Builders FirstSource turned in positive fourth-quarter results, including a 31% jump in revenues to $192.7 million. But it was CEO Floyd Sherman’s statement about “[taking] advantage of opportunistic inventory buys” toward the end of the year that caught the attention of many people in the LBM industry. Even the analysts on the Dallas-based company’s Feb. 17 conference call wanted to know more. Was it a temporary thing or a new strategy, one asked?
Praising the acumen of his merchants to make timely buys, Sherman said: “There are times that we can just ride the inventories on a normal replenishment basis, and there are going to be times that we will step in and ensure that we have the complete quarter coverages. So I really can’t say going forward. It is just going to continue to be a mixed bag.”
Another analyst wanted to know if the four-point rise in gross margin points (year-over-year) in commodities was due to the aforementioned “opportunistic inventory buys.”
“That is a combination of good inventory buys [and] fixed-cost absorption,” Sherman said. “It is a combination of improved labor efficiencies in the COG side, the manufacturing side of the business. And also a reflex of slightly improved pricing.”
But how often do these opportunities come along, the analyst wondered? And do you have the money to take advantage of them?
“It is only going to occur a limited number of times during the year,” Sherman said. “Probably 60% of our business is either 60- or 90-day forward pricing. And if we feel that the market conditions for that coverage period is going to be real volatile, then we are going to [protect] the pricing we have in place. We will always look for those small incremental buys that we can do at a real discount to market, just to get the slight improvement in our average costs that we have on materials and inventory. But that is a relatively small piece of the replenishment.”