San Francisco-based Building Materials Holding Corp. (BMHC) hopes to reduce its annual operational expenses by $20 million to $25 million by combining SelectBuild, its formerly high-flying contractor services subsidiary, with the operations of BMC West, its pro dealer chain. BMC West is also being pared down by its parent company, which has been rocked financially by the housing downturn.

SelectBuild, which in 2006 represented three-fifths of BMHC’s annual revenue, specializes in turnkey framing and concrete foundation programs. It had experienced phenomenal growth in recent years, mostly through aggressive acquisitions that not only extended its core businesses to new markets throughout the western United States, but also put SelectBuild into new categories such as plumbing and stucco.

However, the subsidiary’s involvement with leading production builders—BMHC boasted that it provided services to 20 of the top 25 builders—proved to be SelectBuild’s Achilles’ heel.

In 2007, SelectBuild suffered a $335 million operating loss on revenue of $1.1 billion that was off 36 percent. That trend has continued into 2008. Between January and March of this year, SelectBuild incurred a $17.3 million operating loss on $144.2 million in sales, down 48.6 percent from the same period a year ago.

According to parent company BMHC, SelectBuild’s accounting, accounts payable, purchasing, payroll, and information technology support will be absorbed into the existing corporate support operations. “Centralization of these functions allows operations employees to focus on customer service without needing to dedicate time to administration,” the company explained.

Those at the top are also seeing some changes.

On April 30, SelectBuild’s 48-year-old CEO Michael Mahre, who had built the subsidiary into a regional powerhouse (and was rewarded for his efforts with nearly $2.7 million in compensation in 2006), resigned from the company he had joined in 1999. The combined operations now report to Stanley Wilson, BMHC’s president and COO.

The organization of the company—which includes about 60 BMC West lumberyards—is being “flattened” from 13 regions into seven regions, which will cover 12 states.

BMHC is also shrinking its businesses by shutting down an as-yet-undisclosed number of underperforming units that represented about $120 million in sales last year, $19 million in overhead, and $12 million in operating losses. (These units also currently employ 700 people.)

More closings could be imminent, as BMHC said in its filing with the Securities and Exchange Commission that it has identified other units for “potential shutdown” that had sales of about $435 million last year, SG&A expense of $36 million, operating income of $11 million, and 1,300 employees. 

Robert Mellor, BMHC’s chairman and CEO, said that the corporation is developing a plan to improve its profitability. In the first quarter of this year, BMHC lost $33.4 million on revenue of $355 million, which was down 37 percent from a year ago. During the quarter, the company reduced its employee count by 20 percent.

BMHC has been taking hits from all sides lately. At the company’s annual shareholder meeting this month, construction workers protested layoffs at SelectBuild and what union officials claim are unsafe working conditions at company job sites. Last fall, Chapman Capital, an investment advisor representing two funds that own a chunk of BMHC’s stock, called for Mellor’s resignation. That stock, which a year ago was trading for more than $14 per share, is now trading for less than $3.80.

John Caulfield is a senior editor at BUILDER magazine.