We want to flag BlueLinx Holdings (BXC) for you today, as it
moved substantially higher (+15%) on Friday following news that an investment
firm had increased its stake in the company and that a Director had made a
BlueLinx, perhaps not a name you're readily familiar with, is an Atlanta-based distributor of building and industrial products in the U.S., serving many major metro areas and operating through a broad network of distribution centers. The company distributes products in two principal categories: structural products and specialty products.
- Structural products (46% of FY17 sales): Items included in this category are plywood, oriented strand board, rebar and remesh, lumber, and other wood products primarily used for structural support, walls, and flooring in construction projects.
- Specialty products (54%): This category includes roofing, insulation, specialty panels, molding, engineered wood products, vinyl products (siding), outdoor living, particle board, and metal products. In some cases, these products are branded by BlueLinx.
Most of BlueLinx's sales (74%) are made through what it terms "warehouse sales,” or product delivered from BXC's warehouses to dealers, home improvement centers, and industrial users. Other distribution strategies include direct sales (19%), which involve the shipment of purchase from manufacturer to customer without BXC having taken physical inventory possession. This channel requires a low amount of capital and fixed costs.
BlueLinx closed on a major acquisition in April 2018 when it
bought Cedar Creek, a building products wholesale distributor that specializes in
a wide variety of building products. The combination of BlueLinx and Cedar
Creek has created one of the largest wholesale distribution companies in the
building products industry, with combined revenue of $3.2 billion in 2017. BXC
believes the deal marked a new, transformative era for the company.
BlueLinx has been focused on integrating Cedar Creek and expects that its efforts toward deriving synergies from the transaction will by the end of the year result in an annual benefit of at least $25 mln in 2019; BXC expects $50+ mln in annual synergies over the long term. Also, while the wood-based commodity markets have proven challenging over the last few months, BXC says that its Q3 performance provided evidence that the diversity of its offerings does afford the company protection during market dislocations.
The distribution business is always tough; as a thin margin business, even little cost changes can have a big impact on margins. Also, the threat of rising interest rates has been looming, putting a damper on construction activity and new home sales. In the context of these macro challenges, BXC has been struggling a bit lately.
However, Nokomis Capital, a 10% owner, filed a Form 4 with the SEC disclosing that it purchased around 106K shares at $19.97-20.32 on December 26. Also, a director purchased 49,117 shares in late December. Clearly, the move on Friday was fueled by these positive disclosures. It's always good to see purchases like this from parties that are very familiar with the company's operations.