Q2 2023 BlueLinx Holdings Inc Earnings Call
[music].
Greetings and welcome to the second.
Second quarter 2023.
Thanks Carl.
This time, all participants are in a listen only mode.
A brief question and answer session will follow the formal presentation.
If anyone should require operator assistance during the call.
Fringe. Please press star zero on your telephone keypad as a reminder, this conference is being recorded it is now my pleasure to introduce your host Jana Bell Vice President of Finance and Treasury. Please go ahead Sir.
Thank you operator, good morning, everyone and welcome to Bluelinx Holdings second quarter 2023 earnings call.
Presenting today are <unk>, president and CEO of Bluelinx.
Jensen, our Chief Financial Officer.
Also present on the call is Andy ones are.
Senior Vice President and Chief Financial Officer elect.
Our second quarter news release and Form 10-Q 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 Bluelinx Shiel Dot com. 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 with.
Reconciliations to the closest GAAP financial measure can be found in the appendix of our presentation at.
At the conclusion of our prepared remarks, we will open the line for questions and with that I'll turn the call over to Shannon.
Thanks, Jay and good morning, everyone. We appreciate you joining us today.
Where we discuss the second quarter results I want to reemphasize, our commitment to generating profitable sales growth in a challenging housing and building products environment by driving our corporate strategy into every facet of the business by.
By focusing on our strategic priorities, we are well positioned to meet stakeholder expectations and live up to our potential to be the leading building products distributor in the United States.
First we remain focused on growing our five high value specialty product categories engineered wood siding, millwork, industrial and outdoor living products to generate higher net sales and gross profit results in fact specialty products represented about 70% of our net sales in Asia.
Per cent of our gross profit dollars in the second quarter.
We're growing our specialty categories by being more strategic not just by making more customer calls and visits although that's important specifically, we're leveraging our scale national reach selling capabilities and product depth to expand our offerings in key markets to support both new and existing <unk>.
Customers.
For instance, we recently leveraged our proven track record with two key specialty product suppliers to expand certain siding in specialty panel brands in new markets.
We're also making key investments in equipment and value added service offerings to strengthen our value proposition and position us to be more competitive along with investing in commercial excellence initiatives that generate more profitable sales.
We are driving operational pricing and procurement excellence into the DNA of the organization by continuing to leverage our corporate capabilities. In these specific areas for the benefit of the entire company. These efforts enhance the go to market strategies of our local and national market leaders, while providing.
Their branch managers with corporate expertise to strengthen their local market operational capabilities.
Our levers of excellence operational pricing and procurement have translated into specialty margins in the range of 18% to 19% strong structural product margins as compared to previous norms and a cost structure that continues to be in line with current levels of demand.
At the same time, we've been very intentional about adjusting our cost to reflect current market conditions without compromising our growth capabilities. In fact, our adjusted EBITDA margin year to date is 6% of net sales a solid result, considering inflation and current market.
<unk>.
Third we remain disciplined in our approach to capital allocation. So that we can reinvest in business initiatives that are designed to generate greater profitable sales improved productivity and provide better service three important levers that will drive organic growth, while giving us the flexibility to it.
Turn capital to shareholders.
During the second quarter, we invested $5 million and capital expenditures to improve our business and we returned $12 million to shareholders through share repurchases under our existing $100 million share repurchase program.
Which we currently have about $22 million remaining.
Now moving onto our second quarter results.
Although spring would normally generate more robust new residential housing construction and repair and remodel activity certain macroeconomic conditions, such as a rising mortgage rate environment and home affordability issues resulted in the continuation of the soft market.
We are still experiencing headwinds in our business while housing starts begin to recover.
Fortunately, however, improving builder sentiment high home equity levels low unemployment along with other key market dynamics suggest that the housing market will continue improving.
With that said, we generated net sales of $816 million in $24 million of net income.
This resulted in $2 91 per diluted share on an adjusted basis and $49 million and adjusted EBITDA were 6% of net sales.
We also generated $64 million of operating cash flow driven by earnings and our continued focus on working capital management, we specifically reduced our total inventory by another $30 million this quarter and by $105 billion from the beginning of the year most of it specialty.
Products.
Our liquidity is excellent due to strong execution of our strategic initiatives and effective management of working capital as of the end of the second quarter cash on hand reached a record level of $418 million, an increase of 42 million from Q1 to Q2.
When considering our cash on hand, and Undrawn revolver capacity of $346 million available liquidity was $765 million at the end of the second quarter also a record.
We delivered solid margin performance in both specialty and structural products during the second COVID-19, 1% for specialty products and 11% for structural products as.
As Kelly will discuss in further detail year over year and similar to Q1, we experienced deflation and volume declines in specialty products, particularly in engineered wood products industrial products and siding.
That said as compared to the first quarter average daily volumes of specialty products have increased about 5%.
Although net sales for the structural product category declined due to wood based commodity price deflation volumes were slightly ahead of the first quarter.
Overall, I am pleased with our financial performance this quarter and I am proud of our commercial leaders and teammates for successfully executing our commercial excellence initiatives are delivering these results.
Now turning to our perspective on the current market.
Although we believe that single family housing starts for the year will be down compared to 2022, we continue to see positive signs for the building products market inflation is receding and interest rates are leveling single family housing starts increased during the quarter compared to the beginning of the year and builders confidence has continuously.
<unk> for the past seven months, however, spending on repair and remodel continues to come down from the elevated levels of the past few years that said home equity levels are high, allowing owners to fund repair and remodel projects, albeit smaller ones did.
Through the first four weeks of Q3, we have maintained solid margins for both specialty and structural products. Both are up slightly when compared with Q2 with average daily volumes that are relatively consistent with what we saw during the recent quarter.
Although the outlook for the back half of 2023 remains uncertain, we still believe in the long term prospects of the building products industry. The fundamental under supply of homes supportive demographic shifts aged housing stock necessary repair activity and high levels of home equity will continue to fuel the housing and.
History, and Bluelinx as it's two step building products distributor.
In summary, we delivered solid quarterly financial results. Despite operating in a challenging housing and building products market. We're also making progress on our strategic priorities as evidenced by our gross and adjusted EBITDA margins cash generation and capital allocation initiatives.
Now before I turn it over to Kelly I want to spend a moment discussing our ongoing CFO transition.
As announced three weeks ago, Kelly will be leaving the company to pursue other opportunities at the end of August and Andy Wamser, who is here with US today will assume the role of Chief Financial Officer. This August four.
Andy is a proven public company CFO with significant financial expertise and unique capital markets experience within the broader industrial sector. He has more than 20 years of global financial commercial and operational experience and I'm thrilled to welcome Andy to the Bluelinx team.
I want to thank Kelly for her leadership and stewardship for her many contributions to bluelinx over the past three years and for her support ensuring a smooth transition through the end of August that.
That concludes my opening remarks, I'll now turn the call over to Kelly for a detailed discussion of our financial results and capital structure. Following that I'll provide closing remarks before we take your questions Kelly.
Thanks, Sam and good morning, everyone I'll start with the second quarter result.
We delivered a solid financial performance highlighted by strong margins across both our specialty and structural product categories.
Net sales were $816 million down 34% year every year.
Specialty product sales were down 28% compared to the last year due to a combination of deflation and lower volumes.
Structural product sales were down 46% due to a significant year over year declines and what based commodity prices.
Total gross profit was $136 million.
And gross margin was 16, 6%.
Up 30 basis points from the prior year period.
When reviewing the year over year comparison, it is important to point out that in the second quarter of 2022, we experienced historically high levels of demand and significant price inflation across the business.
Thus, while the variances are quite significant we are pleased with the financial results. We generated this quarter considering the recent market condition.
Turning now to the second quarter results for specialty products net sales were $571 million down 28% when compared to last year.
This decline was driven by a combination of deflation and lower volumes, especially in categories that are tied to new residential construction like engineered wood and fighting.
Gross profit for specialty product sales were $109 million.
Down 71 million due to the net sales decline.
Specialty gross margin was 19, 1% a strong margin, but down 380 basis points from last year when prices were near their peak given most of the supply was still on allocation.
Through the first four weeks of Q3.
Specialty products gross margin wasn't a range of 18.5 to 19, 5%.
With daily sales volumes consistent with the second quarter.
Now moving on the structural products net sales were $207 million down 46% compared to the prior year period.
This decrease was primarily due to the significant year over year declines in average composite lumber and panel prices.
Per random links.
The average price in the second quarter of 2023 for framing lumber was $408 per thousand board feet.
149% from $797 per thousand board feet in Q2 of 2022, and the average price for panels was $532 per thousand square feet.
Down 39% year every year from $874 per thousand square feet.
Gross profit from structural products was $27 million, an increase of 27% year over year.
And structural gross margin was 11% as compared to four 7% in the same period last year.
The prior year's gross profit was impacted by rapid wood based commodity price deflation and a lower of cost or market adjustment that was not repeated during the current period.
As of the end of the second quarter of 2023.
Lumber prices were up to around $438 per thousand board feet in panel prices increased to about $555 per thousand square feet, eight six and 4% increase respectively compared to the average prices observed in the first quarter of this year.
These prices have improved in the first four weeks of the third quarter and are now at $463 per thousand.
Word feet and $648 per thousand square feet.
Yeah.
Our strong structural margin continues to reflect the excellent job our team does to manage commodity price volatility risk through leveraging consignment and utilizing centralized purchasing and pricing decisions to keep structural inventory levels low.
Through the first four weeks of July structural products gross margin was in the range of 12% to 13% with daily sales volumes relatively consistent with the second quarter of this year.
This excludes any of that impact that could arise from inventory adjustments.
But the second quarter SG&A was $89 million.
About $3 million lower than the prior year period, and about $2 million lower than the first quarter of 2020 three.
We have been deliberate in our approach to managing costs to match current demand and as such we have reduced our year over year variable costs, such as commissions and incentives and logistics expenses.
Our head Count is also decrease since the beginning of the year through attrition and intentional right sizing actions. These reductions were partially offset by inflationary impact on compensation and benefits.
As we move forward, we will remain focused on continuing to align our cost structure to meet market demand.
Net income was $24 million and diluted EPS was $2.70 per share.
On an adjusted basis net income was $26 million and diluted EPS was $2.91 per share.
The second quarter tax rate was 24% in line with our expectation.
And for the third quarter of 2023, we anticipate our tax rate to be in the 25% to 29% range.
Adjusted EBITDA was $49 million or 6% of net sales a good result.
Now moving onto cash flow and working capital.
During the second quarter, we generated operating cash flow of $64 million and free cash flow of $59 million.
Our second quarter cash generation was supported by earnings and a $30 million reduction in inventory, reflecting our focus around working capital management.
We intentionally adjusted our specialty inventory to reflect current market conditions.
Specifically, we ended the second quarter with $379 million of inventory down $105 million or 22% sequentially from the beginning of the year.
We have also continued to invest in the business.
During the quarter, we spent approximately $5 million in capital expenditures, which were primarily for enhancements to our distribution branches.
For the year, we still expect capital investments to remain around $30 million focusing on facility improvements and further upgrades to our fleet.
Also during the second quarter, we purchased approximately $12 million of the company's common stock through open market transactions under $100 million share repurchase program of which we have about $22 million remaining.
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 net leverage of three times or less.
Looking now at our balance sheet.
At the end of the second quarter cash on hand was $418 million a record level.
Total debt was $571 million and net debt was 153 million and we have no material outstanding debt maturities until 2029.
Net leverage with 0.6 time, consistent with where we've been in the last six months.
When considering our cash on hand, and Undrawn revolver capacity of $346 million available liquidity was $765 million at the end of the second quarter.
Our balance sheet is in excellent shape and when combined with our strong EBITDA and cash generation, we are well positioned to support our strategic initiatives.
These initiatives include capital allocation projects and investments in high return opportunities such as organic and inorganic growth investments as well as share repurchases.
In the near term, we expect the demand will continue to be lever relative to last year.
Our focus will continue to be 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 Sam for closing remarks. Thanks.
Thanks Kelly.
In closing we are pleased with our second quarter results and our ability to maintain both our price and cost discipline, along with proactively managing our working capital as a result, we have a strong balance sheet that allows us to invest in the business and position us for long term success, while providing us with flexibility to return <unk>.
Little to shareholders.
Looking ahead, we will continue to focus on our strategic priorities, specifically growing our five high value specialty product categories, driving operational pricing and procurement excellence and remaining disciplined in our approach to capital allocation by investing in profitable sales growth initiatives pursuing accrue.
Dave acquisition targets that support our growth strategy, making capital investments that strengthen our ability to grow the business and returning capital to our shareholders.
Our financial position remains strong with ample liquidity and no material outstanding debt maturities until 2029, and we repurchased $12 million of shares remaining under our current share repurchase program during the period.
I am proud of our associates for their contributions during Q2 as they enabled us to achieve solid results during challenging market conditions, and a normalizing environment that historical grid resilience and competitive spirits continued to shine through and everything our associates do.
I'd also like to thank our customers and suppliers for their support and faith in us without them. There is no bluelinx I'm excited about our future and continuing to deliver what matters. So that we can be the leading building products distributor in the United States that concludes our prepared remarks at this time, we are open to answering any questions.
Thank you we will now be conducting a question and answer session.
I'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. Yeah. My Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star.
One moment please for <unk>.
Questions.
Our first question comes from Greg Palm with Craig Hallum Capital Group.
Please go ahead.
Yeah. Thanks, good morning, everyone and thanks for.
Taking the questions I guess, maybe just starting off can you give us a little bit more sense for the cadence of the quarter and I think you talked about you know volumes on a year over year basis, but can you talk about how volumes were versus Q1, specifically as well per segment.
Yeah. Thanks, Greg really appreciate the question. So I would say it was the cadence where we're continuing to see volume improvement a.
Quarter over quarter July has has shown to keep maintain that trend.
From June into July so, we feel really good about where we're heading.
In Q in Q3.
Yeah, and I'll just add onto that so Greg from a cadence perspective, certainly April was our softest month, we continue to improve week over week from there on out through the quarter I'm with May and June being nice solid month for us and when you think about it sequentially as it relates to you know obviously the year over here as you pointed out it.
Relatively up.
Big Big variances, but sequentially. We are seeing some you know definitely see an improvement in specialty is up 5% on volume and a big piece of that is W. P, which is that volumes up over 10% quarter over quarter from the first quarter. We're still seeing you know quite competition out there as it relates to price et.
Cetera, but we've been able to hold margins as we absolutely saw so I think we're cautiously optimistic as we continue to move forward and I'm you know I think we're seeing some nice trends here.
Also just to finish up on that point, we're doubling down on our strategy to drive those organic volume growth initiatives.
Focusing on those key specialty product categories as we talked about earlier, we've expanded a couple of key strategic supplier relationships in siding or specialty panels are there.
In fact, I've spent some time with these key suppliers to help that helped drive that that expansion and we will continue to do that going forward.
Yeah understood and then so specialty just specifically.
So total revenue and in the June quarter, basically flat sequentially, but it sounds like that was more.
You know pricing that offset higher volumes is that right.
That that's right and again, we had like I said April was a bit soft for us is that if you ever coming out of the first quarter and then we got some momentum going from down. So I think there's a little bit of a impact from that if we you know from a timing perspective, and I do want to point out that you know we're you know what the markets are improving but where we are a two step distributor I run a lag.
So you know, we usually see them as the builders start to prevent start start to come back. We typically can see our impact com you know 16, 90, even a little bit after that we could be out there can be up to a one quarter lag and so we haven't talked a lot about that in more recent times, but that is definitely you know our business model works.
Why so so I wanted to I would say that you know as things have been coming back in from market perspective in the last few months, we're starting to feel that too, it's just a little bit behind it what the builders see.
Yeah.
That makes sense, maybe just a quick follow up on on that because we have heard from a couple of distributors and you know I think they're seeing much.
Much more robust you know growth sequentially than kind of what you're talking about and I'm just curious if theres any.
Kind of just differences you you'll want to point out whether it's you know inventory or whether it's certain product lines, but why wouldn't you be seen a bigger job or maybe it's just you know a little bit of a lag and we're just going to wait to what you talked about maybe 60 to 90 days until you start seeing some of that you know acceleration as well.
Yeah, Mike look I'd like to reemphasize the lag them. You know we are seeing we're seeing that flow through the P&L in Q3, now with volumes being up.
But at the same time historically speaking there has generally been 69.
90 day lag between when the when the starts start posting and when we actually start seeing it flow through ours through ourselves that said, we're really optimistic or feel good about what the builders are doing to reduce our cycle times, thus pulling forward.
Some of that are reducing some of that lag time. So so again, we're feeling good in light of builder sentiment.
And housing starts continuing to prove yeah over the course of the year and just to add on that a little bit further to to your point, Greg I'm here.
Although there are distributors that are similar to us where we all have different mixes them. You know we have a very broad array of product lines. Some are up some are down that that diversity, sometimes supports us sometimes it can be a little soft right. So I would say, there's just not one that's exactly like us and you know our goal is to continue to make sure the entire portfolio was strong.
And you know sometimes you know they could have differences in what they did in Q1 versus weed it et cetera. So I would just say that you know, we we see strength coming back in our key categories, we had better but we're seeing really nice margins and continued execution on our structural business as well too.
Support and Yeah, I think overall, we you know we play a nice EBITDA margin on the board. So you know.
All they can do is work on what we can control.
Yeah makes sense, okay, great I will leave it there thanks.
Thank you.
It comes from Kurt <unk>.
D. A davidson. Please go ahead.
Great. Thanks, and good morning, everyone.
Yeah.
It seemed like the the disciplined approach to pricing I mean, it's showing through in terms of specialty margins, but I'm curious if that's you know holding back volumes at all and in terms of you guys walking away from any business and can you just talk about the overall competitive environment, then and your willingness to protect volumes.
If if you know some peers or competitors continue to be more promotional on the pricing front.
Yeah, I mean look we're absolutely committed to driving pricing excellence into the into the business. It's it's it's not at the expense of good volume, we're trying to grow the business with profitable sales and really have strategic relationships with our customers that are stickier, but to the extent there is.
Very profitable transactional business that makes sense, we're not running away from it but holistically, we're trying to grow the business and given you know given our volumes and how they're trending from Q1 to Q2 and into July I feel pretty good about finding the right balance between our pricing our IND.
<unk> and our volume growth, we are absolutely committed to growing this business in the right way.
Okay. Thanks.
Thanks for that and then I guess in terms of the specialty year over year pricing deflation you know either.
AWP has been down sequentially, but it is kind of flattish year over year. It is the pressure primarily kind of.
Treated products metal, maybe some millwork could you just help us kind of understand what the big drivers of that were in the quarter.
Yeah sure look I mean, I think you know I.
I think everybody, we're seeing pricing deflation across the board.
Really all of our categories and certainly in this and you point out the special the other it certainly isn't that that's one of the bigger categories. We are seeing and given that we do have some sensitivity to the commodity markets. Obviously the margins are much higher than our structural business, but there is some sensitivity as it relates to the treating treated lumber and panels that you mentioned, so certainly that's fair I mean, but in general.
Now prices last year were definitely at their peak and with and we have seen some deflation as it relates to that but we've also seen deflation on a cost side, which I think is showing why were seeing installs up.
And then the good normalized margins that we said we would expect to see.
Okay.
That makes sense.
Yeah.
Go ahead, I was just going to make.
A final point you know to follow up on what Kelly said look to the extent there's deflation. This is one of those levers that we can absolutely.
Put our mind to as it relates to the you know the procurement and pricing excellence initiatives that we're driving into the DNA of the organization, whether it be a trading or salesforce or targeted selling or strengthening our processes with respect to supplier and customer onboarding are to using data driven analytics to make sure that we are pricing.
Appropriately in the markets that we serve so again, it's something that that we are absolutely taking control of and doing our best to maximize the margins in light of competitive pressures.
Right. Okay. Thanks for that Shannon and then as you think about.
I guess at a high level, the second half versus the first half.
We're seeing the improving volume trends the data on the new resin side is pretty good repair and remodel seems to be holding in commodity pricing and improved a bit I mean is there anything that gives you pause that the second half you know shouldn't be at least a little bit better than the first half or how do you.
About that.
You know that's a it's a great way to ask the question. There's nothing that gives me pause other than that general uncertainty of this this year. Following an unprecedented two years I feel good about the efforts we've undertaken to grow the business to normalize to operate competitively in what's otherwise.
Realizing markets and again, taking ownership of the levers at our disposal, whether it would be operational pricing or procurement excellence to really execute against our five specialty growth area categories.
<unk> gives gives me comfort so.
So there's not anything other than some existential risk that materializes that gives me that we don't know about that gives me pause, especially in light of the underlying fundamentals of the housing industry on top of <unk>.
Seven months of increasing builder sentiment. In addition to some other indicators out there that suggest you know.
Good good runway over the course of the year, Yeah, and I'd just add we're cautiously optimistic of course to Sam's point. There is definitely some uncertainty out there and there's varying you know ups and downs as it relates to some of those macro factors out.
I would just say, we're we're happy with where our where we are right in the last few weeks and if that you know that continues for the second half you know it'll be.
It'll be it should be slightly better.
Okay. That's helpful and then just lastly.
You guys have kind of a host of capital allocation priorities, but.
I mean, the stocks I think trading at eight times kind of annualized first half earnings the cash balance is at an all time high.
Can you just help us frame, where where share repurchases are in terms of kind of the priority set at this stage.
Sure. Yeah, you know we've we have look at is a priority we've already proven that commitment already was $78 million of share repurchases and our intent to repurchase $22 million of shares to complete the current $100 million program at some point in the near future.
As we've said before you know we are committed to exploring investing our capital in it and you know initiatives that absolutely contribute to shareholder value such as accretive M&A transactions and sales growth initiatives et cetera, but at the end of the day returning capital to shareholders in the most efficient effective way possible in light of other.
All the other priorities is an absolute priority at the company as evidenced.
By the demonstrated efforts so far.
Got it okay, well, thanks for the color and good luck here in Q3.
Yeah. Thanks, Kurt Thank you Kirk.
Next question comes from Jeff Stevenson with loop capital.
Markets. Please go ahead.
Oh, hi, Thanks, it's actually Gary Morris on for Jeff. Thanks for having me on today I wanted to follow up first on what Youre seeing on the R&R side you.
You mentioned that.
Right.
The.
Demand is still positive, but it was may be slowing so any additional color on.
On R&R would be great.
Yeah.
Go ahead sure I'll I'll I'll kick it off Kelly and then turn it over to you. So thanks, Gary for the question really appreciate it look I mean, when I think about R&R I really feel like I think about the underlying fundamentals that drive R&R activity. The you know the indices out there suggests that R&R will be down through the first half of 'twenty 'twenty four.
Sad with home equity values, you know strong customer sentiment.
Et cetera, and also a lack of inventory on the housing side and coupled with the fact that we have a very strong presence with the home retailers or the dash or on our national account side of the business.
We believe that we have an important role to play in the in our world because folks will be still doing repair and remodel work, albeit maybe smaller projects. So again I think it will be an important part of our business going forward.
Precisely because of those underlying fundamentals and the fact that we have a customer base that supports the R&R market good diversification on our part.
Okay. Thanks for that I wanted to follow up on the.
Specialty product margins and continue to hold you know kind of in this 18, 19% range. It seems like the outlook for.
The third quarter.
E positive relative to.
You know the more normalized levels.
Curious what your views are moving forward.
Do you have increased confidence here in our specialty margins are sustainable.
Curious if you know the housing market does start to recover recognizing you do operate with a lag in order so to speak for them to Martin I'll walk longer term.
Yeah, well I mean, we've as you saw we went from last quarter, we're a little under 19 or 19, one point right. Now we gave a range of a little bit between 18, and a half of 19 and a half from where we are in July .
So I mean, I think margins are you know, we've been saying normalized specialty margins right around 19% and that's kind.
Kind of exactly where we're landing them as I said, the trying to run rates slightly above 19 at this point.
So you know I feel really good about.
Where we are I continue to say that 18% to 19% range because.
You know there is a yeah.
It is a recovering market and there are a number of things that we work through as we continue to try to ensure that we're being competitive. So and then you know we have a diverse mix as well that impacts that too. So that's something we're managing we've mentioned before that you know managing that mix may have some up some down et cetera, So I feel.
I feel good about as we move into the next quarter that being the range that.
Now that we're running in that where there are chasing and.
I think for the first for the foreseeable future that makes sense certainly every quarter, we're going to update you on if we see any changes there.
Okay, Yeah that I'd like to actually just.
Well I'll take it from a business perspective, so look I mean again I.
I mentioned this a few times I truly believe in our pricing excellence and commercial excellence initiatives you know from our centralized pricing team is working with those local market leaders to apply these data driven approaches to ensure we're preventing gross margin leakage, where we're evaluating our service appropriately in the markets in which we serve.
You know and so even though it's a declining market or where a normalizing times.
Fact is given our diverse product mix and other aspects of the business, we could do things like so mixed truckloads of product state achieve higher blended margins, we get bundled products. We can think about dynamic pricing. We're just trying to apply a sophisticated approach to making sure we're finding the right balance.
Between really trying to achieve the right the right sales approach when working with our customers and suppliers to grow the market and grow our share and and do right by our stakeholders.
Okay understood. Thanks for the color last question's, just on inventories and they've done a good job of working down inventory system.
Several quarters frankly.
Sequentially, how much of the inventory reduction was deflation versus volume and then moving forward how do you view your engine.
Tori levels here.
We're moving into maybe a cautiously optimistic volume environment.
Yeah. The primary amount of inventory that came down from really any of the areas. It's actually you know volume.
We've made a very conscious effort to reduce our inventory as a whole to rightsize. It in line with you know normalized demand and where we are where we are expecting to go for it as long as they just want to manage inventory better and do have a strong working capital rigor. So certainly theres a little bit of price in there.
But the majority is just you know really good execution by the team to reduce inventory.
Okay. Thanks, very much I'll pass it on.
Mhm.
The next question comes from Reuben Garner with Benchmark company. Please go ahead.
Thank you and good morning, everybody.
Most of my questions have been answered I wanted to ask one on your warehousing Berkeley, the direct business I don't think I saw the Q2 mix already we had several reports. This morning are you seeing a continued.
Continued increase in the use of the warehousing piece on can you discuss may be your margin difference between those two is that helping.
Margins sustain at these you know, 6% EBITDA type levels.
Yeah, we're not seeing a material change on between you know what our percentage of warehouses Drax are as long as it relates to the margin similar a similar direct is generally a little higher than structural or that you've seen are our warehousing I'm going higher than that so.
You know, it's certainly something we watch that mix of warehouse in direct is important as it relates to our blended margins and it's something we actually talk about quite a bit internally on ensuring that when we get business. We we are being cognizant of the impact of that but really I wouldn't say, there's been a material change any of our the way you know the.
Coming out of warehouse, nor the the margin impact.
Suddenly that's right now so I'll use that word.
I'm sorry go ahead.
Oh I'm, sorry, I was just going to say so do we.
We've heard consistently that the dealers are pretty hesitant to take.
Terry kind of normal levels of inventory just for risks with the consumer and the economy and everything else is there risk to the downside that if they do get more comfortable and they.
Carry their own inventory and using more of a rack that that would be a mix drag for you and I guess, how big of a drag could that be if it happened.
You know that's a that's a great segue into the point I was going to make earlier, which is you know as Kelly said, we are as we think about our strategic growth initiatives. We are focused on.
You know, obviously growing our specialty product categories and driving out of warehouse sales.
Making sure that mix is appropriate.
But as it relates to this this market and the point you just made two step distribution and in particular, a pure play two step distribution like Bluelinx plays a vital role in helping our customers manage their inventory you know as you as you think about kind of our warehouse layoffs and what we have we have.
Lots of outdoor storage given the acreage on our on our premises where rail served we have large warehouses, so our customers by and large do not have the space to carry.
A lot of material you know what youre seeing in its normalizing market probably is in some cases.
Some folks have gone from let's say buying direct from manufacturers.
With railcars and they've shifted to managing their inventory more tightly and buying truckloads of materials, which is very very good for our business. So it it allows us to really help them manage their working capital provide just in time delivery and do other things that that help them manage their business in light of the current conditions, but also serve.
Their customers are.
Better we've also expanded to do more job site delivery you know we've invested in more markets on our fleet and so on and so forth. So I feel really good.
About where the market is heading and the and the value proposition that Bluelinx is a two step distributor plays with our customers.
Great. That's very helpful. And then my only other question is just a follow up Kelly you mentioned pricing declines.
<unk> I think in the specialty category I just wanted to clarify there I mean I understand that E. W. P. In the treated lumber a piece of that where there's a little bit more commodity tied to it.
What about some of the other categories that you've got serve whether it's Doug.
Decking or tied in your doors or some of the things that are less.
Commodity tighter those prices stable sequentially or are you seeing pressure on them as well.
Yeah, well I think I might have been referring to a little bit more with and you're more of a year over year pricing declines in my earlier comments on versus sequentially, but as it relates to you.
So just to clarify that.
We obviously saw some pretty significant deflation year over year, but sequentially I mean, we're really where we've seen you know if there's any little bit of price change were also seen relevant cost reductions as long as we're holding those margins I'm still a little bit on the topline certainly where we saw a little bit of commodity impact not just in the structural side.
But also a bit on the specialty other sequentially as well they felt a little bit of softness and now we're starting to see that pick up with improvements in the commodity price commodity markets in July . So I'm you know, it's not it's really not it wasn't the big story really sequentially, it's more the year over year.
Yeah.
Got it thanks, guys. Good luck on the rest of the year.
Great. Thank you.
Yes.
There are no further questions at this time I would like to turn to floor back over to Kim the Bell for closing comments.
Thank you operator that concludes our call today. So should you have any questions. Please reach out to our Investor Relations Department. You May now disconnect have a good day.
Yeah.
Concludes today's teleconference. You may disconnect your lines at this time, thank you for your participation.
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Yes.
Mhm.
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