Big Dealers Pile Up Cash and Credit to Prepare for the Downturn
In recessionary, coronavirus-tainted times like these, a company's balance sheet might well be a better indicator of its future prospects than the profit-and-loss statement. What's clear from the balance sheets of Builders FirstSource (BFS) and BMC is that they are busily fortifying their businesses to power through what could be months of trouble.
After increasing its cash on hand ten-fold between January and March, BFS has kept building its reserves and tapping debt marks. By April 30, the dealer could claim to have $1 billion of total liquidity, "including $193 million of cash and no significant debt maturities for the next seven years," CEO Chad Crow reported.
Meanwhile, BMC borrowed $144 million under its revolving credit facility while boosting its cash on hand by 71%. It also notes that it doesn't have any significant long-term debt maturities until 2024.
Beacon isn't scheduled to release its latest quarterly earnings report until later today, May 7, but in a recent announcement, president and CEO Julian Francis listed all the things the company has been doing to prepare: "aggressive cost-cutting actions, including a reduction in seasonal and temporary hiring, cuts in overtime hours and reduced hourly schedules, ... furloughs in both operating and non-operating functions, reduced salaries, significantly restricted capital expenditures and required a heightened organizational focus on tightly managing all expenses."
Those come on top of millions borrowed from the company's revolving line of credit. "By safeguarding our people, our business, and our finances, Beacon is well-prepared to weather the challenging weeks or months ahead,” Francis declared.
BFS is doing much the same. According to its April 30 earnings press release, the cutbacks include "resizing locations where needed; minimizing discretionary capital expenditures; optimizing working capital; limiting and delaying operating expenses; tightly managing corporate spend; and reducing Board and senior management pay."
As Crow told analysts a day later, "If it gets as bad as 10 years ago, we’ve got a boatload of liquidity, and we’ll be ready to react. So right now, we’ve got an experienced team, we’ve got a balance sheet that’s got $1 billion of liquidity, and we will manage through whatever the current economic environment presents to us."