Builders FirstSource Q3 2026 Earnings Call Transcript

Builders FirstSource (NYSE:BLDR) reported third-quarter financial results on Thursday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

Builders FirstSource reported third-quarter results in line with expectations, with net sales of $3.9 billion, a decrease of approximately 2% year-over-year, attributed to lower core organic sales partly offset by acquisitions.

The company maintained the midpoint of its full-year net sales and adjusted EBITDA guidance despite challenging housing market conditions, with an emphasis on value-added products, cost actions, and productivity efforts.

Strategic initiatives include $140 million in cost-saving actions, consolidation of facilities, and investments in technology, such as ERP implementation and AI platforms, to enhance operational efficiency and customer service.

Builders FirstSource completed the acquisitions of ICG and Gleckler & Sons to expand in the Southeast, contributing to a total of 44 acquisitions since 2021, reflecting a continued focus on M&A for growth.

Management remains cautious about the housing market outlook, citing weak single-family starts, high mortgage rates, and increased transportation costs, but sees opportunities to capture market share through superior service and technology integration.

Full Transcript

OPERATOR

Good day and welcome to Builders FirstSource’s third quarter 2026 earnings conference call. Today’s call is scheduled to last about one hour, including remarks by management and the Q&A session. In order to ask a question, please press the star key followed by the number one on your phone at any time during the call. I would now like to turn the call over to Heather Coss, Senior Vice President, Investor Relations for Builders FirstSource. Please go ahead, ma’am.

Heather Coss (Senior Vice President, Investor Relations)

Good morning and welcome to our third quarter 2026 earnings call. With me on the call are Peter Jackson, our CEO, and Pete Beckman, our CFO. The earnings press release and presentation are available on our website at investors.bldr.com. We will refer to the presentation during our call. The results discussed today include GAAP and non-GAAP results adjusted for certain items. We provide these non-GAAP results for informational purposes and they should not be considered in isolation from the most directly comparable GAAP measures. You can find the reconciliation of these non-GAAP measures to the corresponding GAAP measures, where applicable, and a discussion of why we believe these can be useful to investors in our earnings press release, SEC filings, and presentation.

Our remarks in the press release, presentation, and on this call contain forward-looking and cautionary statements within the meaning of the Private Securities Litigation Reform Act and projections of future results. Please review the Forward-Looking Statements section in today’s press release and in our SEC filings for various factors that could cause our actual results to differ from forward-looking statements and projections. And with that, I’ll turn the call over to Peter.

Peter Jackson (Chief Executive Officer)

Thank you, Heather, and good morning, everyone. Our third quarter results reflect the disciplined execution by our team and the resilience of our platform. While housing market conditions remain challenging, we are focused on what we can control, delivering solutions that help builders operate more efficiently, and investing in value-added products and technology to drive productivity and fuel growth. These efforts are reinforcing our leadership position and our role as the partner of choice for home builders.

This environment underscores the importance of the operational excellence and differentiating capabilities at scale which position us to outperform in any market. Let’s turn now to Slide 4. We delivered third quarter results in line with our expectations for sales and EBITDA, even as single-family activity remains soft. Our value-added offerings, cost actions, and ongoing productivity efforts helped cushion the impact of lower volumes. I want to thank our team members for their relentless focus on our customers as we head into the final quarter of the year.

Before turning to our strategic priorities, let me spend a moment on the market backdrop. Mortgage rates moved back above 7% during the quarter, and with consumer confidence still weak, affordability remains the main constraint on new home demand. Higher diesel and transportation costs are also adding pressure across the supply chain. Despite these headwinds, we are maintaining the midpoints of our full-year net sales and adjusted EBITDA outlook.

Single-family starts are tracking with the assumptions we set last quarter and economic forecasts have moved closer to our view since then. Pete will walk through the details in his remarks. Demand this fall has been weak and some builders will likely need to slow starts further to bring inventory in line with sales. Our outlook already reflects this cautious view. In a market like this, builders lean harder on partners who can help them control costs and build efficiently, which plays to our strengths.

We expect to capture share by delivering outstanding customer service, bundling our broad product portfolio to help builders with affordability, and applying technology in ways that make our sales teams more effective. Performance varied by region, with continued softness across Texas and Colorado partially offset by relative strength in California, Florida, and the Northeast. In multifamily, sales were up modestly in the quarter, but developers remain cautious about new starts as the industry works through existing projects and occupancy stays below desired levels in many markets. Based on the current pipeline, we expect multifamily results to stay muted in the near term.

Our priorities have not changed. We will continue to constrain structural costs and grow faster than the market. Even in a weak year, builders are still starting a meaningful number of homes. The growing shortage of skilled trades is driving builders toward off-site and installed solutions where our offerings and our scale position us as the partner of choice. Slide 5 highlights how we’re managing through the downturn while protecting our ability to invest for the long term. We remain on track to deliver the $140 million in cost actions we outlined. As a reminder, $25 million of those savings will hit next year. So far this year we have streamlined our organization, reduced overhead across the field, support center and operations, and focused our investments in the initiatives with the clearest near-term value.

We have consolidated 45 facilities so far this year and 100 over the past three years while keeping our on-time and in-full delivery rate above 90%. With our scale and experienced team, we are well positioned to manage through today’s market and to benefit from meaningful operating leverage as it recovers. Slide 6 lays out the key initiatives underway across our four strategic pillars. This quarter we gained share in a challenging market. We also generated $23 million in productivity savings through targeted supply chain initiatives and manufacturing efficiencies, and made steady progress on our ERP implementation.

Turning to Slide 7, we deployed approximately $161 million in the third quarter towards return-enhancing opportunities that are aligned with our capital allocation priorities. Strong free cash flow generation through the cycle gives us the flexibility to invest in the business, pursue acquisitions, and return capital to shareholders over time. M&A remains an important lever. As shown on Slide 8, we focus on acquisitions that expand our value-added product offerings and strengthen our position in desirable geographies.

This quarter we acquired ICG and Gleckler & Sons, which enhance our ability to serve customers in the Southeast. Since the BMC merger in 2021, we have completed 44 acquisitions representing approximately $2.5 billion in annual sales, the equivalent of a top-six LBM player. The industry is still fragmented and we see a long runway for M&A to contribute to our growth. Moving to Slide 9, we see technology as an enabler of our self-help efforts, both in how we run our business and in how we serve our customers. Our goal is to help build a homebuilding ecosystem where data flows efficiently from one step to the next. When information moves cleanly between builders, trades, and suppliers, everyone works more efficiently, including us. Our investments are pulling pieces of that ecosystem together. In the third quarter, we led the Series A financing for Diggs, whose AI platform brings a builder’s construction documents into a single source of truth that follows the home from pre-construction through warranty.

We also invested in Scaffold alongside several of the nation’s largest home builders. Scaffold AI connects trade contractors to the homebuilder systems they already use and keeps schedules and purchase orders current across all of them. We’re also using technology to help make our own systems and teams more productive. We have piloted a new sales app with Will Call functionality, which has reduced the time it takes customers to place an order by up to 90%. That means faster service for our customers and more capacity for our teams, one example of how technology supports the productivity savings we expect going forward. We’ll share more at Investor Day about how technology is benefiting our business and our vision for the homebuilding ecosystem.

One of my favorite parts of these calls is recognizing a member of our team. Today I want to recognize K. Moberg, a pricing analyst at our Wasilla, Alaska location. In 1986, Ferris Bueller made skipping school look like an art form. That same year, Kay joined Spenard Builder Supply, one of our legacy companies, as a receptionist, and unlike Ferris, she has been showing up ever since. Her area manager calls her a beam of bright light, and she’s always ready to jump in wherever she’s needed.

When she’s not at work, you’ll likely find Kay somewhere in the Alaskan wilderness, hiking, cycling, hunting, or fishing. Her teammates benefit from that too, because at inventory time she brings in summer sausage and smoked salmon. I’m told nobody calls in sick on inventory day at the facility. Thank you, Kay, for 40 years of keeping our Alaska team well supplied in more ways than one. I’ll now turn the call over to Pete to discuss our financial results in greater detail.

Pete Beckmann (SVP Finance)

Thank you, Peter, and good morning, everyone. Our third quarter results met our expectations, reflecting solid execution and continued focus on cost management. Our cash flow generation and liquidity give us the capacity to pursue growth opportunities while maintaining financial flexibility. Turning to slides 10 through 12, net sales decreased approximately 2% to $3.9 billion as lower core organic sales were partially offset by growth from acquisitions. Organic sales declined 6% in single family, increased 2% in multifamily, and were roughly flat in repair and remodel. Even in the softer single-family backdrop, we gained roughly 1 to 2 points of share in the quarter. As a reminder, our single-family sales don’t move one for one with starts.

First, there is a roughly three-month lag between a start and our first sale. Second, the value of a comparable start has declined by about 10% on average since 2019 as homes have become smaller and more value engineered. Third, affordability pressure has extended into pricing across the supply chain, lowering average selling prices per start. Gross profit was $1.1 billion, down 11%. Gross margin was 27.8%, down 260 basis points, primarily due to the lower housing starts environment and related headwinds. Adjusted SG&A was $785 million, down $5 million; lower variable compensation, reduced headcount, and the benefit of our cost actions more than offset acquired operations and higher insurance, fuel, and delivery expenses. We remain on track to deliver $115 million of cost actions in 2026, or $140 million on a full run-rate basis, including the additional savings identified last quarter.

These actions are separate from productivity savings. They include additional facility consolidations, adjustments to incentive compensation, better control of discretionary spending, and lower merit and overhead spend. Adjusted EBITDA was $311 million, down 28%. Adjusted EBITDA margin was 8.1%, down 290 basis points, primarily due to lower gross profit and reduced operating leverage on the sales decline. Before I walk through our adjusted EPS, beginning this quarter, we have updated our definition to improve the alignment of adjusted net income and adjusted EPS to be consistent with adjusted EBITDA. Both measures now exclude the same items, such as stock compensation expense and other management-identified adjustments, which include items like severance. Prior periods have been recast on the same basis, and a reconciliation is in our release and presentation.

Adjusted EPS was $1.51, down 25%, driven by lower adjusted net income partially offset by share repurchases. Now let’s turn to the cash flow, balance sheet, and liquidity on slide 13. Our third quarter operating cash flow was $147 million compared to $548 million in the prior year, reflecting lower net income and the lapping effect of last year’s working capital release. Free cash flow was $76 million on a trailing twelve-month basis. Our free cash flow yield was approximately 4%. Our net debt to adjusted EBITDA ratio was approximately 4.1 times, in line with our expectations.

That is above our long-term target, but we are comfortable with our position supported by approximately $1.5 billion in liquidity, consistent free cash flow, and favorable terms. We expect leverage to return to our target range as EBITDA improves. In the third quarter we invested $71 million in capital expenditures and $91 million in acquisitions. We did not repurchase shares in the quarter. Slides 14 and 15 outline our updated 2026 outlook and assumptions. Within our geographies, we continue to expect single-family starts to be down nearly 7%, multifamily starts down about 4%, and repair and remodel activity down 1%. We have narrowed our ranges and maintained the midpoints for net sales and adjusted EBITDA. We expect net sales of $14.2 to $14.6 billion, adjusted EBITDA of $1.075 to $1.125 billion, and an adjusted EBITDA margin of 7.4% to 7.9%.

Our gross margin outlook remains 27.5% to 28.5%. We expect free cash flow of approximately $400 to $450 million, narrowing the band within our previously stated range. Our guidance assumes average commodity prices in the range of $390 to $410 per thousand board feet, around the long-term average of $400. Lumber prices have eased slightly, as we expected, while OSB prices have risen in recent weeks following mill curtailment announcements. Moving to slide 16, as 2027 comes into focus, we have again laid out scenarios showing how we expect to perform across a range of housing and commodity conditions. These scenarios are not guidance. I repeat, these scenarios are not guidance, and they do not include cost actions beyond those already announced. They’re meant to frame potential outcomes in different environments.

In closing, we are managing costs and cash closely in the near term while continuing to invest where we see the best long-term returns. Our liquidity and cash generation give us the capacity to do both. We look forward to sharing more about our financial framework and long-term targets at Investor Day next month. With that, I’ll turn the call back over to Peter for some final thoughts.

Peter Jackson (Chief Executive Officer)

Thanks, Pete. We are the nation’s largest supplier of building materials and value-added services to homebuilders. We hold leading positions in manufactured components and in windows, doors, and millwork, pairing national scale with strong local relationships in the markets we serve. Technology is a growing part of how we put that scale to work for our teams and our customers. Our team has managed through cycles before, and we are using this one to strengthen the company.

The work we are doing today will make Builders FirstSource a more efficient, faster-growing business with meaningful earnings upside, built to compete and win in any environment. We’ll show you how at our Investor Day on November 17th at the New York Stock Exchange. Our leadership team will walk through the many ways we plan to drive shareholder value, and we’ll share the long-term targets behind that plan. We hope to see many of you there. Thank you again for joining us today. Operator, please open the line for questions.

OPERATOR

Thank you. If you would like to ask a question, please press star one on your telephone keypad. To leave the queue at any time, please press star two. Once again, that is star one to ask. In the interest of time, we do ask that you please limit yourself to one question. We’ll pause for just a moment to allow everyone a chance to queue. Our first question will come from Matthew Dulet with Barclays. Your line is open.

Matthew Dulet (Analyst)

Wanted to ask a question around the 2027 margin outlook and cost reductions. So I think if I’m looking at the midpoint, margins are sort of in the low sixes, and correct me if I’m wrong. I know this year you talked about $140 million of cost actions that are beyond productivity. So in a scenario of the lower ends of the range—you point out kind of low 800s or high 700s on single-family starts—how do you see your ability to pull back further on SG&A austerity measures in that environment, and do these scenarios include those type of cost reductions?

Thank you.

Peter Jackson (Chief Executive Officer)

Hey Matt, good morning. Yeah, it’s a fair question. I think as you’ve seen, we were able to react to the downturn in the market. Very experienced team. As much as we don’t enjoy shrinking the business—it’s a lot more fun to grow it—we know how to do it. We’ve executed against that a whole variety of ways that we’ve made the business smaller to match the size of the market, whether it’s location closures, variable costs, fixed overhead reductions—lot of forms there—whether it be discretionary or the field support center staffing reductions.

All actions that we’ve taken, we will continue to execute on those based on what the market gives us. So yeah, those are opportunities into the future. That’s not what we’re doing here. This is just our kind of high-level view based on what we’re seeing and some of the key variables right now. We haven’t gone through our annual operating process, our planning process. That’ll happen here over the next month and a half, and in the beginning of next year, we’ll roll that out to all of you so you know the detail.

Matthew Dulet (Analyst)

Got it. Okay. No, I appreciate that, Peter, thank you. And secondly, I guess kind of a two-parter here on M&A. So high level, just how are you thinking about—or perhaps kind of explain—M&A versus leverage here, to the extent you can acquire EBITDA in a leverage-neutral fashion? So just kind of broader thoughts on that outlook. And then secondly, I’d love to hear a little more detail on Gleckler specifically. Our understanding was they were growing, they had a lot of impact perhaps on the Florida market.

So just wanted to understand how you are competing with them now that you’ve acquired them. Any more details on their financials—anything along those lines would be great to hear. Thanks.

Peter Jackson (Chief Executive Officer)

Sure. Yeah. So M&A continues to be an area of focus for us. You know, when we look at the business, we continue to be confident in the balance sheet—the strength of, you know, what we borrowed, the tenor at which we borrowed, the interest rates at which we borrowed. So we feel confident in what we’ve got established on the balance sheet. You know, these deals are, you know, relatively modest. They’re in the range of our cash flows that we’re seeing.

You know, for us, it’s just look at it mathematically. It’s, you know, ensuring you’re on the right side of the interest coverage ratio. It’s making sure you’re on the right side of the valuation in terms of the multiples. I think we can demonstrate—and while we never get into the details on these calls—we are able to acquire these assets at a discount from what we would have certainly a couple of years ago, but we think certainly against what we can do with them.

And I think that’s a good dovetail into Gleckler. It’s a great business. You’re right. We’re excited to bring the Gleckler team on board. The Builders FirstSource and Gleckler teams are working very closely together to figure out how to pull those two businesses together and put the best people in the right seats. That means for us, I think, opportunities to optimize, whether it be location staffing, the way that we apply our resources to meet customer needs in a variety of different categories, expanding, candidly, in a couple of categories now that we have better capacity in certain product categories.

Both Gleckler and ICG working together with Builders FirstSource to deliver on that, and, you know, pricing is always part of that as well. But I think that’s a real opportunity for us. We’re excited about putting those teams together. Takes what is already a strong business for us in Florida and makes it even stronger with a better product portfolio for our customers.

Matthew Dulet (Analyst)

Well, got it. Thanks, Peter. Good luck, and see you in a couple weeks.

Peter Jackson (Chief Executive Officer)

Thanks. Looking forward to it.

OPERATOR

Thank you. Our next question comes from Mike Dahl with RBC Capital Markets. Your line is open.

Chris Offer (Analyst)

Hi, this is Chris Offer. Mike, thanks for taking our questions. Maybe just on gross margin, I was hoping you guys could flesh out your thinking around sequential gross margin from 3Q to 4Q and as we exit the year. And given your range of outcomes for ’27, how should we think about the potential impacts on gross margins on the high end of that range? Below end of that range? That’d be helpful, thanks.

Peter Jackson (Chief Executive Officer)

Well, I’ll start at the high level and Pete can give you more detail. I’d say that if you look at the year and the way things have played out, pretty rough start to the year on gross margins, a lot of competition, really aggressive, sort of through the first quarter and into Q2. Towards the end of Q2, though, things really started to level out. And I would say since then we’ve been in a fairly narrow band of margin performance. I think that’s reflective of how aggressively everything went down. I think there was a bit of a digestion by some of the players who led it down in realizing how far they maybe should have gone versus went. And there’s been some stabilization at that level. Now that always comes into question how stable it’s going to be whenever you see significant movements on the starts number. So I think that’s what the only question mark that remains for us now is, you know, what is this most recent move going in mortgages going to produce from a starts perspective?

You know, you’ve heard our commentary around it. We think it’s likely some builders will have to change their trajectory a little bit. And then how will the discipline hold up on the margin side for the folks who are serving that smaller market? And we’ve got some optimism based on what we’ve seen. We don’t think there’s a big move from here, but that’s the remaining question in my mind.

Pete Beckmann (SVP Finance)

Yeah, so more specifically with Q4, the imputed number is going to be down slightly from Q3 based on just the squeeze which we anticipate with some of the pullback and the seasonality, some of the deleverage in the fixed cost structure and cost of goods sold. But also what we’re seeing and hearing from our customers and some of their moderating to balance inventory and sales. Now that laps into 2027 as you think about it. We did not give guide but the way to think about it is we certainly started the year a little bit higher and it has come down. So we have to digest that lapping effect as we go into 2027. So just that as a framework is a way to kind of think about what transpires or transposes over into the 2027 kind of scenario modeling.

Chris Offer (Analyst)

Understood, I appreciate that. And I guess just more broadly on competitive dynamics and given the more recent change in the demand backdrop, how are you guys thinking about those dynamics through year end and into next year and then particularly on the commodity side, you know, realizing that that always tends to be a tougher part of the market. But just what are you seeing there specifically?

Peter Jackson (Chief Executive Officer)

Well, I’ll reiterate that, you know, I think things have stabilized by and large on the competitive side. We will continue to monitor it and react appropriately. I don’t see anything dramatic playing out there. But like I said, movements in starts have a tendency to cause reactions. So we’ll keep a close eye. When it comes to the commodity side, I think what you’ve seen is pretty disciplined behavior out of particularly the lumber mills. Maybe a little less so on the OSB side but that has been moving recently as well. You may have seen one of the announcements that came out last night, cutting another mill. That all is supportive. I think it’s supportive of pricing remaining in an area where we can be profitable and, more importantly, where the mills can be profitable and where we can make a higher number and not see it as a headwind on top of what we’ve been facing.

I think the broad statement is there’s no meaningful movement up in our mind until the markets start to move a little bit more aggressively to the north, up into the right, but at least the bottom seems to be found and the industry is taking the appropriate actions to respond to the real demand on the ground. Appreciate the color.

OPERATOR

Thank you. Once again, that is star one if you would like to ask questions. Our next question comes from Charles Perrion Prichet with Goldman Sachs. Your line is open.

Charles Perrion Prichet (Analyst)

Thank you. Good morning, everyone. First, I would like to ask a little bit more about the comments that you’ve made about your ability to gain share in this environment. It’s quite encouraging, especially while you’re able to sustain a gross margin within the targeted range that you talked before. I guess, against that, I was wondering if you could discuss your approach to share gains versus protecting margin going forward. And as you focus on service and leveraging your scales and offering, is there a possibility for you to grow share without necessarily having to compete aggressively on price?

Peter Jackson (Chief Executive Officer)

Yeah. Great question. Thank you. The short answer is yes. And the way that we’re going to execute on that, we’ll drill you into more of the details when we’re together for Investor Day. But the gist of it is our approach to share gains is very focused around individual actions at the market level. So targeting areas of the business where we know we have a right to win, we win elsewhere. We have a very good product offering. Maybe we’ve got an opportunity to take advantage of available capacity and focusing our sales efforts, whether it be, you know, putting the team aligned around a specific initiative, marketing materials, presenting the case to a national-level representative from a home builder, any number of different approaches, but very much focused at a market level to be able to capture that incremental growth opportunity.

One way that we do that is by taking these opportunities and reaching out to suppliers and putting together a joint approach to attack a particular market or a particular customer. Those are oftentimes bundled. They’re grouped together. It does absolutely rely on what you described, our customer service offering, whether it be on-time and in-full or the subject matter expertise that we can bring to bear. All of that is where we have focused. We have a very disciplined approach to pursuing that opportunity.

And I think it’s really yielding results and we’re seeing it in this quarter and we think we have a real opportunity to continue to deliver on that into the future based on the momentum that we’ve built this year. Started with a great team. We’re just giving them more tools to be able to win.

Charles Perrion Prichet (Analyst)

Thank you, Peter, for that. That’s very good color and, you know, second question. I guess not all starts are created equal. We know with some builders increasingly shifting their business to build-to-order. Also hear a little bit more luxury holding relatively better. Can you talk about your ability to serve these end market opportunities and what do those mean from a profitability standpoint given your differentiated offering across your portfolio?

Peter Jackson (Chief Executive Officer)

Yeah, so it’s good. I think on balance, the primary benefit from BTO is visibility. You know, we have an opportunity to serve a wide variety of product categories. As a distributor, we’re certainly very focused on managing that and delivering it both at a very high on-time and in-full, but also at the lowest cost possible. Visibility around the build-to-order is usually pretty good. And so our opportunity to both capture a bigger percentage of the value of that start as well as ensure that we’re efficiently providing it to the job site are certainly advantages that we bring to bear.

But all in all, I guess I would describe it as normal business. We certainly do it every day in a wide variety of markets. So it’s not a dramatic shift for us. Candidly, it’s a very modest one. But that’s the one advantage I can think of when we think about it.

Charles Perrion Prichet (Analyst)

All right, thank you for the color, guys, and good luck with the quarter.

OPERATOR

Thank you. Thank you. We’ll move next to Rafe Jagiric with Bank of America. Your line is open.

Rafe Jagiric (Analyst)

Hi, good morning. Thanks for taking my questions. Can you talk about the diesel and inbound/outbound freight impact to the third quarter and then how you’re thinking about it for the fourth quarter?

Peter Jackson (Chief Executive Officer)

I don’t think we break out the quarters. I mean, as a frame of reference, it is a meaningful number for us. We run a top 20, top 30 fleet in the country. So diesel is an important number. Based on sort of the peak numbers, we’re looking at it, $40, $45 million a year on the cost of diesel outbound directionally. Now we’re offsetting that in a number of ways, obviously including it in pricing. We announced a delivery surcharge to try and offset some of that.

But it’s meaningful and it’s something that we paid a lot of attention to. You know, we’re focusing on it operationally, doing what we can to make sure our trucks have simple things like the appropriate amount of air in the tires to ensure that we’re getting the best fuel mileage, but also making sure we pass it through where there’s no way to offset it or solve it. That’s an ongoing battle. It ebbs and flows as you might imagine based on the daily price.

I don’t think we have anything — I’m looking at Pete — I don’t think we have anything for the third and fourth quarter breakdown.

Pete Beckmann (SVP Finance)

Not that we’ve prepared to share with the group. But you hit it on the head. We have fuel costs that are double what they were a year ago and we’re working through that in SG&A. But our fuel surcharge is up 30% year over year in what we’re able to pass through. So we are making progress on it. It’s not all the way where we want it. And the inbound is, as we’ve talked about in the past, an inflationary cost that passes through naturally.

Rafe Jagiric (Analyst)

Okay, that’s helpful. And then you sort of commented on the market share trend improving more recently or through the year. Are there specific categories or, like, within your different segments where you’re seeing market share gain and more traction versus others?

Peter Jackson (Chief Executive Officer)

It’s pretty mixed. You know, what we’ve, I would say, acknowledged — and you can see a little bit in the trajectory of the product categories — we picked up a little bit more of the lumber just by virtue of already having a lot of the value-add. Now that said, bundling certainly has helped value-add. So there’s a bit of a synergistic benefit, I guess, that we capture on both sides. But I think just looking at the numbers, you can see that lumber is an area that we’ve, I would say, picked up more on a percentage basis.

Rafe Jagiric (Analyst)

Thank you. That’s helpful.

OPERATOR

Thank you. We’ll move on to Ryan Merkel with William Blair. Your line is open.

Ryan Merkel (Analyst at William Blair)

Hi, everyone. Thanks for the questions. Wanted to start with a trends question. Peter, I’m curious to hear how the market has evolved since July. And it sounds like demand hasn’t taken a step lower here in 4Q despite the higher rates. Is that right?

Peter Jackson (Chief Executive Officer)

No, I gotta be real careful how we thread the needle on this one. Right. So we’ve. The momentum for us hasn’t shifted yet in response to the mortgage rates. But I didn’t, I don’t want to misstate. We’re waiting to see what happens in that demand shift? There’s an expectation that will move. We’ve been insulated from it a little bit in two ways. One, it takes a little bit of time for the acknowledgment of the mortgage rates, the sales pace to change, the starts to be sort of changed at the builder level and then that to show up in our number.

Right. There’s a, there’s a couple month gap from the start until we start delivering things to the job site, prep the site, you know, the foundation, the slab, whatever the rough before they start delivering lumber, trusses and framing. So that gap is kind of where we are right now. The commentary from builders is, is pretty sobering. You know that that move in, in mortgages was a bit of a shock to the system and I think that the builders acknowledge that and we’re recognizing that there’s going to be something coming that is a lot to do with what we put out there for the 27 directionality. But these things have a tendency to move quickly and in any direction you might choose to model. So there’s, there’s a wait and see kind of component here.

So far, good shape. I think our share growth has, has helped us not teeing up a dramatic fall off because I think we’ve got enough of a window to, to flow through with what we have. But certainly expecting something is going to come through here.

Pete Beckmann (SVP Finance)

Yeah. So just to reiterate, this isn’t guidance, it’s scenario modeling using single family starts and commodities. I talked about a little earlier the lapping effect that we’ll have in gross margins. That has to be contemplated into the modeling work on the potential outcome and what Peter just talked about with some of the pacing due to the affordability that will likely play forward into at least the first part of the year, if not the full year.

Given future relief on that affordability front. I think it’s going to potentially be a challenging environment again and we’re prepared to match it with our ability to manage through any environment.

OPERATOR

Thanks. Thank you. Thank you. We’ll move on to John Lavallo with UBS. Your line is open.

Matt Johnson (Analyst)

Hey, good morning, guys. This is Matt Johnson on for John. Appreciate the time here. I guess first off, just on the scenarios, just one more question on the middle scenario you guys have. I think it’s calling for single family starts to be down about 5% and your sales to be down about 3%. Within that, at the midpoint, is there just any kind of color you guys can give us on how much completed M&A is in that number and kind of what else might be driving that delta?

I guess really we’re just trying to get a handle on what you’re assuming for your single family organic sales performance relative to single family starts.

Pete Beckmann (SVP Finance)

Yeah, there’s some level of acquisitions that are lapping from the 2026 timeframe, but no new acquisitions that we’ve built into it. So I think that’s the way to think about that impact from M&A.

Matt Johnson (Analyst)

Okay, appreciate that. Then I guess just back on M&A. I think someone asked about it earlier, but you guys completed the Gleckler and ICG deals this quarter, which was encouraging, I guess, based on, you know, your results and also I think US LBM’s filings. It seems like leverage is becoming, you know, a bit more of a challenge just as EBITDA is getting compressed across the industry, I guess. Are you guys seeing any less competition for M&A out in the market today?

Kind of. How would you frame your appetite for M&A with leverage where it’s at? And are you seeing more targets come to market just given the state of things out there right now?

Peter Jackson (Chief Executive Officer)

So broadly speaking, we still believe that M&A is going to be a long term path for us to continue to grow. We capture tremendous synergies. We love being able to bring new talent, new regions, markets, products into the BFS portfolio. So I’ll start by saying that hasn’t changed and we don’t think that that will change. The ups and downs of the M&A sort of transaction space, that’s absolutely true. I would say in the scheme of things is probably a down market in terms of folks being willing to sell.

I think if folks are serious about selling, as you can tell, transactions are going through. I think multiples are more modest than they have been, not surprisingly, I guess in a lot of ways based on our stock price and the dynamic broadly, that’s part of the reason why there aren’t as many deals on the market. That said, I do think this is an environment that lends itself to success with mergers. So I do think folks that are selling, are doing it strategically. They’re looking out for their teams. They’re ensuring that their businesses are going to be strong into the future. And by partnering with BFS, they see a path to do that. So certainly proud to be the partner that’s executing in that way. To your point, there are less folks like us now than there used to be.

There aren’t very many strong players in our space right now. Just because of the same things we’ve been talking to you about over the last couple of years, it’s gotten a lot harder. You know, it’s not shooting fish in a barrel anymore. To make money in LBM, you got to be on your game. You got to be efficient. You got to be focused on controlling what you can control and driving to serve your customer exquisitely and doing it in a way that helps them address affordability.

We’re uniquely positioned to do that, and I think that’s given us opportunities both as a desirable partner, but also the strength of our balance sheet to continue to execute. It’s a weaker or a slower time for that. But, you know, like you said, leverage is certainly something we’re keeping an eye on. So being able to do some of these deals around the edges of smaller size, but still desirable from a partnering and acquisition perspective, that seems like a real great opportunity for us, and we’re taking advantage of it.

OPERATOR

Thank you. And once again, if you would like to ask a question, that is star one on your telephone keypad. Now, once again, please limit yourself to one question. We’ll move next to David Manthey with Baird. Your line is open.

David Manthey (Analyst)

Yeah, thank you. Good morning, guys. I’ll take my shot at the scenarios here. Last year, you gave us a plus five, flat, minus five, and then what you call the normalized scenario based on 30 to 33% gross margin. I see you didn’t give one this year. But just out of curiosity, if you were going to try to put a band around what you’d consider a normalized gross margin today, what would that be?

Peter Jackson (Chief Executive Officer)

Yeah, so, you know, normalized gross margin for us is still anchored on normal volumes. So that’s sort of 1,115,000 single family total for starts. I think at that level, 30 to 33 is absolutely a reasonable normal, and we’re going to work really hard to push north on that. The challenge today is the sheer number of starts, the quality of the start, the dollar value of the starts, and the available capacity in the industry. You know, that’s a tough combination.

And we’re fighting through the reset at this level and some of that is coming through in margins. I don’t think it’s indicative of the long term. I think it’s part of the cycle. And I remain confident that the 30 to 33 is something we’ll get back to.

David Manthey (Analyst)

Okay, thank you. And with the scenarios you’re. I get it. In terms of. Even on a flat scenario, you’re basically saying you could hold the cost structure. That makes sense. The down scenario, I guess, seems conservative because you’re saying you wouldn’t make any adjustments to the cost structure to kind of get to those scenarios. So seems conservative on that side. But flipping this over and kind of thinking about more optimistically, if we’re looking at up scenarios at some point, would you consider sort of.

I think you’ve talked in the past about contribution margins north of 20%. Is that a realistic level and maybe even higher on the first turn of starts moving up?

Peter Jackson (Chief Executive Officer)

I agree with the first part. I don’t agree with the second part. So I would say yes, I think in that 20s range for contribution margin when we’re humming is not unreasonable. You think about utilization of available capacity, you know, the ability to stabilize pricing and say, notice maybe some of the more aggressive or egregious stuff that we’re taking now in order to make sure we’re still humming, that absolutely can flow through. I think the best, though, the real sort of positive outperforming, you know, type of behavior that you’ve seen from us in the past comes when that momentum has had an opportunity to build.

When we’re running at that higher level and those facilities are able to move to a second shift, for example, or a third shift when we’re really squeezing the last of the incremental out, that’s when it really starts to flow with kind of phenomenal profitability and when you’ll see those higher contribution margin fall-through percentages.

OPERATOR

Thank you. We’ll move on to Keith Hughes with Truist. Your line is open.

Keith Hughes (Analyst)

Thank you. I’ll keep harping on the same thing. On the scenarios you talked here about, I guess a little bit of a normalization in pricing and margin and the jobs, some of the pressure going away. But the scenarios look like a really extreme decremental margin, more akin to what’s happened the last couple years. Are you not making an assumption that the pressure relents a little bit in any of these scenarios?

Peter Jackson (Chief Executive Officer)

Yeah, definitely. We started with snap the line today. What’s the business if you annualize it on current levels and then tried to layer on, okay, what happens if it goes down 5? What happens if it goes down 10? From a market-based perspective, that’s our. It’s sort of. It’s an early pass. It’s a good look. Your point is right on. This isn’t all the things we’re going to do or how we think we can react to it. It’s a first pass, but it’s recognizing the market is what it is and we want to kind of lay it out there as is what it is so that we can, you know, get appropriate credit when we outperform it.

I think if it goes down 5 to 10, it’s going to be hard.

Pete Beckmann (SVP Finance)

Yeah, Peter already alluded to it. There’s extra capacity that we’re still digesting in this environment. If we see more step downs, there’s still excess capacity and that has to be processed through, which continues to put further pressure on margins in those downside scenarios. That’s the way to think about it.

OPERATOR

Did we lose everybody? Nope, we’re still here. Yep, we’re still here. We’ll move on to Sam Reed with Wells Fargo. Your line is open.

Sam Reed (Analyst)

Awesome. Thanks so much, guys. I’ll limit it to one question. Just wanted to touch on any mix assumptions that might be embedded in that 2027 scenario planning. Perhaps as you’ve maybe taken some share in things like lumber. Just curious, what flows through to the bottom line with respect to gross and EBITDA margin?

Pete Beckmann (SVP Finance)

Well, in the scenarios, we didn’t model any real change to the mix. So basically the mix that you see in our 2026 numbers, likely the same mix modeled in scenarios.

Sam Reed (Analyst)

Understood. Thanks so much.

OPERATOR

Thank you. We’ll move on now to Trevor Allenson with Wolfe Research. Your line is open.

Peter Jackson (Chief Executive Officer)

Yeah, so you’ve got some cross currents there. You know, this year the build-to-rent market, I would say, went into a bit of a pause, if you will, while the whole Housing Act—the implications with regard to build-to-rent—were figured out. My conversations with some of the major build-to-rent players is it scared the jeepers out of everybody. And they all said we’re not doing anything until we know what’s going on here. Not the least of which is because the investment thesis is in the air.

Until that was clear, were they going to be forced to sell? Would they not be allowed to own? What were the restrictions they might face? I would say the way it’s worked out, I’ll call it pretty beneficial, but not really detrimental to the space. So I think you’ve seen a little bit of a reinitiation of action and movement, unfortunately. And this is the other side of the coin. Rates moving up is not good for that business. The cap rates and the ability to pencil a deal got a lot harder. So I think mixed right now. On one hand a relief rally. On the other hand, pause again because of the mortgage rates. We’ll see.

But as the way we look at it, you know, more than half of that business for us is something we can see into the future—so back-order type stuff, trusses and installed millwork—where we can sort of see off a little ways. So we have a pretty good sense of what it’s going to do over the next quarter or two. And at this stage we’re not seeing anything dramatic. Could start to move. You know, I think rates move and a lot of good things happen. So that’s a question mark that’ll sit out there for us and we’ll keep an eye on it.

Well, you’re right about the labor issues. You know, initially it was a little bit of pressure because they were all, you know, quote, going to the data centers. I don’t think that’s necessarily as big of a deal. I think the bigger deal has been the enforcement, or the immigration enforcement. There’s a substantial amount of conversation with the builders in our markets. You know, certain markets really pretty substantially impacted in terms of available labor.

Surveys are saying two thirds of builders are talking about it. And I think that’s probably right. Yes, it’s market specific. But I want to be real clear, I mean we’re seeing and hearing pretty meaningful stories in places you might not expect. So certainly Texas, Florida, the Carolinas, sure. But Delaware, West Virginia—places that you wouldn’t really think of as immigration enforcement hotspots—are still being impacted and seeing declining available labor as a result.

We are benefiting—certainly folks looking at opportunities to take work off of the job site. The troublesome aspect of it is sort of this knee-jerk reaction in trying to deal with jobs under construction that’s just disruptive at this stage. I think in the medium to long term it will certainly be good for us. And we see it as a tailwind on value add. It’s part of the story and part of how we can help. You know, even to the extent we do install, you know, can be challenging.

But you know, running a public company and doing it the right way has advantages at times like these when you need to make sure that you can deliver. We’re getting great utilization and the teams are meeting the needs of customers, which kind of proves our value as the partner of choice.

OPERATOR

Once again, thank you. We’ll move on now to Ruben Garner with Stonex. Your line is open.

Ruben Garner (Analyst at Stonex)

Thank you. Good morning everybody. Multifamily and R&R have been a little bit more stable of late. Just curious how you thought about them in your scenarios for 27 and any other kind of comments on those two markets in particular.

Pete Beckmann (SVP Finance)

Yeah, we certainly contemplate all the pieces of the segments that build up to the total revenue. The scenarios are really concentrated on the single-family starts and the commodities. I think, based on the commentary and what Peter just talked about, we look at multifamily, we think it’s going to probably have a similar behavior to the single-family. So as we look through those scenarios, I think we—without giving guidance, because it’s not guidance—took a conservative approach to the multifamily again, and then R&R, which is kind of flattish as we think about what that looks like.

Some of the economists are calling for an increase in R&R into the future. Not seeing it yet, not willing to bank on it. Obviously these are smaller pieces of the overall business but still meaningful to the overall. So that’s kind of a down-the-middle way of saying it’s consistent with what we’re seeing today.

Ruben Garner (Analyst at Stonex)

Okay, great. Thanks for the detail guys and good luck.

Peter Jackson (Chief Executive Officer)

Look forward to seeing you in a couple weeks. Thanks, Ruben.

Ruben Garner (Analyst at Stonex)

Thank you.

OPERATOR

We’ll move on now to Colin Veran with Deutsche Bank. Your line is open.

Colin Veran (Analyst)

Morning. Thank you for taking my question. Just wanted to ask one on SG&A. When we look at margins, when housing starts are at these levels, gross margins clearly stepped up, but that’s been offset by the higher SG&A spending relative to the sales base. I guess I’m curious how much of that you view as a structural change, or how much of that is an opportunity to kind of leverage that going forward. And just maybe some broad comments on how you guys view SG&A longer term.

Peter Jackson (Chief Executive Officer)

Well, we’re going to have an opportunity to take you into some of that detail when we get together for investor day. But broadly speaking, I think you’re seeing the reset upwards on some of the input costs that are important to us. Primarily you’re talking about labor, wage-related costs like healthcare, insurance, rents, and sort of the transport costs in general—so, you know, fuel, right, is a good example. That is in some ways structural. But I also think it’s important to point out that while we are a best-in-class organization that does a lot of things right— We have a great team. We have not brought to bear modern technology to the extent that we have available to us. So a whole list of areas where, by giving our team the best, most current tools, we think we’re going to get better, more efficient, more effective at executing. That absolutely has a benefit on the SG&A as a percent of sales, certainly a benefit in the COGS as well. But we think that productivity is still a meaningful opportunity for us as we go forward and give our teams the tools they deserve.

Colin Veran (Analyst)

Great. I appreciate the color and good luck.

OPERATOR

Thank you. Thank you. We’ll move on now to Phil Eng with Jefferies. Your line is open.

Phil Eng (Analyst)

Hey guys, thanks for squeezing me in. Appreciate you giving us early look for 2027. Understand it’s not formal guidance. Curious what does it factor in for price? Does that incorporate any negotiations you’ve had with your larger builder customers? Have you had early conversations in terms of their planning assumptions that’s incorporated in this? Just curious what’s baked in.

Peter Jackson (Chief Executive Officer)

Yeah. So, you know, the discussions with customers are ongoing. I would tell you the real reset, if there is any, isn’t going to happen for a few months. That’s happening at year-end and into the beginning of the year—you know, maybe starting now, but it’s going to be a little while. Like I said, I think it’s industry-driven. So it’s not obviously just us. These aren’t bilateral negotiations. They’re multilateral negotiations, for better or worse.

And so there’s a couple of assumptions in the numbers, you know, with regard to price. One is the run rate, the other is the market downturn. It’s not massive, as you can tell, but that’s kind of how we think about it at this point. And we will absolutely refine it as we get further into the year and have more clarity both around what the run rates are going to be for starts and what the market reactions are going to be. And that will be rolled out, as in our actual guidance, in February.

Phil Eng (Analyst)

Okay. But it’s fair to assume that within this framework, you’ve baked in some price bleed from current run rates, and then if it comes in better and stuff you do on the cost side, maybe that’s a source of upside, but you factored some slippage. Is that fair?

Peter Jackson (Chief Executive Officer)

A little. That’s right. That’s how we do it—when you move down starts, you move down margins a bit.

Phil Eng (Analyst)

Okay, very helpful. Appreciate the color.

Peter Jackson (Chief Executive Officer)

Thank you.

OPERATOR

Thank you. This brings us to the end of today’s meeting. We appreciate your time and participation. You may now disconnect.

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