Huttig Building Products, Inc. (HBP) research, news, and more from GeoInvesting

Company description

Wed, 30 Jul 2008 04:00:00 GMT

HUTTIG BUILDING PRODUCTS is a domestic distributors of building materials that are used principally in new residential construction and in home improvement, remodeling and repair work. Their products are distributed through distribution centers serving the states, principally to building materials dealers (who, in turn,supply the end-user), directly to professional builders and large contractors, and to home centers, national buying groups, industrial and manufactured housing builders.

Research

Thu, 04 May 2017 15:29:26 GMT

HBP ($7.39) shares have pulled back over the last several trading days after reporting a Q1 2017 loss on increased sales. See the company’s full results here. The Company stated it is making meaningful investments to accelerate its growth strategy:

“Our first quarter results show the continued growth of our business and an increase in operating expenses resulting from the continued, meaningful investments we are making in our accelerated growth strategy,” said Jon Vrabely, President and CEO of Huttig Building Products. “While these investments are negatively impacting our short-term results, they are truly transformational in nature and provide the best opportunity to generate significant, sustained, profitable growth in the intermediate term.”

The stock may suffer medium term losses, but we will watch it closely for further pullbacks to possibly begin establishing a position. We like what management has accomplished over the last several years to turn things around. On April 19, 2016 we issued our issued our RFT (“Reasons For Tracking”) when the stock was trading at near $4.38. We never pulled the trigger, but the stock more than doubled at its highs.

Research

Thu, 07 Jul 2016 14:31:42 GMT

Quick Call with HBP Management

On April 19, 2016 we released our reasons for tracking $HBP ($6.00) when the stock was trading at $4.38. The Company reported strong Q1 2016 results on May 3, 2016 and shares have continued to climb, reaching a new 52 week high of $6.42 earlier this week. Unfortunately, we have not established a position but will monitor the situation closely for a possible entry point.

We were able to speak with management yesterday and left the call feeling that the Company has some really strong tailwinds behind it and that as the Company continues to de-risk its business model, it could provide some interesting upside surprises in future quarters. Our takeaways from the call:

Housing starts: (Data from our previous reasons for tracking note) 2015 activity was still below the historical average of total housing starts from 1959 to 2015 of approximately 1.4 million starts based on statistics tracked by the U.S. Census Bureau (“Historical Average”). Total new housing starts in the United States were approximately 1.1 million, 1.0 million and 0.9 million in 2015, 2014 and 2013, respectively.
In response to the negative effects the global recession had on their business, managment re-evaluated its operating model and made some changes.
- Management reduced the number of distribution centers. Interestingly, the Company sacrificed very little market share from this move, meaning that remaining distribution centers are the Company’s more profitable and relevant centers.
- Exited markets where they did not hold a #1 or #2 position.
- Made a concerted effort to reduce its reliance on housing starts which traditionally accounted for nearly all the Company’s sales. Now, 50% of revenues come from housing starts and the other 50% from its home remodeling business (higher margin buisness). This significantly reduces the risk profile of the Company and gives it a slight hedge if housing starts weaken.
We really like the Company’s competitive advantage in the market place. Management focuses on building material to accommodate the “customization” needs of its end customer. For example, if a consumer wants more features in a product than the “off the shelf” option (from Home Depot or Lowes), HBP becomes the go-to source. Actually, the customer is ordering these customized products through Home Depot or other retail centers. The Company also offers very specialized services to construction contractors.

We are currently working a financial model to determine if HBP still offers value after recent run up in price. We hope to have something shortly.

Research

Mon, 23 May 2016 16:25:52 GMT

HBP ($4.93) reported strong Q1 2016 results on May 3, 2016 with a 300% increase in EPS. On April 19, 2016 we began tracking HBP when the stock was trading at $4.38 - our reasons for tracking can beread here. Shares jumped to a new 52 week high of $5.24 after reporting its strong Q1 results. We never established a position in HBP. Per the conference call transcript, management believes first time home buyers re-entering the market will fuel consistent growth for HBP. Quotes from the conference call:

Finally our adjusted EBITDA was $4.2 million which represented an increase of almost 2.5 times versus last year's quarter excluding unusual charges we completed our 20th consecutive quarter of year-over-year improved financial performance. Between 2012 and 2014, total housing starts increased from approximately from 780,000 units to 1 million units and in 2015 increased by approximately by 100,000 starts to a total of 1.1 million. Total housing starts remained at 1.1 million in the first quarter of 2016.

While we are encouraged by the growth in total housing starts the market remains more than 20% below the 30 year historical average of 1.4 million total housing starts on an annualized basis. As I indicated last quarter that first time single family home buyers have yet to enter the market in a meaningful way. As first time home buyers enter the market, it will fuel consistent sustainable growth opportunities for Huttig.

Research

Mon, 09 May 2016 14:47:28 GMT

HBP ($4.93) reported strong Q1 2016 results on May 3, 2016 with a 300% increase in EPS. On April 19, 2016 we began tracking HBP when the stock was trading at $4.38, our reasons for tracking can beread here. Shares jumped to a new 52 week high of $5.24 after reporting its strong Q1 results. We never established a position in HBP. We will continue to track.

Comments & Business Outlook

Tue, 03 May 2016 04:00:00 GMT

First Quarter 2016 Results

Sales of $158.8 million vs $147.4 million
Non GAAP EPS of $0.08 vs $0.02

Quotes from management:

"We had another strong quarter and are off to a great start in 2016," said Jon Vrabely, Huttig President and CEO. "We continued to execute our strategic plan delivering our 20th consecutive quarterly improvement over the prior year's quarter, excluding unusual items. In addition, our acquisition of BenBilt Building Systems significantly increases our geographic coverage in the Mid-Atlantic and strengthens our position as the largest value-add millwork wholesale distributor and door fabricator in the country."

Research

Tue, 19 Apr 2016 15:09:05 GMT

**Stock We’re Tracking

$HBP ($4.38) together with its subsidiaries, distributes millwork, building materials, and wood products for new residential construction, home improvement, remodeling, and repair work in the United States. (middleman between suppliers and end customers)

Reasons For Tracking HBP

Pre 2008 HBP revenues were around $1 billion. Obviously, revenues took a major hit as a result of the 2008 global recession.

	2015	2014	2013	2012	2011	2010	2009	2008	2007	2006
Sales	$659.6	$623.7	$561.5	$521.1	$479.3	$467.7	$455.2	$671.0	$874.8	$1.1B
EPS (1)	$0.56	$0.31	$0.20	$0.03	-$0.57	-$0.81	-$0.91	-$1.64	$0.06	-$0.40
EPS (2)	$0.36	$0.20	$0.13	$0.02	-$0.57	-$0.81	-$0.91	-$1.64	$0.04	-$0.40

Non-GAAP EPS: (2) Fully taxed EPS

However, as the above table indicates the company’s top line revenue has been gradually recovering since 2009. But we are equally impressed that it appears that the company is operating more efficiently today than it was pre 2008 at higher revenue numbers.

If you believe that the housing recovery has more fuel in tank, HBP should continue to make operational progress.

Here is an interesting stat from the company’s 2015 10k

“New housing activity in the United States has shown modest improvement each year since 2009, the trough period of the recent housing downturn. However, 2015 activity was still below the historical average of total housing starts from 1959 to 2015 of approximately 1.4 million starts based on statistics tracked by the U.S. Census Bureau (“Historical Average”). Total new housing starts in the United States were approximately 1.1 million, 1.0 million and 0.9 million in 2015, 2014 and 2013, respectively. Single family starts were 0.7 million, 0.6 million and 0.6 million in 2015, 2014 and 2013, respectively, based on data from the U.S. Census Bureau. According to the U.S. Census Bureau, total spending on new single family residential construction was $219 billion, $194 billion and $171 billion in 2015, 2014 and 2013, respectively.”

It appears that HBP fills a void in the housing construction/home remodeling industry. Acting as a middleman between suppliers of building material and customers, specifically, (contractors, dealers, home retail centers), the company is able to save its customers money by being able to purchase in bulk, explore sourcing avenues, and take on customer service duties. More from the 10-K:

We service large local, regional and national independent building products dealers, specialty dealers, and home centers who in turn sell to contractors, professional builders, and consumers. These large local, regional and national building products dealers, often referred to as “pro dealers,” continue to distribute a significant portion of the residential building materials sold in the United States. These pro dealers operate in an increasingly competitive environment. Consolidation among building products manufacturers favors distributors that can buy in bulk and break down large production runs to specific local requirements. In addition, increasing scale and sophistication among professional builders and contractors places a premium on pro dealers that can make a wide variety of building products readily available at competitive prices. In response to the increasingly competitive environment for building products, many pro dealers have either consolidated or formed buying groups in order to increase their purchasing power and/or service levels.

We service the national home centers through special order programs of branded products in both millwork and building products. These programs continue to grow each year, as manufacturers develop special order programs through these retailers and utilize our value added service model and broad distribution network to support these programs locally.

We believe the evolving characteristics of the residential building materials distribution industry, particularly the consolidation trend, favor companies like us that operate nationally and have significant infrastructure in place to accommodate the needs of customers across geographic regions. We believe we are the only national distributor of millwork products. Our wide geographic presence, size, purchasing power, material handling efficiencies and investment in millwork services, position us well to serve the needs of the consolidating pro

We conduct our business through a two-step distribution model. This means we resell the products we purchase from manufacturers to our customers, who then sell the products to the final end users, who are typically professional builders and independent contractors engaged in residential construction and remodeling projects, or consumers engaged in do-it-yourself remodeling projects.

Our products fall into three categories: (i) millwork, which includes doors, windows, moulding, stair parts and columns, (ii) general building products, which include composite decking, connectors, fasteners, housewrap, roofing products and insulation, and (iii) wood products, which include engineered wood products, such as floor systems, as well as wood panels and lumber.

Doors and engineered wood products often require an intermediate value added service between the time the product leaves the manufacturer and before it is delivered to the final customer. We perform such services, on behalf of our customers, which include pre-hanging exterior and interior door units, prefinishing exterior door units and cutting engineered wood products from standard lengths to job-specific requirements. In addition, with respect to the majority of our products, we have the capability to buy in bulk and disaggregate these large shipments to meet individual customer stocking requirements. For some products, we carry a depth and breadth of products that our customers cannot reasonably stock themselves. Our customers benefit from our business capabilities because they do not need to invest capital in door hanging facilities or cutting equipment, nor do they need to incur the costs associated with maintaining large inventories of products. Our size, broad geographic presence, extensive fleet and logistical capabilities enable us to purchase products in large volumes at favorable prices, stock a wide range of products for rapid delivery and manage inventory in a reliable, efficient manner.

We serve our customers, whether they are a local dealer or a national account, through our 26 wholesale distribution centers. Our broad geographic footprint enables us to work with our customers and suppliers to ensure that local inventory levels, merchandising, purchasing and pricing are tailored to the requirements of each market. Each distribution center also has access to our single-platform nationwide inventory management system. This provides the local manager with real-time inventory availability and pricing information. We support our distribution centers with credit and financial management, training and marketing programs and human resources expertise. We believe that these distribution capabilities and efficiencies offer us a competitive advantage as compared to those of many local and regional competitors.

Since the company trades at a microcap valuation its valuation multiples are below competitors.

A Seeking Alpha article commented on the stock’s depressed valuation when the stock was trading at $3.20.

“Huttig's depressed valuation is a function of its sub-$100mm market capitalization, limited trading liquidity, and lack of attention from the sell-side. However, a rapidly improving earnings trajectory will improve the Company's screening metrics, thereby initiating the virtuous circle of increased attention, improved trading liquidity, an increasing market capitalization, and additional marginal buyers.”

Caveats

Low margins are a common characteristic of middleman type of business model. With pretax margins at 1.8%, HBP is no exception.
We would like to get a better understanding of the steps management took to improve profitability and if further margin improvement is in the cards.
The stock price could experience volatility associated with monthly” housing starts” data.
The Company has three labor unions contracts covering 8% of its employees which will require negotiations in 2016.
We need to take a closer look at debt covenants liability:

“We are party to a $160.0 million asset based senior secured revolving credit facility which contains a minimum fixed charge coverage ratio (“FCCR”) that is tested if our excess borrowing availability, as defined in the facility, reaches an amount in the range of $12.5 million to $20.0 million depending on our borrowing base at the time of testing. For the year ended December 31, 2015, our FCCR exceeded our threshold of 1:05:1.0. However, if in the future we failed to meet the required FCCR and we were unable to maintain excess borrowing availability of more than the applicable amount in the range of $12.5 million to $20.0 million, our lenders would have the right to terminate the loan commitments and accelerate the repayment of the entire amount outstanding under the credit facility. Our lenders also could foreclose on our assets that secure our credit facility. In that event, we would be forced to seek alternative sources of financing, which may not be available on terms acceptable to us or at all.”

If housing starts flatten out in an increasing interest rate environment, it is imperative that the company can replace potential lost revenue opportunities, especially in the event that consumers instead choose to implement more home improvements.

Next, we plan on providing an updated comp chart and our own valuation analysis to take into account current share prices.

Reasons For Tracking

Tue, 19 Apr 2016 04:00:00 GMT

**Stock We’re Tracking

Reasons For Tracking HBP

Pre 2008 HBP revenues were around $1 billion. Obviously, revenues took a major hit as a result of the 2008 global recession.

	2015	2014	2013	2012	2011	2010	2009	2008	2007	2006
Sales	$659.6	$623.7	$561.5	$521.1	$479.3	$467.7	$455.2	$671.0	$874.8	$1.1B
EPS (1)	$0.56	$0.31	$0.20	$0.03	-$0.57	-$0.81	-$0.91	-$1.64	$0.06	-$0.40
EPS (2)	$0.36	$0.20	$0.13	$0.02	-$0.57	-$0.81	-$0.91	-$1.64	$0.04	-$0.40

Non-GAAP EPS: (2) Fully taxed EPS

However, as the above table indicates the company’s top line revenue has been gradually recovering since 2009. But we are equally impressed that it appears that the company is operating more efficiently today than it was pre 2008 at higher revenue numbers.

If you believe that the housing recovery has more fuel in tank, HBP should continue to make operational progress.

Here is an interesting stat from the company’s 2015 10k

“New housing activity in the United States has shown modest improvement each year since 2009, the trough period of the recent housing downturn. However, 2015 activity was still below the historical average of total housing starts from 1959 to 2015 of approximately 1.4 million starts based on statistics tracked by the U.S. Census Bureau (“Historical Average”). Total new housing starts in the United States were approximately 1.1 million, 1.0 million and 0.9 million in 2015, 2014 and 2013, respectively. Single family starts were 0.7 million, 0.6 million and 0.6 million in 2015, 2014 and 2013, respectively, based on data from the U.S. Census Bureau. According to the U.S. Census Bureau, total spending on new single family residential construction was $219 billion, $194 billion and $171 billion in 2015, 2014 and 2013, respectively.”

It appears that HBP fills a void in the housing construction/home remodeling industry. Acting as a middleman between suppliers of building material and customers, specifically, (contractors, dealers, home retail centers), the company is able to save its customers money by being able to purchase in bulk, explore sourcing avenues, and take on customer service duties. More from the 10-K:

We service large local, regional and national independent building products dealers, specialty dealers, and home centers who in turn sell to contractors, professional builders, and consumers. These large local, regional and national building products dealers, often referred to as “pro dealers,” continue to distribute a significant portion of the residential building materials sold in the United States. These pro dealers operate in an increasingly competitive environment. Consolidation among building products manufacturers favors distributors that can buy in bulk and break down large production runs to specific local requirements. In addition, increasing scale and sophistication among professional builders and contractors places a premium on pro dealers that can make a wide variety of building products readily available at competitive prices. In response to the increasingly competitive environment for building products, many pro dealers have either consolidated or formed buying groups in order to increase their purchasing power and/or service levels.

We service the national home centers through special order programs of branded products in both millwork and building products. These programs continue to grow each year, as manufacturers develop special order programs through these retailers and utilize our value added service model and broad distribution network to support these programs locally.

We believe the evolving characteristics of the residential building materials distribution industry, particularly the consolidation trend, favor companies like us that operate nationally and have significant infrastructure in place to accommodate the needs of customers across geographic regions. We believe we are the only national distributor of millwork products. Our wide geographic presence, size, purchasing power, material handling efficiencies and investment in millwork services, position us well to serve the needs of the consolidating pro

We conduct our business through a two-step distribution model. This means we resell the products we purchase from manufacturers to our customers, who then sell the products to the final end users, who are typically professional builders and independent contractors engaged in residential construction and remodeling projects, or consumers engaged in do-it-yourself remodeling projects.

Our products fall into three categories: (i) millwork, which includes doors, windows, moulding, stair parts and columns, (ii) general building products, which include composite decking, connectors, fasteners, housewrap, roofing products and insulation, and (iii) wood products, which include engineered wood products, such as floor systems, as well as wood panels and lumber.

Doors and engineered wood products often require an intermediate value added service between the time the product leaves the manufacturer and before it is delivered to the final customer. We perform such services, on behalf of our customers, which include pre-hanging exterior and interior door units, prefinishing exterior door units and cutting engineered wood products from standard lengths to job-specific requirements. In addition, with respect to the majority of our products, we have the capability to buy in bulk and disaggregate these large shipments to meet individual customer stocking requirements. For some products, we carry a depth and breadth of products that our customers cannot reasonably stock themselves. Our customers benefit from our business capabilities because they do not need to invest capital in door hanging facilities or cutting equipment, nor do they need to incur the costs associated with maintaining large inventories of products. Our size, broad geographic presence, extensive fleet and logistical capabilities enable us to purchase products in large volumes at favorable prices, stock a wide range of products for rapid delivery and manage inventory in a reliable, efficient manner.

We serve our customers, whether they are a local dealer or a national account, through our 26 wholesale distribution centers. Our broad geographic footprint enables us to work with our customers and suppliers to ensure that local inventory levels, merchandising, purchasing and pricing are tailored to the requirements of each market. Each distribution center also has access to our single-platform nationwide inventory management system. This provides the local manager with real-time inventory availability and pricing information. We support our distribution centers with credit and financial management, training and marketing programs and human resources expertise. We believe that these distribution capabilities and efficiencies offer us a competitive advantage as compared to those of many local and regional competitors.

Since the company trades at a microcap valuation its valuation multiples are below competitors.

A Seeking Alpha article commented on the stock’s depressed valuation when the stock was trading at $3.20.

“Huttig's depressed valuation is a function of its sub-$100mm market capitalization, limited trading liquidity, and lack of attention from the sell-side. However, a rapidly improving earnings trajectory will improve the Company's screening metrics, thereby initiating the virtuous circle of increased attention, improved trading liquidity, an increasing market capitalization, and additional marginal buyers.”

Caveats

Low margins are a common characteristic of middleman type of business model. With pretax margins at 1.8%, HBP is no exception.
We would like to get a better understanding of the steps management took to improve profitability and if further margin improvement is in the cards.
The stock price could experience volatility associated with monthly” housing starts” data.
The Company has three labor unions contracts covering 8% of its employees which will require negotiations in 2016.
We need to take a closer look at debt covenants liability:

“We are party to a $160.0 million asset based senior secured revolving credit facility which contains a minimum fixed charge coverage ratio (“FCCR”) that is tested if our excess borrowing availability, as defined in the facility, reaches an amount in the range of $12.5 million to $20.0 million depending on our borrowing base at the time of testing. For the year ended December 31, 2015, our FCCR exceeded our threshold of 1:05:1.0. However, if in the future we failed to meet the required FCCR and we were unable to maintain excess borrowing availability of more than the applicable amount in the range of $12.5 million to $20.0 million, our lenders would have the right to terminate the loan commitments and accelerate the repayment of the entire amount outstanding under the credit facility. Our lenders also could foreclose on our assets that secure our credit facility. In that event, we would be forced to seek alternative sources of financing, which may not be available on terms acceptable to us or at all.”

Next, we plan on providing an updated comp chart and our own valuation analysis to take into account current share prices.