Q1 2025 BlueLinx Holdings Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Bluelinx Holdings first quarter 'twenty 25 earnings Conference call. At this time all participants are in a listen only mode and today's call is being recorded.
Speaker Change: We will begin with opening remarks and introductions at this time I would like to turn the conference over to your host Investor Relations Officer, Tom Morabito.
Speaker Change: Thank you operator, and welcome to the Bluelinx first quarter 2025 earnings call. Joining me on today's call as Jan Brady, Our President and Chief Executive Officer, and Kinder Brock, Our Vice President Chief Accounting Officer, and interim principal financial Officer.
Speaker Change: At the end of today's prepared remarks, we will take questions.
Speaker Change: Our first quarter news release and Form 10-Q were issued yesterday after the close of the market along with our webcast presentation and these items are available in the investors section of our website Bluelinx co dot com.
Speaker Change: We encourage you to follow along with the detailed information on the slides during the webcast.
Speaker Change: 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.
Speaker Change: Today's presentation includes certain non-GAAP and adjusted financial measures that we believe provide helpful context for investors evaluating our business.
Speaker Change: Reconciliations to the closest GAAP financial measures can be found in the appendix of our presentation now.
Jim: Now I'll turn it over to Jim.
Jim: Thanks, Tom and good morning, everyone. Our first quarter results were highlighted by gross margins of over 18% for specialty products and just over 9% structured products. Despite the impact of continued price deflation in some categories and lower volumes than others due to weather and macroeconomic forces.
Jim: Broadly speaking while market driven price deflation hasnt purposes Q4. It continues to have an impact on our financial results, especially in certain product categories that said, we partially offset this deflation by driving volume growth in engineered wood products lumber and panels.
Jim: We continue to execute on our local and national market share gains strategies to grow our key specialty product categories engineered wood siding millwork industrial into outdoor living products at a higher rate than our structured product business in order to ship the product mix over the next several years across all of our customer segments.
Jim: Our digital transformation efforts are on track with phase one set to be completed by Q3 2025, we believe that our continued focus on modernizing the business with new technology will ultimately enable us to differentiate ourselves in the market, allowing us to accelerate our profitable sales growth and operational excellence initiatives.
Jim: We also continue to explore and evaluate greenfield and M&A opportunities to expand our geographic reach and to support our specialty product sales growth initiatives are greenfield in Portland, Oregon is performing better than expected and has been expanding its product offering every month.
Jim: Leading products currently include LP siding, followed by structural panels and lumber.
Jim: We expect to continue expanding our product offering by leveraging key supplier relationships.
Jim: As we roll out additional greenfields in high potential locations, we expect to apply best practices learned in Portland.
Jim: Now turning to our first quarter results.
Jim: We generated net sales of $709 million and adjusted EBITDA of $19 6 million for a two 8% adjusted EBITDA margin.
Jim: Adjusted net income was $2 $3 million or 27 per share.
Jim: Specialty products continued to account for approximately 70% of net sales and about 80% of gross profit for Q1.
Jim: Specialty products net sales declined nearly 5% year over year due to continued price deflation, mostly in engineered wood products and millwork volume pressure, most notably a siding and industrial products also played a role as poor weather lower housing starts and lower R&R activity, depending on the market had an impact.
Jim: Our west region, and in particular, Texas experienced significant headwinds due to the challenges faced by large track builders.
Jim: As I mentioned earlier these declines were partially offset by strong volume growth in AWP, we are gaining market share in the strategically important category. We also delivered gross margin performance of 18, 7% in specialty products.
Jim: I'd also like to note that the results for specialty products improved significantly in March when compared to January and February.
Jim: Structural product revenues increased more than 3% largely due to significant price increases in lumber combined with volume increases in both lumber and panels. These increases in volume were largely due to growth in our multifamily business, where similar to AWP. We believe we are gaining market share as a result of our focused multifamily.
Jim: <unk> share gain strategy.
Jim: For the quarter industry average lumber prices were up 13%, while panel prices were down 13% year over year.
Jim: We once again leveraged our strategic approach to inventory management, and our centers of business excellence to manage margins.
Jim: Our focus on business excellence continues to deliver solid gross margin performance quarter after quarter, despite challenging market conditions. Furthermore, our focus on driving an enterprise wide corporate strategy enables us to better leverage our diversified customer base geographic footprint and scale to navigate the challenging landscape effectively.
Jim: This disciplined and positions us very well for the housing and building products market recovery when that occurs.
Jim: Lastly on the quarter, our financial position remains strong and our significant liquidity leaves us well positioned to achieve our vision to execute on our profitable sales growth strategy and take advantage of share gain opportunities as the market rebounds. We also continue to have the flexibility to demonstrate our commitment to returning capital to shareholders.
Jim: By repurchasing $15 million in shares during the first quarter.
Jim: Now, let's turn to our perspective on the broader housing and building products market.
Jim: As you all know the housing market is challenging which is putting pressure on the building materials sector housing.
Jim: Housing affordability and high mortgage rate concerns are being addressed with value engineering builder concessions and declining mortgage rates heading into the year. The impact of these measures are now being tempered by declining consumer sentiment tied to tariffs stock market declines and inflation appears to name a few.
Jim: On top of that we're operating in a lowest existing housing sales backdrop. It 30 years, which is a powerful force for driving repair and remodel activity.
Jim: The impacts of the new administrations policies should be temporary as the long term fundamentals of housing are strong.
Jim: Currently the U S is 4 million homes short, which is better for the building products sector than being in a situation where supply far outstrips demand a problem to building materials and housing sector experienced during the financial crisis and the off and at some point homeowners will need to improve their existing homes or drive existing host.
Jim: Sales activity to meet family formation, and other personnel needs, thereby driving greater repair remodel activities in the meantime, there will continue to be general uncertainty about the timing for a sustained housing recovery. In fact, we're seeing this flow through various indicators of builder and consumer sentiment.
Jim: March total in single family housing starts were down considerably on the other hand multifamily housing starts were significantly higher on a year over year basis.
Jim: Builders confidence in consumer sentiment levels are trending downward as well.
Jim: Parent remodel spending continues to be soft given low existing home sales. Despite this softness our strategic focus on national accounts is enabling us to grow this business on a year over year basis.
Jim: As the housing turnover increases we believe the investments, we're making today will accelerate our growth efforts in the repair and remodel driven business when the markets improve which we cannot predict the timing of.
Jim: Although the near term outlook remains uncertain, we continue to believe in the long term prospects for the housing of building product sector. It is estimated that more than $1 5 million homes need to be built every year for the next 10 years to meet the anticipated housing demand, which is probably a low estimate based on the actual need due to a variety of demographic trends.
Jim: We took the anticipated demand curve and the fundamental drivers for housing and building products into account when we developed our share gain strategy to drive profitable sales growth tear.
Jim: Tariffs. However, we will put pressure on our gross margins, even though we expect to pass them along via price increases we believe that it will be difficult to maintain our most recent margins with certain product categories, given the expansive scope and magnitude of the tariffs.
Jim: Regardless of market conditions and administration policies, we will continue to emphasize our product and channel growth strategies and in particular, our multifamily growth strategy to gain share in an otherwise challenging market I remain convinced that our enterprise wide product and channel strategies are good for long term success as they are designed to fill.
Jim: We leverage our scale to drive profitable sales growth in the toughest and best of housing market conditions.
Jim: For the first four weeks of Q2, 2025% margins for specialty products was slightly below Q1, which is largely attributable to regional and competitive dynamics surrounding certain specialty product categories.
Jim: Structural product margins were slightly better during the first four weeks, which is mainly due to higher lumber prices when compared to earlier in the year daily volumes are up mid double digits for specialty products and up mid single digits restructure products in Q2 in.
Jim: In addition, it is important to note that while industry driven specialty product price deflation continues to impact our top line and cost of goods sold the situation once again improved in Q1.
Jim: In the first quarter specialty pricing was down low single digits, while in the fourth quarter of 2024 specialty pricing was down mid single digits and then the third quarter of 2020 for pricing was down high single digits for.
Jim: For the first four weeks of Q2 pricing has been generally flat relative to Q1 <unk>.
Jim: Given the political backdrop inflationary pressures and discussions with our vendor partners. We are optimistic that the specialty pricing volatility will stabilize at some point however.
Jim: However, the outlook for volumes may be tempered significantly by these same factors tariffs higher mortgage rates and general economic uncertainty.
Jim: In summary, we delivered solid results for the first quarter of 2025, we're also delivering on our strategic priorities and as seen by our specialty product expansion efforts margin performance and capital allocation initiatives.
Jim: Focusing clarity we will continue to be critical in the successful execution of our strategy for the remainder of 2025.
Jim: I'd like to end by thanking my fellow Bluelinx associates for their continued perseverance and can do spirit within a challenging housing market and for their dedication to our customers our suppliers and the communities. They serve our teams are committed to generating profitable specialty and structural product sales towards sure that we position ourselves for long.
Jim: Term success, regardless of short term market conditions.
Jim: Now I'll turn it over to Kim who will provide more details on our financial results and on our capital structure.
Kim: Thanks, Dan and good morning, everyone. Let's first go through the consolidated highlights for the quarter overall, both our specialty and structural product businesses delivered solid gross margins. Despite the impact of price deflation and a challenging macro picture.
Kim: <unk> and volume declines in specialty products were partially offset by pricing and volume gains in structural products net sales were $709 million down 2% year over year total gross profit was $111 million and gross margin was 15, 7% down 190 basis points from the.
Kim: Prior period Tim.
We were to previous quarters, our first quarter 2025 results for specialty products included a net benefit for import duty related matters of $2 4 million for details on these matters are available in our 10-Q.
Kim: SG&A was $94 million up $2 8 million from last year's first quarter. The increase was mainly due to continued investments in technology associated with our digital transformation and higher logistics costs.
Kim: Net income was $2 8 million or <unk> 33 per share adjusted net income was $2 $3 million or <unk> 27 per share.
Kim: <unk> expense for the first quarter was $1 3 million or 32, 3% for the second quarter, we anticipate our tax rate to be in the range of 29% to 33%.
Kim: Adjusted EBITDA was $19 6 million or two 8% of net sales and includes the favorable duty related matters.
Kim: Not including these matters adjusted EBITDA would have been $17 1 million.
Kim: 44% of net sales.
Kim: Turning now to first quarter results for specialty products.
Kim: Net sales were $480 million down 5% year over year.
Kim: This decline was driven by overall price declines primarily for engineered wood and by overall volume declines mostly for siding, partially offset by volume increases for engineered wood.
Kim: As Sam mentioned given current market conditions, we are optimistic that the specialty pricing volatility will abate at some point.
Kim: Gross profit from specialty product sales was $90 million down 14% year over year.
Kim: <unk> gross margin was 18, 7% down 200 basis points from last year's 27%, primarily due to price deflation decreases in volumes and the impact of duty related items.
Kim: Excluding these items for both periods specialty products gross margin would have been 18, 2% in the first quarter of 2025% down 120 basis points from first quarter 2024 19, 4%.
Kim: Through the first four weeks of Q2 specialty product gross margin was in the range of 17% to 18% with daily sales volumes higher when compared to both the first quarter of 2025, and the second quarter of 2024.
Kim: Now moving on to structural products.
Kim: Net sales were $230 million up over 3% compared to the prior year period. This increase was primarily due to higher lumber pricing and increased lumber and panel volumes when compared to last year.
Kim: Gross profit from structural products was $21 million, a decrease of 10% year over year and structural gross margin was nine 3% down 130 basis points from the same period last year.
Kim: In the first quarter of 2025 average lumber prices were about $456 per thousand board feet and panel prices were about $534 per thousand square feet, or 13% increase and a 13% decrease respectively compared to the averages in the first quarter of last year sequential.
Kim: Comparing the first quarter of 2025 with the fourth quarter of 2020 for lumber prices were up about 6% and panel prices were down about two 5% through.
Kim: Through the first four weeks of Q2 structural products gross margin within the range of 9% to 10% with daily sales volumes improving from both the first quarter of 2025 and second quarter of 2024.
Kim: Looking now at our balance sheet.
Kim: Our liquidity remains excellent due to the strong execution of our strategic initiatives and effective management of working capital at the end of the quarter cash on hand was $449 million.
Kim: A decrease of $57 million from Q4, largely due to the normal seasonal changes in working capital when considering our cash on hand, and undrawn revolver capacity of $346 million.
Kim: Available liquidity was approximately $795 million at the end of the quarter.
Kim: Total debt, excluding our real property financing leases was $374 million and net debt was a negative $75 million. Our net leverage ratio was a negative 0.7 times given our positive net cash position and we have no material outstanding debt maturities until 2029.
Kim: Our balance sheet and liquidity remains strong and when combined with our solid EBITDA generation, we are well positioned to support our strategic initiatives, including our digital transformation efforts.
Kim: These strategic initiatives include investments in our highest return prospects, such as organic and inorganic growth initiatives and opportunistic share repurchases.
Kim: Now moving on to working capital and free cash flow.
Kim: During the first quarter, we generated operating cash flow of negative $34 million and free cash flow of negative $40 million, primarily driven by lower net income and changes in working capital.
Kim: Turning now to capital allocation.
Kim: During the quarter, we spent $6 million in Capex, primarily tied to our digital investments and to improve our fleet and distribution facilities for 2025, we plan to manage our capex relative to market conditions and our plan to maintain a strong balance sheet. These investments will focus on facility improvements further upgrades to our fleet and the <unk>.
Kim: Technology improvements previously discussed.
Kim: Our digital transformation will also have approximately a $5 million impact on operating expenses in 2025 related to software license implementation as well as increased head count associated with this initiative.
Kim: As Sam mentioned during the first quarter, we repurchased $15 million of stock and we had $31 million of repurchased is remaining at quarter end on our current share repurchase authorization we.
Kim: We are committed to our share repurchase efforts and plan to remain opportunistic in the market 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, and expand our geographic footprint and pursue a disciplined M&A strategy as well as <unk>.
Kim: Turn capital to shareholders. We also plan to maintain a long term net leverage ratio of two times or less.
Kim: Overall, we are off to a solid start in 2025, and we're pleased with our gross margins in both our specialty and structural products in light of the challenging macroeconomic environment.
Kim: Our strong balance sheet, and our liquidity positions us well to execute on our strategy and continue to Opportunistically return capital to shareholders.
Kim: Operator, we will now take questions.
Kim: At this time I would like to remind everyone in order to ask a question press. The Star then the number one on your telephone keypad we.
Kim: We will pause for just a moment to compile the Q&A roster.
Speaker Change: Your first question comes from the line of Greg Palm with Craig Hallum Capital Group. Your line is now open. Please go ahead, yes.
Greg Palm: Yes. Thanks, good morning, Thanks for taking my questions.
Greg Palm: Wanted to start with the specialty gross margin commentary because I think I heard a couple of things and I just wanted to clarify a few of that so.
Greg Palm: Can you talk about the impacts and the associated <unk>.
Greg Palm: Sort of outlook.
Greg Palm: As it relates to kind of the challenges in the overall market and then how does how does tariffs tight.
Greg Palm: Are you into that because it sounds like the quarter to date commentary was more along the lines of.
Greg Palm: Of a market related slowdown in some sort of maybe some implied competition, but I think you also mentioned tariffs and not being able to pass all along so I just I wanted to kind of get your thoughts on you know.
Greg Palm: Those two variables as it impacts specialty gross margins.
Greg Palm: Alright, Thanks for the question Greg.
Greg Palm: Yes.
Speaker Change: So basically to your point, we've had competitive pricing pressures unconstrained supply and softer demand due to market conditions.
Speaker Change: Have have made have put pressure on certain specialty margins as it relates to tariffs, we absolutely plan to pass along.
Speaker Change: The impact of tariffs, which would go through cargo through pricing et cetera, but the question will be in the market being able to not only take the price increase due to the tariffs but also take.
Speaker Change: The required margin expansion in order to maintain historical margins, that's the real questions and so we made the simple math is we would generate the same gross profit dollars driving the tariff costs through via pricing.
Speaker Change: The margin would come down to some degree depending on the magnitude of the tariff and the country involved.
Speaker Change: Ill, just an apples to apples basis.
Speaker Change: And just to be clear have have you or the market adjusted pricing in certain categories. At this point or is this just dependent on what happens over the coming months.
Speaker Change: Yes, no no.
Speaker Change: Nothing has changed with respect to our pricing.
Speaker Change: Like for example, our pricing strategy and how we go about pricing effective way based on the services we provide.
Speaker Change: As it relates to tariffs to the extent the tariff is actually implemented and it flows through Cogs, we pass that through there hasnt been a major market lift due to due to tariffs other than in the early days of tariff conversations we saw lumber pricing picked up and in advance of potential.
Speaker Change: Tariffs on Canadian lumber, but otherwise, we know that the 10% tariffs across.
Speaker Change: Across the World. That's one thing is the reciprocal tariffs that have been paused, but right now the market is just passing along any costs that come through in sort of maintaining.
Speaker Change: Maintaining the course until more clarity is provided from a cost of goods standpoint, as we look at all of our look at the impact of tariff increases we expect.
Speaker Change: Single digit impact to Cogs.
Speaker Change: The ones that have been announced actually go through but that's all up in the air as we all know.
Speaker Change: Okay. That's helpful.
Speaker Change: And I guess, just as it relates to inventory levels, which are a little bit elevated relative to the last couple of years.
Speaker Change: Are you able to sort of break that out or which segment or categories.
Speaker Change: That's mostly being impacted and just on a go forward basis, how are you managing things.
Speaker Change: Yes, I would say well first of all we are continuing to maintain our disciplined approach to inventory management and we have a very regular cadence around that inventory management around.
Speaker Change: The two categories specialty and structural.
Speaker Change: <unk> gold inventory reduction targets et cetera that we manage over the course of the year as it relates to the build a lot of that is a function.
Speaker Change: The soft the soft start to the year some of which was due to the weather. If you look at the weather this year, which we talked a little bit about it on the February earnings call. The difference between this year and last year is the bad weather.
Speaker Change: Continued for a longer period of time, and hence some of our bigger markets more so this year than they did last year and on top of that even if you didn't have a blizzard per se you had extended periods of cold weather, which which had an impact on building. So for example in certain markets.
Speaker Change: In a very simplistic basis, the nail gun's wouldn't work.
Speaker Change: So that led to some of the inventory build the softness in the market.
Speaker Change: But as we stated heading into into Q2, our volumes are up pretty significantly on a sequential basis and they're up on a year over year basis.
Speaker Change: And that's a function of our channel and product strategy.
Speaker Change: On top of potentially some pent up demand that got released in Q2.
Speaker Change: Makes sense, Okay, I will leave it there are special luck. Thanks. Thanks.
Greg Palm: Thanks, Greg.
Speaker Change: Your next question comes from the line of Reuben Garner with the benchmark company. Please go ahead.
Reuben Garner: Thank you good morning, everybody.
Speaker Change: Sorry to harp on.
Speaker Change: The specialty margin in the tariff thing, but I do have two follow ups there so on the specialty side.
Speaker Change: Guess why would.
Speaker Change: Your volumes up sequentially your volumes up year over year, and you're starting to see competitive pressures here in April I guess, the first four weeks. Your margins are lower can you help me kind of connect.
Speaker Change: Those dots like if the if your volume is getting better.
Speaker Change: And I assume the market is getting better as kind of some of the pent up demand from the winter weather issues like why would it be more competitive now than it was over the more challenged winter months.
Speaker Change: Yes, so while the market is softer to some degree so theres a lot of competitive pricing pressure in the market to win programs or to maintain programs.
Speaker Change: And we're playing that game right. So we have no choice, but to not only maintain our own but we are gaining new programs. So there is that there is there's enough supply in the market, especially on a relative relative to demand or the demand curve as it relates to the sort of the incremental volume growth and as we think about how we're gaining share we have this dedicated focus.
Speaker Change: On the multifamily segment and as I've said before we clearly have a shortage that shortages will exist over the next decade. It is getting worse not better and the only way to bend the curve is to build more faster, which multifamily helps do we also have the right set of products that support multifamily and a very healthy way and so.
Speaker Change: That dedicated focus that greater emphasis on multifamily is enabling us to gain share in a number of markets at the same time, we had greater emphasis on national accounts, which can truly take advantage of our scale and there are certain categories, where we're driving growth for example, like AWP, whereas in the past we didn't necessarily sell as much.
Speaker Change: EW Peter National account channel. So, it's an exciting time as it relates to our strategy.
Speaker Change: From a channel standpoint, and then from a product standpoint, we continue to expand our geographic reach with respect to certain strategic product suppliers at.
Speaker Change: At the same time, we're expanding our skus with our with our suppliers all of that said despite the fact that we're growing margin and gaining share. We're doing so in very challenging market conditions, which is leading to some competitive dynamics at the local level, depending on the market right. So the west for example.
Speaker Change: Ample as I mentioned in my remarks is very challenged due to <unk>.
Speaker Change: Some some demand softness with respect to track builder business as well as multifamily in Texas in particular.
Speaker Change: Okay.
Speaker Change: Got it and to be clear some of the new channels and geographies youre trying to grow in or are those also pressuring margins in the near term as you ramp up your multifamily exposure as you ramp up your Greenfield as you ramp up growth in some of these other categories in different markets or are you taking a gross margin hit initially.
Speaker Change: And in time that will recover or is that not a factor.
Speaker Change: You know actually so as I think about some of our Greenfield opportunity for example, in Portland, and as I said in my remarks, we're doing we're doing better than we expected there's nothing different.
Speaker Change: They're tied to the greenfield in and of itself. There are normal market conditions that from a softness standpoint, the Pacific northwest that are that are being that are flowing through the P&L that said and as it relates to volumes and and our EBITDA, our adjusted EBITDA in that market.
Speaker Change: We're doing better than expected. So we're managing our costs more effectively. We're also gaining we are gaining new business, because we were closer to the customer as it relates to our cost to serve is lower so there are a number of things that we're able to do because we are in market in terms of expanding our product sales to those customers in that market, which is allow.
Speaker Change: Owing us to expand faster than we expected that said again, there is still softness in the market up there normal competitive pressures apply there just as much as they apply in other parts of the west.
Speaker Change: Okay, and then last one for me on the tariffs what exactly are you selling that would be excluding tariffs others.
Speaker Change: Yeah.
Speaker Change: Just commodity lumber and <unk>.
Speaker Change: Good.
Speaker Change: Yeah, we have so under one of our brands Prime lengths, which is our millwork category. We source a fair amount of millwork internationally. We also have some rebar that we source internationally, but it's such a small amount it's primarily it's primarily.
Speaker Change: From the millwork category, and the structural products or lumber category.
Speaker Change: Alright. Thank you guys. Good luck.
Speaker Change: Next question comes from the line of Kurt Yinger with D. A Davidson. Please go ahead.
Kurt Yinger: Great. Thanks, and good morning, everyone.
Speaker Change: Yes.
Speaker Change: Recognizing that the technology investments and the transportation management system investments.
Speaker Change: Are there opportunities to maybe protect profitability a little bit better in this environment from an SG&A perspective.
Speaker Change: And how should we think about <unk>.
Speaker Change: Run rate SG&A going forward relative to what we saw here in Q1.
Speaker Change: Yes, so from an SG&A standpoint, we will continue to focus on operational excellence.
Speaker Change: And our other pillars of business excellence in order to continuously improve on that front.
Speaker Change: At the end of the day as we go through the summer the SG&A as a percent of sales should should improve obviously with this past quarter. It was a little bit challenging given market conditions, but look at the end of the day.
Speaker Change: We're continuously focused on managing managing our cost structure, so that so that it aligns with the sales function even after taking into account the digital investments. So even on the digital investment side, there continue to be opportunities for improvement and to be more efficient as we move move for.
Speaker Change: Ford.
Speaker Change: Continue meeting additional milestones along the along phase one and then as we go into phase III, we should get some we should get greater leverage off the investments we've made in phase one at this point.
Speaker Change: Other than being committed to managing our cost structure in a responsible way theres really no no change to our <unk> our cost structure SG&A right now, although like I said, we are absolutely focused on being as efficient as possible in light of current market condition.
Speaker Change: Without losing sight of our the.
Speaker Change: The investments, we need to make to drive our strategy.
Speaker Change: Okay.
Speaker Change: Okay Alright.
Speaker Change: And then can you maybe just talk a little bit about.
Speaker Change: Your visibility into customer inventory levels at this point in the year, maybe how you would characterize that relative to normal.
Speaker Change: And what Youre seeing in terms of.
Speaker Change:
Speaker Change: Just general seasonality here going into Q2.
Speaker Change: Yeah.
Speaker Change: Customer inventory levels were lower generally speak just from a from a buildup standpoint at.
Speaker Change: At the same time, however, usually when that happens and there is more uncertainty two step distribution can actually be very valuable.
Speaker Change: Because your customers want to buy.
Speaker Change: Less more often so instead of bringing in railcars of materials don't bring in truckload, which is perfect for us in terms of really making our just in time.
Speaker Change: Our just in time delivery proposition that much more valuable our warehousing or working capital management that much more valuable with uncertainty there is a desire to to try and make sure. Your balance sheet is strong at the customer level and so theres a little bit.
Speaker Change: Incremental value for us as we move through the coming months, but yes, we did see some of that build and as theyre working through it combined with market conditions and whether there was a little bit of a softening from a from a buy standpoint, but as I said earlier, we're picking up in Q2.
Speaker Change: Okay, and then just lastly on capital allocation I mean, recognizing the desire to grow we've been talking about M&A for a couple of years now and recognizing it's tough to pinpoint.
Speaker Change: When or if transactions were to materialize I guess, just with the stock where it is.
Speaker Change: I mean does it make sense with what youre seeing on the M&A side looking at some of these transactions relative to where you are trading or how are you prioritizing buybacks.
Speaker Change: Just given where the stocks trading today.
Speaker Change: Yes, So we will continue to review our capital allocation.
Speaker Change: Our capital allocation strategy on top of that.
Speaker Change: The plans that we had for the year based on current and then current market conditions. So it's one of the reasons why we said we're reviewing our Capex for example, as the market continues to evolve this year ultimately at the end of the day, we are committed to Greenfields and M&A that support strategic growth.
Speaker Change: We're also committed to being opportunistic with respect to share repurchases and investing capex into the business that will support our our growth objectives, but at the end of the day. We also are committed to maintaining a leverage target below two so all of those factors will come into play as we review our capital allocation.
Speaker Change: <unk> over the course of the year from an M&A standpoint, if theres a great deal to be had we'll absolutely do it if it supports our specialty sales growth objectives, our channel and product.
Speaker Change: Growth objectives, our geographic expansion objectives, but look at the end of the day, we need to make sure. It makes sense for the business. If it makes sense for the business then we'll put our capital to that higher and better use in order to drive the business.
Speaker Change: Okay.
Speaker Change: Maybe just two follow ups is there kind of a baseline level of.
Speaker Change: Kind of cash on hand debt.
Speaker Change: You would like to maintain.
Speaker Change: And then second when you kind of referenced that two times leverage target.
Speaker Change: And I guess, where you would conceivably.
Speaker Change: The balance sheet and leverage go to.
Speaker Change: Based on the kind of current net cash position or would that include a net debt figure that would include some of that.
Speaker Change: <unk> real property leases.
Speaker Change: Okay.
Speaker Change: So I think when we think about our leverage we are really looking at it net of the real property finance leases.
Speaker Change: So.
Speaker Change: I mean.
Speaker Change: As it stands today, our goal is to keep our net leverage at two times or less.
Speaker Change: But as market conditions change and we continue continue to evaluate.
Speaker Change: Yes.
Yes.
Speaker Change: How the year progresses, we will continue to evaluate.
Speaker Change: Our cash needs we have.
Speaker Change: Lots of available.
Speaker Change: Capacity with our ABL soon.
Speaker Change: Yes look the point is we have the levers we can pull in different directions, depending on what the end market current market conditions are.
Speaker Change: To pull to make sure that we are within the optimal leverage.
Speaker Change: That's just which is a great place to be for example, even on the on the Capex.
Speaker Change: The Capex at this point, especially given the investments we've made over the last four years.
Speaker Change: For instance, give us a tremendous amount of flexibility now as we manage the timing of Capex over the next 12 to 18 months.
Speaker Change: And which we can do depending on market conditions without losing sight of what the strategic.
Speaker Change: The strategic goals are because look it we <unk>.
Speaker Change: Want to be well positioned to not only do well in challenging market conditions, all things considered but more importantly to be able to take advantage of the of the unlock on the housing recovery when it does come because it will come.
Speaker Change: And so that hence why we're making the strategic investments today.
Speaker Change: Okay. Thank you very much.
Speaker Change: Your last question comes from the line of Jeffrey Stevenson with loop capital. Your line is now open. Please go ahead.
Jeffrey Stevenson: Hi, Thanks for taking my questions.
Jeffrey Stevenson: So what percent of your lumber source from Canada, and could you make adjustments youre sourcing strategy of higher tariffs are implemented and then following up on that if the increased Canadian lumber tariffs go into effect do you believe it could help stabilize AWP pricing.
Jeffrey Stevenson: Potentially inflect higher later this year as well.
Jeffrey Stevenson: Yes, so look less we have less than 20% exposure to <unk>.
Jeffrey Stevenson: Canada and <unk>.
Jeffrey Stevenson: To your point the products that we primarily sourced from Canada.
Jeffrey Stevenson: Based on how they flow through the market will accept.
Jeffrey Stevenson: The increasing cost or increase in price to cover the tariffs in very short order very quickly because as you know lumber and panels are priced on a weekly basis, and then given how we manage our commodity wood products.
Jeffrey Stevenson: Products strategically I'm very confident that.
Jeffrey Stevenson: We will be able to do that in real time, so no issue there.
Jeffrey Stevenson: From a pass through standpoint, as it relates to AWP.
Jeffrey Stevenson: Our.
Most pretty much all AWP manufacturers in the U S.
Jeffrey Stevenson: Source web stock from Canada, and so we will all be in the same boat as it relates to.
Jeffrey Stevenson: Passing through that passing through that cost of any web stock that comes in from Canada that may be subject to a tariff although.
Jeffrey Stevenson: Nobody really knows what the end result will be but the point is that as it relates to Canadian sourced products. We all believe that we can pass the cost through.
Jeffrey Stevenson: With it ultimately being reflected in price.
Jeffrey Stevenson: At this point right now the softness in the market.
Jeffrey Stevenson: And bind with competitive market dynamics are really putting pressure on AWP.
Jeffrey Stevenson: But that hasnt.
Jeffrey Stevenson: Kept us from gaining share and growing our our volumes with AWP, including in markets like the Pacific as we continue to move forward in the Pacific Northwest.
Jeffrey Stevenson: Understood.
Jeffrey Stevenson: Thanks for your commentary early on and market outlook and the spring kind of well understood. The builder spring selling season is coming in below expectations due to ongoing affordability challenges of macro uncertainties, but I wanted to ask you know if you could provide an update on the progress of your pilot program.
Jeffrey Stevenson: In mid last year to increase your sales concentration with production builders over the coming years.
Jeffrey Stevenson: Yes, sure so we invested in builder.
Jeffrey Stevenson: Pull through capabilities and as a result of that our focus on regional builders.
Jeffrey Stevenson: Has led to programs that we've developed with them and those programs are pulling our products through our customer base, our primary customer base and that's been great. So it's we've seen this in the build to rent.
Jeffrey Stevenson: Area. We've also seen it with traditional big builders as well and most of this progress is being made in the east.
Jeffrey Stevenson: In the south and we have some opportunities that we're exploring in the west as well so.
Jeffrey Stevenson: So we feel pretty good about it.
Jeffrey Stevenson: And that and that is honestly contributing to our.
Jeffrey Stevenson: Contributing to various volume improvements in certain categories, especially given market decline general market declines not only across the country, but in certain key markets. So the effort is actually offsetting.
Jeffrey Stevenson: Some of the decline you might already see and at the same time, we're actually leveraging it to gain to gain share.
Jeffrey Stevenson: So it's working and we're excited about continuing to make the investments we need to to drive further growth.
Jeffrey Stevenson: Great. That's good to hear and then lastly, and I appreciate your comments.
Speaker Change: Question on capital allocation, but one.
One other thing since you know how do you back from doing M&A over the last year or so is seller expectations and I'm. Just wondering if those have started to comment given the recent market uncertainty along with the deflationary pressures the industry has experienced the last.
Speaker Change: One to two years.
Speaker Change: Yes, we're starting to see more deal flow.
Speaker Change: And the expectations are coming down the spreads are.
Speaker Change: Narrowing much faster than they were before so we feel.
Speaker Change: As we expected we thought expectations would come down as they are.
Speaker Change: And more importantly, we're actually seeing more opportunities today than we saw let's say 12 months ago.
Speaker Change: Great. Thank you.
Speaker Change: Yes.
Speaker Change: That concludes our Q&A session.
Speaker Change: I'll now turn the call back over to Tom Morabito for closing remarks.
Tom Morabito: Thanks Bella. Thank you again for joining us today, and we look forward to speaking with you in late July as we share our second quarter 2025 results.
That concludes today's call. Thank you all for joining you may now disconnect.
Tom Morabito: Okay.
Tom Morabito: Yes.
Tom Morabito: Yes.
Tom Morabito: Yes.
Tom Morabito: Yes.
Tom Morabito: Okay.
Tom Morabito: Thank you.