Building Materials Holding Corp. (BMHC) reported today a net loss of $31.9 million for the second quarter. That's a 6% improvement from the first quarter but a swing from the $19.4 million profit reported in the April-June period of 2007. Sales decreased 41% from the year-earlier period to $385 million.
Chairman and CEO Robert E. Mellor attributed the results to several factors:
- Sales of building products fell 29% in the quarter from the year-earlier period, while construction services sales sank 51%.
- Gross margins shrank in the face of competitive pressures.
- The company recorded $8.5 million worth of impairments as a result of "certain customer relationships"--customers who couldn't pay their bills, presumably--and costs involved in closing and consolidating certain units. On Aug. 4, for instance, BMHC announced will close its SelectBuild Florida subsidiary over the next four months.
- Another $5.8 million in expenses were recorded to cover the cost of exiting certain leases and pay other charges.
All told, BMHC said it expects its cutback initiatives will reduce its administrative expenses by $20 million to 25 million over the next year.
BMHC's financial downturn prompted discussions with its lenders for a temporary waiver on minimum net worth and earnings standards. The company announced recently it obtained a temporary waiver from its lenders that enables the company to borrow up to $60 million on its revolving credit facility.
"While our operating results reflect the continued difficult conditions confronting the homebuilding industry, we made substantial progress in our restructuring program during our second quarter, and also experienced sequential improvements in consolidated sales and gross margin," Mellor said in a statement. On May 12, BMHC announced it would merge its BMC West and SelectBuild units in an attempt to streamline services that it estimates will save $20 million to $25 million annually. A few days later, it closed its SelectBuild Arizona unit as well as its facilities in Merced and Bakersfield, Calif.
During a conference call with analysts after posting its results Aug. 14, BMHC said its employee head count has fallen from 25,000 in July 2006 to roughly 11,000 as of this June. Operations have been consolidated into six regions, and the company is focusing more on millwork and truss projects. BMHC also sold its Phoenix windows operation and is winding down its HVAC operations in Arizona and Nevada, its trim operations in Nevada, and its plumbing operations in Nevada and Southern California. In addition, it is auctioning off some vehicles.
BMHC, the fifth-biggest company on the 2008 ProSales 100, is much more closely tied to production builders than other pro-oriented dealers.
On July 29, the company said its preliminary second-quarter results indicated it was out of compliance on a revolving loan for which $29 million is oustanding and a term loan on which BMHC owes $340 million."Failure to comply with these covenants constitutes an event of default under the credit facility. As a result, the lenders under the credit facility will have the right to cause all amounts borrowed to become due and payable immediately and cease further borrowings by the company under the credit facility," the company said.
"BMHC has been discussing with its lenders a temporary waiver of these covenants, in order to preserve access to liquidity under the credit facility, and an amendment to the credit facility to better reflect current market conditions," BMHC's July 29 statement said. "There is no assurance these negotiations will result in a waiver and an amendment acceptable to BMHC and the lenders. However, BMHC currently expects that it will reach agreement with its lenders on both the appropriate waiver and the amendment in a timely manner and that its business operations will not be affected."
As a result of the announcement, Standard &Poor's Ratings Services said it placed its "B-" corporate credit rating on BMHC on negative watch.