maybe they've got carried away at the end of <unk>.
22, any color on why that was.
So strong to start the year.
Yeah, I think it's more of the first thing which is really we have all been just trying to maintain a steady structural business.
As it relates to really mostly focusing our specialty business and then continuing on with that you know our core business volume and market share that we have and I think youre, saying that in addition, our team has just really stepping up as it relates to ensuring that we're getting everything that we can in this in this market, so and and not only that.
The the margins they've been able to we've been able to to generate considering the deflationary kind of ups and downs that we keep seeing in the commodity market, albeit it's not been as dramatic as it was previously.
But it certainly has been downward pressure and the team is just doing an excellent job on on both fronts, both holding volume and and maintaining that price or we're still very committed to the inventory lean inventory approach that hasn't changed in fact, its leaner now that was even 12 months ago. So I think it's just continuing to.
So that it works and it gives us the time to focus on our specialty strategy.
Great and then last one for me Kelly you you made a comment about your midterm margin target and I missed it I want to make sure I heard it correctly could you repeat what you said I think it was something about this year.
Coming in below that but could you just clarify for me.
Yeah, I think what we're just what we're saying is where you know we put at the midterm targets in June right. So we said the volumes are going to be softer, but softer this year and that the specialty.
Pricing would remain under some pressure this year and when we did the midterm targets. It was assuming some normalization, but not the really the decline that we've seen in the market at least to date. So we do expect there should be some short term margin compression and I think we talked to you know we saw that in the 18% to 19% range, which is about 100 basis points.
Lower than the range, we had given previously if we can move to a more normal environment that 19 to 20. So that's what we're alluding to there in that.
And the and scrap.
Got it very helpful and if I could sneak one more in actually so the specialty the structural category as I don't Wanna say easy, but it's easier for us to kind of get a sense on where pricing is can you give us any kind of.
Indication on what specialty pricing looks like or could look like this year, maybe what it is down year over year for the first seven weeks to something to kind of you know theres a lot of moving pieces within there I'm sure EW P is the bulk of the pressure, but anything you could give us would be helpful.
Yeah, So like we said.
It's a bit of a unusual environment, where you have.
Hum rates doubling in under a year supply constraints easing.
Relatively short period of time in the second half.
And other uncertainty in the broader environment coming together that I think is really.
Impacted demand in a meaningful way.
For our products.
History in general.
So as that settles and theres, a little bit more certainty around rates, we think.
The overall environment will be will be closer to what we expect on a normalized basis, but all those things together have contributed to manufacturers are kind of looking at price as a way to drive.
Volume in the market. So we've seen kind of the pricing pressure on AWP side, and we're seeing it to a lesser extent in other specialty categories, but we expect that to continue to be the case as folks try to find equilibrium price that makes the most sense.
And a much softer market so to Kelly's point, we think that will put pressure on specialty margins a bit.
But again, we are prepared to kind of manage through that make sure. Our costs are appropriately aligned with where demand is we're going to make sure that we're focused on the customers that we have an opportunity to grow wallet share with going to try to be opportunistic around getting share with good customers in markets, where we have good capability and kind of manage through that but we think.
The pricing environment.
Should be fairly similar to what we've seen so far this year.
Tools things normalized.
Okay.
Great. Thanks, guys. Good luck going forward.
Thank you. Thank you.
Next question come from Keybanc.
Steven Kwok with loop capital markets. Please go ahead.
Oh, Hi, this is Gary Morris on for Jeff. Thanks for taking my question I wanted to ask first off just on the repair remodel side I. Appreciate your view of flat for this year, but I'm just wondering if youre expecting that to be consistent throughout the year are you seeing perhaps any any warning signs there.
As well just given the inflation and the macro considering there's been some noise from some of the manufacturers and retailers on the R&R side of the equation.
Yeah. So yeah, we think it's going to be relatively flat depending on.
Which forecasts or you look at it's either slightly up or slightly down and so we think it's going to be within that range.
There's a couple of things that are supportive of that we think.
If you look at any of the data recently around home pricing there are generally holding them for the most part.
In some instances up slightly year over year.
We think home equity again remains at a historically high level.
Given the cost of debt and the rates that most or many homeowners are locked in at the.
Opportunity to improve in place and invest in their homes, we think remains meaningful coupled with the fact that unemployment is still at record low levels. So the homeowner for the most part as inflation starts to come down a bit I think is a little bit more confident around making investments in there in their homes so that.
That's our thinking around what's going to provide some support for R&R and we expect that to be relatively consistent through the course of the year, obviously, if things change in either direction.
That outcome in that outlook could could change, but that's that's kind of where we're at right now.
No I appreciate that I wanted to switch to SG&A I'd had a pretty consistent run rate here on the call at $92 million per quarter range is is that a pretty good assumption to still use here in 'twenty, three and maybe just speak to some of the cost baskets supporting them.
E vapor logistics.
Sure well one thing I do want to mention is that we did have some vandermeer cost additive in the fourth quarter. So our run rate was actually a little lower than what it had been in the rest of the year when you consider that.
That was probably a million and half to $2 million range. So we're really closer to 90 and and certainly we are going to be.
We look at cost very very closely and we.
We're going to ensure that it's aligned with what you know what.
Profitability profile looks like in this new environment. So I would expect it to not be more than that of course, and we're going to continue to actually drive efficiency and focus on it <unk>.
Continuing to make adjustments as needed to two.
To align with the.
The demand profile.
No understood. Thanks again best of luck.
Thank you.
Next question comes from Walter Liptak.
With seaport.
Go ahead.
Hey, good morning, guys.
Wanted to ask one hi, how are you doing I wanted to ask one from 60000 feet.
So at the analyst day.
Talked about lumber prices kind of in your long term.
400 and at that level.
Bluelinx EBITDA and around $2 50.
And so obviously, there's been some things that have changed since the analyst day I Wonder how you think about that is that still a ballpark or have you given.
Some new thoughts.
Yes. So I appreciate the question and as you know, while we don't give.
Guidance on an annual basis, but we think if I break the business into between our specialty and our structure will start with structural we feel we feel pretty good about our ability to to kind of navigate that environment I think our performance over the last year and a half kind of supports that with meaningful volatility so being able to kind of do.
<unk> margins in that 9% range and even with some of the volatility we saw.
The inflation, we saw in Q4, we were able to do better than that so we think given where prices are now closer to the historical average and they have been in the past our ability to kind of execute against that business is pretty good.
On the specialty side similar story I think.
Spent a lot of time and energy optimizing our commercial capability around there as we think about customer segmentation as we think about improvements around our pricing capability pricing more consistently.
Having having better visibility around overrides.
Analytics, and we think that's going to be supportive for specialty margins over there over the medium and definitely over the longer term, but this current environment is very different than it was in June you got starts down 15%.
Have rates and affordability a bit higher and you have a lot more supply.
Available. So I think it's going to take a bit of time for that to settle.
But we think the core of our strategy.
Is it still.
Good and we're continuing to focus on executing against that or we drive more specialty volume, both <unk> and margin and.
How do we grow the business and be in the markets that we have great excitement around so I'm going to continue to do that and still feel pretty good about where this business will be over the medium and long term.
Just to add to that on a model side.
Structural is.
In line with the model and in specialties off because of the rapidly demanding demand decline that we've seen that really you know that was a normalization model isn't this is not one where we're in a fairly.
Fairly severe downturn right now in the short term and so you know that being said, we're still though we still delivered seven 5% EBITDA margin in the fourth quarter and and you know like I said, we're maintaining margins pretty well through the first seven weeks. So you know.
It's not going to be that number right now on a run rate basis, but certainly.
You know, we're holding and as it relates to kind.
Some of our key metrics.
Okay, great Yeah, I agree with that.
In the first quarter.
How are you thinking about your your working capital accounts.
Seasonally you typically have to build them a little bit, but what are you thinking of.
In the current environment.
Yeah. Good news is that you know what we've been able to do is adjust our inventory as it relates to kind of seen that downturn and so instead of the old it's the opposite actually take 5% out of our inventory just since year end through right now and well continue to be a big focus on on our team to bring that inventory down and adjusted to the dim.
And level, so I feel great about that the team has made a lot of progress there a big momentum within the organization to ensure that we're being very efficient with our working capital.
Okay, great and the last one for me.
You know on the.
How are you thinking about the M&A pipeline.
And what are the discussions like.
This is a tough time to buy.
Negotiate with the company now with the market kind of in this tougher environment.
Yes, that's remains a meaningful a focus area for us big priority our pipeline of opportunity.
Solid spend spending a fair amount of my time, along with Sean who leads our M&A strategy for us.
Having conversations with potential targets.
And building relationships to allow us to kind of move quickly.
As things mature so we remain focused on it.
We think so.
Those are are adjusting to the new normal in terms of kind of the market environment and we want to be seen as a.
A partner of choice as they get more comfortable with where.
<unk> are where multiples are.
And we think we'll be in a position to move.
If and when.
<unk> present themselves, but no it remains a big priority and we're focused on finding good.
Opportunities to transact.
2023.
Okay, great. Thanks for taking my questions.
Thank you.
Okay.
There are no further.
Good question Jason.
I would like to tender for that call virtual Alexandra for closing comments.
Thank you operator, and thank you to everyone that joined US on the call today, we appreciate your engagement and your questions.
Our IR team will be available to assist you should you have any questions. We look forward to speaking with you next quarter that concludes our call you may now disconnect.
Yeah.
The conference has now concluded thank you for your participation and have a deep.
Hey.
Okay.
Right.
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