Builders FirstSource (NYSE:BLDR) Misses Q4 Revenue Estimates, Stock Drops

Building materials company Builders FirstSource (NYSE:BLDR) fell short of the market’s revenue expectations in Q4 CY2024, with sales falling 8% year on year to $3.82 billion. The company’s full-year revenue guidance of $17 billion at the midpoint came in 1.7% below analysts’ estimates. Its non-GAAP profit of $2.31 per share was 4% above analysts’ consensus estimates.

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“Our fourth quarter and full year results demonstrate our resilience and ability to drive results in the face of a complex operating environment, while maintaining our focus on building for the future. The strength of our differentiated platform and our operational excellence initiatives drove a mid-teens EBITDA margin in 2024. Results this year are further proof that our success is driven by the dedication of our hardworking team members and support of our customers,” commented Peter Jackson, CEO of Builders FirstSource.

Company Overview

Headquartered in Irving, TX, Builders FirstSource (NYSE:BLDR) is a construction materials manufacturer that offers a variety of lumber and lumber-related building products.

Home Construction Materials

Traditionally, home construction materials companies have built economic moats with expertise in specialized areas, brand recognition, and strong relationships with contractors. More recently, advances to address labor availability and job site productivity have spurred innovation that is driving incremental demand. However, these companies are at the whim of residential construction volumes, which tend to be cyclical and can be impacted heavily by economic factors such as interest rates. Additionally, the costs of raw materials can be driven by a myriad of worldwide factors and greatly influence the profitability of home construction materials companies.

Sales Growth

A company’s long-term sales performance signals its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last five years, Builders FirstSource grew its sales at an incredible 17.6% compounded annual growth rate. Its growth beat the average industrials company and shows its offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Builders FirstSource’s recent history marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 15.1% over the last two years. Builders FirstSource isn’t alone in its struggles as the Home Construction Materials industry experienced a cyclical downturn, with many similar businesses observing lower sales at this time.

We can dig further into the company’s revenue dynamics by analyzing its most important segments, Manufactured products and Windows, doors & millwork , which are 23.5% and 26.1% of revenue. Over the last two years, Builders FirstSource’s Manufactured products revenue (floors, wall panels, and engineered wood) averaged 16.2% year-on-year declines while its Windows, doors & millwork revenue (self explanatory) averaged 4.5% declines.

This quarter, Builders FirstSource missed Wall Street’s estimates and reported a rather uninspiring 8% year-on-year revenue decline, generating $3.82 billion of revenue.

Looking ahead, sell-side analysts expect revenue to grow 5.3% over the next 12 months. While this projection indicates its newer products and services will spur better top-line performance, it is still below the sector average.

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Operating Margin

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.

Builders FirstSource has been an efficient company over the last five years. It was one of the more profitable businesses in the industrials sector, boasting an average operating margin of 12.2%.

Analyzing the trend in its profitability, Builders FirstSource’s operating margin rose by 4 percentage points over the last five years, as its sales growth gave it operating leverage.

In Q4, Builders FirstSource generated an operating profit margin of 8%, down 3.9 percentage points year on year. Since Builders FirstSource’s operating margin decreased more than its gross margin, we can assume it was recently less efficient because expenses such as marketing, R&D, and administrative overhead increased.

Earnings Per Share

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Builders FirstSource’s EPS grew at an astounding 40.8% compounded annual growth rate over the last five years, higher than its 17.6% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Diving into the nuances of Builders FirstSource’s earnings can give us a better understanding of its performance. As we mentioned earlier, Builders FirstSource’s operating margin declined this quarter but expanded by 4 percentage points over the last five years. Its share count also shrank by 1.6%, and these factors together are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Builders FirstSource, its two-year annual EPS declines of 21.2% mark a reversal from its (seemingly) healthy five-year trend. We hope Builders FirstSource can return to earnings growth in the future.

In Q4, Builders FirstSource reported EPS at $2.31, down from $3.55 in the same quarter last year. Despite falling year on year, this print beat analysts’ estimates by 4%. Over the next 12 months, Wall Street expects Builders FirstSource’s full-year EPS of $11.53 to stay about the same.

Key Takeaways from Builders FirstSource’s Q4 Results

It was encouraging to see Builders FirstSource beat analysts’ EBITDA expectations this quarter. We were also happy its EPS outperformed Wall Street’s estimates. On the other hand, its full-year EBITDA guidance missed significantly and its Windows, doors & millwork revenue fell short of Wall Street’s estimates. Overall, this was a softer quarter. The stock traded down 5% to $137.43 immediately after reporting.

Builders FirstSource may have had a tough quarter, but does that actually create an opportunity to invest right now? We think that the latest quarter is only one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.