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BFS, BMC Both Look to Grow in Size After Weathering COVID's Shocks

Judging by what America's two biggest publicly traded lumberyards have been telling people lately, this quarter will be marked by expanded vistas.

"Our strong cash flow continued to strengthen our balance sheet, at the same time providing dry powder for future M&A," Builders FirstSource (BFS) CEO Chad Crow said during the company's earnings call on July 31. "... We intend to use a portion of our cash flow to continue investing in value-added growth capacity through both organic and acquisition opportunities. This includes our investment plans related to greenfield facilities, new truss lines and existing plants, store facility expansions, and machinery and systems at dozens of our value-added operations."

There was similar talk at BMC. "Although the pandemic initially slowed things down from an M&A perspective, we are now ramping up our conversations with private distributors," the dealer wrote in its presentation to analysts after issuing its quarterly report on Aug. 3. "Our pipeline of acquisition candidate has never been stronger, and our strategic M&A growth continues to be a very important pillar of our business strategy."

Both sides relied heavily on 2019's acquisitions to eke out year-over-year sales gains in the second quarter. At BFS, revenues from same-store sales dropped 2.1% in the April-to-June quarter from 2019, but revenue from the recent acquisitions produced a gain for all stores of 0.4%. Commodity inflation generated the rest of the propulsion for a 2.2% sales gain.

At BMC, core organic sales dropped 2.2% but acquisitions added the equivalent of an extra 4.3% to last year's revenue total. Those new stores, plus price inflation on commodities, helped produce a 3.5% overall net sales increase.

The dealers' go-go attitude toward expansion contrasts markedly with what BFS and BMC were reporting at the end of the first quarter. In March and April, the pandemic was surging, some states had barred construction, and the stock market was tanking. Thus, the focus was on hoarding cash, cutting staff, and halting M&A work. The strategy made sense; in April, core organic sales declined in the high single-digit percentage range, BFS CEO Peter Jackson told analysts. But by June, core organic growth was several percentage points higher than it was in June 2019, and for the third quarter, core organic sales growth should be in the mid-single digits, he said.

"Right now, our best guess is Q3 sales will be positive impacted due to [commodity] inflation somewhere between 5% and 7%," Crow told analysts. "And then, of course, we'll probably have another 2% or so year-over-year growth due to acquisition."

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