BlueLinx Holdings Inc. (BXC) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the BlueLinx Holdings Second Quarter 2026 Earnings Conference Call. [Operator Instructions] and today's call is being recorded. We will begin with opening remarks and introductions. At this time, I would like to turn the conference over to your host, Investor Relations Officer, Tom Morabito. Please go ahead.

Thank you, operator, and welcome to the BlueLinx Inc. Second Quarter 2026 Earnings Call. Joining me on today's call is Shyam Reddy, our Chief Executive Officer; and Kelly Wall, our Chief Financial Officer and Treasurer. At the end of today's prepared remarks, we will take questions. Our second quarter news release and Form 10-Q were issued yesterday after the close of the market, along with our webcast presentation, and these items are available in the Investors section of our website. We encourage you to follow along with the detailed information on the slides starting our webcast. Today's discussion contains forward-looking statements. Actual results may differ significantly from those forward-looking statements due to various risks and uncertainties and including the risks described in our most recent SEC filings. Today's presentation includes certain non-GAAP and adjusted financial measures that we believe provide a helpful context for investors evaluating our business. Reconciliations to the closest GAAP financial measure can be found in the appendix of our presentation. Now I'll turn it over to Shyam.

Thanks, Tom, and good morning, everyone. Our second quarter results once again demonstrate our ability to deliver profitable sales growth in a challenging market environment, validating the strength of our channel and product strategies. Our disciplined execution led to volume growth at solid margins across key customer channels and multiple product types. We believe our results reflect market share gains since we're operating in another year of single and multifamily housing start declines and tepid repair and remodel activity. During the second quarter, net sales increased more than 4% year-over-year, driven by tester specialty product sales, higher volumes in key specialty product categories and improved pricing across multiple product categories. We also continue to experience favorable pricing and volumes for lumber and structural products. Specialty gross margin was 18.7%, excluding the benefit of an import duty related item and structural gross margin was 10.9%, both of which reflect the strength of our customer value proposition and effective inventory management. Our channel strategy continues to fuel our branded specialty product expansion, both geographically and SKU-wise with strategic suppliers engineered wood siding no work industrial, outdoor living and other specialty products represented approximately 70% of net sales and 80% of gross profit in the quarter. The momentum from the multifamily channel efforts, builder pull-through programs and national accounts focus, all key commercial growth strategies continue to drive our financial results and generate value for our entire customer base. Specifically, these initiatives are helping us drive volume growth and share gains by converting projects and customers to the strategic brands and products we carry, thereby strengthening our position as a preferred commercialization partner for suppliers. The virtuous cycle is leading to stickier relationships with both. Suppliers want partners who can help them grow across multiple channels and markets in a fast-paced dynamic landscape, and that's what we're doing. Our value-add services and enhanced capabilities enable us to execute our strategic initiatives at scale and to accelerate both customer and supplier growth objectives, no matter the market conditions. Our disruptive go-to-market approach is unlocking commercial growth opportunities for both customers and suppliers, thereby differentiating us in the marketplace. We have driven volume growth and share gain in key customer channels such as multifamily and key national accounts, demonstrating another quarter of key channel growth. We've also expanded our geographic footprint faster than before with key suppliers like Huber, Louisiana Pacific, Georgia-Pacific, Royal Westlake and RDI. We even have national distribution rights for Georgia Pacific on key specialty product lines that support our multifamily efforts, A new partnership with Trex was also announced that gives BlueLinx distribution rights in 11 markets located in our central north and south regions. This recent award on the part of Trex the national distribution rights we have with Georgia Pacific and the accelerated expansion rights provided by our other key strategic suppliers demonstrate the merits of the commercialization accelerant we are providing to key vendors via our channel focus. Our results also demonstrate the benefits of disciplined inventory management and strong execution. Our ability to quickly align inventory levels with changing market conditions reflects the strength of our operating discipline and commercial capabilities. As market conditions improve, we expect these capabilities to help support even stronger cash flow generation. We are also making meaningful progress on our AI and digital transformation initiatives several of which are designed to enhance commercial activities, fine-tune our inventory management capabilities and generate e-commerce sales. We also remain committed to supporting the advanced digital platforms of our largest customers to accelerate channel growth. Finally, our financial position remains strong with $655 million in available liquidity at the end of the quarter providing us with the flexibility to reinvest in the business and to pursue strategic growth opportunities. Now for a few more highlights on our second quarter results. We generated net sales of $814 million and adjusted EBITDA of $35.6 million, 4.4% adjusted EBITDA margin, a significant improvement on a year-over-year basis. Tesaro, which we acquired in Q4 2025, contributed nearly $25 million of net sales and $2.7 million in adjusted EBITDA. Adjusted net income was $9.1 million or $1.15 per diluted share. The strategic sales and product expansion efforts are what led to these higher volumes and increased net sales at solid margins. For example, multifamily and national accounts continue to perform well, with volumes up 11% and 2% year-over-year, respectively. Our builder pull-through programs supported by strategic customer partnerships also contributed growth across key channels and specialty product categories. In addition, our differentiated value proposition, combined with geographic and SKU expansion with key suppliers drove meaningful year-over-year growth across multiple product lines that are aligned with our channel growth strategy. The newly announced Trex relationship demonstrates the merits of our strategy, and we look forward to validating it for them and supporting our customers' commercial objectives. We're especially proud of our solid gross and EBITDA margin performance in spite of cost inflation, freight challenges and a competitive pricing environment. For example, diesel fuel costs and flatbed freight rates are up 50% and nearly 17% on a year-over-year basis, respectively. We've also dealt with approximately 60 cost increases from suppliers through Q2 2026 compared to around 20% through Q2 2025, yet we performed well for another consecutive quarter. These results reflect disciplined execution of our product and channel strategies, supported by operational and business excellence initiatives that relate to effective pricing and cost pass-through, strategic value-add services, exceptional customer service, branded product expansion and disciplined inventory management. Overall, our Q2 results reflect continued momentum and solid financial performance despite low consumer confidence, persistent inflation, economic uncertainty and geopolitical volatility driving weakness in the housing and repair and remodel markets. Our strategy is working. So we remain focused on executing it through the cycle and positioning BlueLinx for accelerated growth when the industry recovers. I want to thank our associates for the dedication they bring every day to our customers, suppliers, one another and the communities we serve. Now I'll turn it over to Kelly, who will provide more details on our financial results and our capital structure.

Thanks, Shyam, and good morning, everyone. Let's first go through the consolidated highlights for the quarter. Overall, both specialty products and structural products delivered solid sales growth and gross margins in what continues to be a challenging new home construction and repair and remodel market. . Net sales for the second quarter of 2026 were $814 million, up over 4% year-over-year. Total gross profit was $140 million, and gross margin was 17.2%, up from 15.3% in the prior year period. As Shyam mentioned, second quarter results included a $7.2 million duty-related benefit. Excluding this benefit, gross margins for Q2 of 2026 were 16.3%. SG&A was $107 million, up $1 million from last year's second quarter. This increase was mainly due to the acquisition of Costero in Q4 last year, fuel and third-party freight expenses and employee-related expenses. Given the challenging demand environment and continued pressure on operating costs, consistent with prior quarters, we remain focused on disciplined expense management and identifying additional opportunities to improve efficiency. Net income for the quarter was $6.4 million or $0.81 per diluted share. Adjusted net income was $9.1 million or $1.15 per diluted share up approximately 64%. Our effective income tax rate for the quarter was 43%, including the impact of the freight items. Adjusted EBITDA was $35.6 million, up approximately 33% in the second quarter of 2025 and due to the benefit of the Digi related item, increased sales, including the stero, improved overall gross margins and disciplined expense management. Not including the duty related item, Q2 2026 adjusted EBITDA was $28.4 million or a margin of 3.5%. Naturally, we are very pleased with the year-over-year increase in adjusted EBITDA in both the first and second quarters. Turning now to the second quarter results for Specialty Products. Net sales for Specialty Products were $564 million in the second quarter, up nearly 4% year-over-year. This increase was driven by Cescero sales and higher volumes in EWP and Industrial as well as increased pricing in nearly all product types partially offset by volume pressures in millwork due to cheaper alternatives and aggressive local market pricing, though we were able to improve pricing in Q2 on a year-over-year basis. Gross profit for Specialty Product sales was $113 million, up over 12% year-over-year. Specialty gross margin was 20%, up from last year's 18.5% excluding the $7.2 million duty-related item in Q2 of 2026, Specialty gross margin was still up 20 basis points from last year to 18.7%. Sequentially, Specialty gross margins improved 60 basis points when compared to Q1 of 2026. In the current third quarter, we expect specialty product gross margin to be in the range of 18% to 19% with daily sales volumes flat compared to the second quarter of 2026 and higher than the third quarter of 2025. Now moving on to Structural products. Structural products had a strong quarter. Net sales were $250 million for structural products in the second quarter, up nearly 6% compared to the prior year period. This increase was primarily due to higher lumber pricing and volumes when compared to last year, offsetting volume pressures in sales. Gross profit for Structural products was $27 million an increase of 40% year-over-year and structural gross margin was 10.9%, up from 8.2% in the same period last year. Sequentially, structural gross margin was the same as Q1 2026. We expect Q3 structural product gross margin to be in the range of 8.5% to 9.5%, with daily volumes to be higher than the second quarter of 2026 and also higher than the third quarter of 2025. Now turning to our balance sheet. Our liquidity continues to be very strong. At the end of the quarter, cash and cash equivalents were $318 million, roughly in line with Q1 of 2026. When considering our cash on hand and undrawn revolver capacity of $337 million, available liquidity was approximately $655 million at the end of the quarter. Total debt, excluding our real property financing leases, was $377 million and net debt was $58 million. Our net leverage ratio was 0.6x trailing 4 quarter adjusted EBITDA, and we have no material outstanding debt maturities until 2029. Additionally, given the strength of our balance sheet and continued strong liquidity, we remain well positioned to support our strategic initiatives. These strategic initiatives include: continued growth with our large national customers in the multifamily channel with this focus also benefiting our traditional regional customers. Demand pull-through efforts to drive strategic product sales that benefit our customers, continued specialty product expansion with key suppliers, tracks being a great example, our business and digital transformation efforts and other organic and inorganic growth initiatives. Now moving on to working capital and free cash flow. During the second quarter, we had operating cash flow of $11 million and free cash flow of $9 million, both a significant improvement over the second quarter of 2025, primarily due to higher adjusted EBITDA and more effective inventory management. Turning now to capital allocation. During the quarter, we incurred $2.8 million of CapEx, primarily related to investments in our facilities, technology and fleet. For the second half of 2026 we expect CapEx will be higher than the prior year as we continue to invest in our business to address facility maintenance and improvements as well as drive our channel and support our product strategies and business and digital transformation initiatives. Also, during the second quarter, we repurchased $2 million of our common shares, and as of quarter end, we have a total of $54 million remaining under our share repurchase authorization. Our guiding principles for capital allocation remained consistent with prior quarters. We intend to maintain a strong balance sheet, which enables us to invest in our business through economic cycles, expand our geographic footprint, pursue a disciplined inorganic growth strategy as demonstrated by our acquisition of Visterra and opportunistically return capital to shareholders through share repurchases. We also plan to maintain a long-term net leverage ratio of 2x or less. Overall, we are pleased with our strong second quarter results, especially given the challenging market backdrop. We were particularly pleased to see an increase in net sales, earnings and free cash flow year-over-year. That said, we remain measured in our expectations for the balance as housing conditions are expected to remain solid. Operator, we will now take questions.

[Operator Instructions] Your first question comes from the line of Reuben Garner with The Benchmark company

Maybe to start the check announcement last month or a couple of weeks ago, any way to frame up the size of your decking business kind of before this? And where you think that this could go now that you have access to, obviously, the leader in the space? .

Yes. So I appreciate the question. The -- it's too early to say to frame up, we've never talked numbers about any given category other than to say our outdoor living products category is a key strategic specialty growth area for us. I would say that the Trex opportunity of being the #1 branded decking product out there with significant share gives us a much more sizable opportunity than we've had before. And with respect to the 11 markets, those markets are great markets for us. They align well with our distribution footprint. And given the channel strategy, we believe we can drive outpaced growth for Trex in those markets and across our entire consolidated outdoor living products category. The one thing I want to note is we are a brand new distribution partner for Trex. The announcement was made not 3 or 4 weeks ago or 3 weeks ago, and we are prepared to start loading product in this month, which I think is an incredibly quick turnaround time for a 2-step distribution partner and more importantly, validates the strength of our operational excellence initiatives and our processes for honestly being the best commercialization partner for any given vendor in our space.

That's great. And then the gross margin performance, very impressive and encouraging in the environment. I guess, can you just walk through how you're handling this? You mentioned 60 vendor increases. There's obviously been transportation and energy costs rising, like what has allowed you guys specifically to kind of works through all that? Are you -- is it pricing action surcharges? Are there costs that you have taken out that have helped to offset this? Just walk through kind of what's allowed you to perform that way. .

Yes. So let me start with operational excellence, which is driven by our centers of excellence in Atlanta with supported out in the field as we have for example, regional directors of operations in the field to support the branches around basically landed cost excellence combined with people in Atlanta to do the same thing. So I would say at a high level, it has to do with managing are the inflationary cost impact through strategic pricing initiatives, which is both in the context of price increases and surcharges. We take a bespoke approach. In other words, we have proactively worked with our customers to see what makes sense for them. And then it comes down to operational execution or speed of execution, which we have a very disciplined approach to doing so quickly in the field. So that's on the cost side from an inflation standpoint. From a supplier perspective, that comes down to execution as well. We -- we work very closely with our suppliers to make sure we're fully aware of the price increases well in advance and we collaborate or we work with our customers in order to execute as quickly as possible to push those price increases through. As you can imagine, with 60-plus distribution centers, multiple MSAs that we operate in that cover different kind of local market environments that the seamless execution by having people work together efficiently and effectively make for a good operating model and passing cost increases through. But look, at the end of the day, Rueben, the most important thing is you have to be able to sell value right? You can't just push cost increases through outside of supplier increases in particular, which hit the whole market, including our competitors. But with respect to the other cost increases without having a value-added service proposition that people are willing to pay for in light of the inflationary pressures they're all facing. So suffice it to say, if you look at the landscape out there, I would pause it that we are able to push these -- we are able to price effectively because of the value we provide, which is allowing us to grow and drive margins in an otherwise challenging market, not just from a macro standpoint, but also from a declining housing start perspective as well.

And the other component there is what we've seen on the structural side, right, at a 10.9% gross margin in the quarter, that's up materially from prior periods. And we talked about in the first quarter call, we've seen an increase in that the market pricing for both lumber and panels that we've benefited from quite well as not only are we pricing effectively there, but we're managing our inventory so that we have supply available in the market to meet our customers' demands there and they're coming to us for more volumes. And you can just kind of reiterate Shyam's point, right, our efforts on the business and digital transformation front. -- have been a key part of this, specifically, our transportation management system that we put in place, which is helping us manage our freight cost in significantly higher fuel and third-party freight cost environment and also our price initiatives where through the use of data and better tools, we're better able to assist our regions and branches and pricing more effectively and more quickly, which is allowing us to pass through these under cost increases as well as price to value add that we're bringing to the market effectively.

Great. And then last one for me. I think the press release said daily sales volumes higher year-over-year, also higher sequentially. Just to clarify, is that -- I mean, is it simple as I would assume there's no reason pricing is lower in the third quarter than the second. So revenue is expected to be higher in 3Q versus the second quarter? And if so, that's a pretty reasonable acceleration in year-over-year revenue growth. Can you just walk through kind of what gives you the confidence a lot of companies and especially with the explosion of new housing construction are kind of a little more modest in the back half. So just talk about what's driving that detail. .

Yes. I think what we're seeing is total revenue will be down from -- sorry, would be up, you're right, from Q2 to Q3. And again, I think it's just as we continue to execute our strategies or driving volume growth certainly relative to the overall market, but also back on the pricing front as we continue to price more effectively, that's benefiting us as well. And then on the structural side, we are -- you can see in our press release, you're expecting margins to kind of come back down in the back half of the year, it's something that's more aligned with traditional levels, but they have been elevated in the first part of the quarter, which is also going to help with that as well as moving forward.

Your next question comes from the line of Jeffrey Stevenson with Loop Capital.

I just wondered if you could walk me through how specialty products volumes trended throughout the quarter and what product categories, in particular, came in better than worse than anticipated -- then following up on Rueben's question, both average daily sales volumes are expected to be both year-over-year and sequentially. Is this really driven by your share gain initiatives helping you drive above-market growth given continued residential demand .

Yes. Let me just -- let me take the first part of the question. So from a category standpoint, we saw pressure in mill work volumes, which isn't surprising given tepid R&R activity as well as panels, which has been a challenging market just given oversupply, if you will. But for the most part, those were 2 of our more challenged categories. When I think about our share gain efforts, we are focused on multifamily. We are focused on driving national accounts business at scale, which ends up benefiting our entire customer base. And last, but not least, we are executing or implementing strategic builder pull-through programs in alignment with key channel partners that are driving sales in very specific specialty product categories. All of the above is what leads to the share gain and then otherwise down or challenging market. So I -- whether the market is great or terrible, I'm confident that our teams can execute successfully on getting more and more of the pie because of the strategic approach we're taking to helping our customers grow their business and also being the best commercialization partner for our suppliers. And if you take a look at the evidence that supports that we've talked about growing from 0 to 20-plus markets with LP in 18 to 20 months. We've we've gone national with Georgia Pacific as it relates to key product lines that support the multifamily business. We've expanded substantially with Huber in multiple markets in a very short period of time. We launched with true exterior in 14 markets at once, tracks in 11 markets. Generally speaking, if you look at historic trends, it's rare that you can expand in double-digit markets all at once with key suppliers are in a relatively short time. And I would say that our commercial -- our channel strategy is what's driving that accelerated geographic and SKU expansion with respect to key product lines and our suppliers. So -- at the end of the day, we are all -- we are focused on winning at the local market and regional levels and continue to gain share because of the focus -- and then of course, the operational excellence initiatives, the business excellence initiatives on value-add services and our transportation management system, the alignment, the e-commerce and AI are all serving as amplification or accelerants to the general business efforts that are underway.

Yes. And we've been more specific about what we're seeing in kind of the current quarter on for, Jeff, what we're seeing here in the current quarter -- we are -- year-over-year, if volumes are up for both specialty and structural low single digits. And on the pricing front, same thing, right, we're seeing especially pricing up low single digits and then structural is actually up kind of in the mid-teens level. And then sequentially, we're continuing to expect overall volumes while they are down slightly at the beginning of the quarter, we're seeing that trend reverse out, and we expect that the overall trends will be slightly positive. -- sequentially from Q3 to Q4. And I guess as a reminder, typically, we have -- I'm sorry -- and then as a reminder, typically our third quarter is higher, right, seasonally than Q2, and we don't have any reason to expect that, that would change. And as I look at some of the specific kind of categories on the volume front. All of our categories are up flat to up -- some of them was kind of high single digits in certain sort of key categories in across both specialty and Shari as we start the third quarter here.

So I appreciate that. And 1 category where you seeing deflation pressure as kind of 2 years has been and wondered on the competitive and your competitor talked to kind of third quarter price increases. I just wondered should we expect pricing to stabilize and inflect higher in that category?

Yes. So the competitive landscape hasn't changed per se, but -- and where I would emphasize kind of our strength is on margin and volume growth due to the builder pull-through programs that were -- we've established with key channel partners to drive to drive growth and participate more -- participate more opportunistically across the country. So that's been a win for us. I would say that the deflationary impact. If you compare us to to others out there has had less impact on us. And I would say that it's because of the value-add services we're providing that justify the price maintenance by and large, relative to maybe others out there. So look, at the end of the day, it's a very competitive environment. There are products coming in from overseas, for example, LDL, EuroLVL that puts pricing pressure on local market -- locally market produced of EWP. But at the same time, because of our value-add services, creative pricing programs, channel partner relationships that are driving honestly, profitable sales growth for end builders is ultimately enabling us to, quite frankly, not only gain share but also maintain margins and not be adversely impacted as much as you might expect with EWP pricing that others may be experiencing.