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Article Excerpt
Original Source: FD (FAIR DISCLOSURE) WIRE
OPERATOR: Good day, ladies and gentlemen, and welcome to the first quarter 2007 Building Materials Holding Corporation conference call. My name is Brandy, and I will be your operator for today. [Operator Instructions]
I would now like to turn the call over to Pia Kristiansen with The Blueshirt Group. Please proceed.
PIA KRISTIANSEN, INVESTOR RELATIONS, THE BLUESHIRT GROUP: Thank you. Good afternoon, and thanks for joining us for BMHC's conference call to discuss the first quarter 2007 financial results. The company issued a press release this afternoon detailing its results. If you do not have a copy, the release can be found at BMHC's website at www.BMHC.com, or feel free to call The Blueshirt Group at 415-217-4961, and a copy can be sent to you.
Before we begin, I'd like to make a brief statement regarding forward-looking remarks that you may hear on today's conference call. Certain statements made in this conference call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements that are not historical or current facts, including statements about our expectations, anticipated financial results, and future business prospects, are forward-looking statements.
While these statements represent our current judgment on what the future may hold, and we believe these judgments are reasonable, these statements involve risks and uncertainties that could cause our actual results to differ material from those in forward-looking statements. These factors include, but are not limited to, the risks and uncertainties cited in our press release.
Additional information regarding these risks is contained in our latest annual report on Form 10K, and in our periodic filings with the SEC. Undue reliance should not be placed on such forward-looking statements, as such statements speak only as of the date of this conference call. We undertake no obligation to update forward-looking statements.
At this time, I'd like to turn the call over to Mr. Robert E. Mellor, Chairman, President, and Chief Executive Officer of BMHC. Rob?
ROBERT MELLOR, CHAIRMAN, PRESIDENT, AND CEO, BUILDING MATERIALS HOLDING CORPORATION: Thank you, and good afternoon, everyone. And thanks for joining us today. With me on the call are Bill Smartt, Senior Vice President and Chief Financial Officer, Mike Mahre, Senior Vice President and Chief Executive Officer of SelectBuild, and Mark Kailer, Vice President, Treasurer, and our Information Relations Officer.
First, I'll offer a few remarks on our views of the home building industry, which will be followed by a review of our business and trends for the first quarter. Bill will then provide more details of our financial results. And after Bill's commentary, I'll offer a few additional remarks on our strategy and our outlook for 2007, after which we'll open the call for any questions you might have.
Nationwide, home building activity declined dramatically during the first quarter of 2007. For the month of March, US single family building permits declined 28% from March of 2006, to an annual pace of 1.1 million. Additionally, single family starts declined approximately 25% from March of 2006 to an annualized rate of 1.2 million.
We use single family building permit data as about a 30 day leading indicator for single family starts. And looking specifically at BMHC's regional markets for the three months ended February, we see building permits for single family homes down by 37%, while the US overall was down 31%.
Like many of our peers and customers, our results for the first quarter reflect a severe and sustained downturn in the home building industry. Revenue declined sharply, and while we recorded a net loss on the bottom line, we essentially broke even on the operating line for the quarter.
At BMC West, our distribution, manufactured products, and installation services operation that serves custom and original home builders, sales outpaced permit activity in its regions, declining less than the comparable decreases in permits across its markets. Even in these challenging market conditions, which include a protracted decline in commodity wood prices, we believe BMC West increased its market share during the quarter.
Sales for SelectBuild, which provides construction services to high volume production home builders, were in step with reduced permit activity in most of the markets in which it operates. During the quarter, we worked to reduce costs across our organization, and to align resources with sales volume. For example, at SelectBuild, we're consolidating business infrastructure in our California and Arizona divisions and existing redundant administrative facilities, while at BMC West, we're optimizing our staffing levels and implementing new information technology to reduce delivery expenses.
In light of the current market dynamics, we limited our acquisition activities during the first quarter. We announced our acquisition of the remaining 27% minority interest in Riggs Plumbing in Arizona, which was effective April 1st. We believe that the completion of selected buyouts will accelerate integration, and will also create opportunities to leverage scale and increase the use of shared services. Future acquisition initiatives will remain measured and strategic, as we focus on managing our business through the current industry correction.
And now I will turn the call over to Bill to review the financial results for the first quarter of 2007. Bill?
BILL SMARTT, SVP, CFO, BUILDING MATERIALS HOLDING CORPORATION: Thanks, Rob. As Rob mentioned, our results reflect the sharp downturn in the home building market. The impact of this cycle has been more pronounced on the construction services side of our business, where pricing concessions were needed to retain customers in a demand-constrained market.
On the building materials side of our business, while revenues were depressed by the continuing decline in commodity wood prices, we have continued to gain market share and maintain margins. In the first quarter, we also saw a reemergence of the seasonal slowdown that had been typical for us, particularly in the months of December, January, and February, leading into increased spring home building activity in the month of March. Over the last few years, this seasonality has been muted by the extraordinary volume of home building activity that took place in the Sun Belt markets that we serve through SelectBuild.
With the Sun Belt markets being the hardest hit in the cyclical market correction, we now believe the market has returned to a more typical seasonal pattern. Again, we were somewhat encouraged to see an improving trend in the month of March.
Consolidated sales in the first quarter of 2007 decreased 36% to $569 million, from $885 million in the same quarter a year ago. Net loss for the first quarter was $5 million, or $0.17 per share, compared to net income of $28.1 million or $0.95 per share in the first quarter of 2006.
Consolidated gross margin was 19.8% for the quarter as compared to 20.7% in the first quarter of 2006. This 90 basis point decrease reflects the impact of lower margins on construction services sales, primarily due to the competitive pricing environments, which were offset in part by a mix shift toward building products, where margins improved by 130 basis points.
Consolidated selling, general, and administrative expenses were down $16.8 million, as payroll costs and incentive compensation were pared back. As a percent of sales, SG&A costs increased to 20%, from 14.8% in the first quarter of last year.
When analyzing this percentage change, it is important to note that the production slowdown among the large home builders has resulted in a shift in our revenue mix away from construction services and back toward distribution and manufacturing. This shift resulted in higher consolidated SG&A expense as a percentage of sales, since SG&A at SelectBuild is approximately 12.5% of sales,...
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