Bluelinx Holdings Inc

NYSE:BXC

Earnings Call Analysis

BlueLinx Reports Solid Q3 Despite Market Headwinds

Amid a challenging housing market, BlueLinx delivered a steadfast third quarter. The company's robust strategic focus saw margins flourish in specialty products, contributing roughly 70% to net sales and 80% to gross profit, signifying a stride toward specialty products making up 80% of sales. Operational and pricing excellence has ingrained deeply within the organization, maintaining a resilient adjusted EBITDA margin of 6%. BlueLinx's agile business model supported its strong liquidity position, boasting $470 million in cash at quarter's end. These funds enable strategic investments while also accommodating shareholder returns, as seen with the completed $100 million share repurchase program and the introduction of a new $100 million authorization. Net sales reached $810 million with net income at $24.4 million, and the company declared a 6.2% adjusted EBITDA margin amidst tough year-over-year comparisons.

Solid Financials Amidst a Challenging Environment

BlueLinx has delivered robust financial results amid variable market conditions. Despite year-over-year net sales declining 24% to $810 million, largely due to lower volumes and deflation, the company sustained strong margins and progressed on strategic goals. Specialty product sales saw a 23% decrease, whereas structural product sales declined 25%. However, the company weathered these changes by maintaining price and cost discipline, potent cost volatility risk management, and working capital management, all essential for preserving a resilient business model and generating substantial operating cash flows.

Strategic Focus and Strong Balance Sheet

Even with near-term uncertainties in the housing market, BlueLinx remains optimistic about the building products industry's long-term growth potential. Demographics, home undersupply, and aging housing stock play into the company's strategic priority of expansion through digital transformation, acquisitions, and geographic growth. A strong balance sheet, with a record cash level of $470 million and a conservative net leverage rate of 0.5x, offers flexibility to reinvest in the business and return capital to shareholders, evidence of BlueLinx's unwavering commitment to future-oriented business agility.

Dynamic Margin Management and Robust Capital Allocation

BlueLinx showcased its dynamic margin management with specialty products gross margins standing strong at 19.8%, despite a decline, and structural products gross margins at 11.3%. Furthermore, the company has remained proactive in its capital allocation strategy, completing a $100 million share repurchase program and embarking on another. With continuous investments in facilities, fleet upgrades, and aiming for a long-term net leverage target of 3x or less, the company portrays a picture of strategic and financial prudence destined for long-haul returns.

Earnings Call Transcript 2023-Q3

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the BlueLinx Holdings Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode, 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, Sir.

[Tom Morabito, executive]

Thank you, operator, and welcome to the BlueLinx Third Quarter 2023 Earnings Call. Joining me on today's call is Shyam Reddy, our President and Chief Executive Officer; and Andy Wamser, our Chief Financial Officer. At the end of today's prepared remarks, we will take questions. Our third 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, bluelinxco.com. We encourage you to follow along with the detailed information on the slides during 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, 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 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.

[Shyam Reddy, executive]

Thanks, Tom, and good morning, everyone. We are pleased with our third quarter results given the higher interest rate environment that's impacting the housing and building product sector. The BlueLinx team punctuated the quarter with strong margins in specialty products, which accounted for about 70% of our net sales. We continue to generate solid margins in our structural business. And when combined with our margins in Specialty Products, the team produced strong free cash flow. We also demonstrated our clear commitment to returning capital to shareholders by completing our share repurchase program and by announcing a new $100 million share repurchase authorization. These results reflect our relentless commitment to the company's primary strategic priorities. First, we remain focused on growing 5 key high-margin specialty product categories that are not only 2-step distribution friendly, they also support the long-term prospects of the housing industry and personal preferences of the American consumer, engineered wood siding mill work, industrial and outdoor living products, all of which we believe will generate higher net sales and gross profit results in a sustainable and programmatic manner with our customers. In addition to representing approximately 70% of our net sales, specialty products generated 80% of our gross profit dollars in the third quarter and furtherance of the longer-term goal of specialty products making up 80% of net sales. We are accomplishing our objectives because our teams are leveraging our scale, geographic reach, selling capabilities and product mix, including our commodity product offering to sell the BlueLinx value proposition, which includes our expanded specialty product offerings and value-added services in key markets. These expanded partnerships highlight the confidence and faith our suppliers have placed in our nationwide capabilities and our commitment to providing best-in-class products and services to our customers. Second, we continue to drive operational pricing and procurement excellence deeper into the DNA of the company. These efforts have continued to support our customer experience, solid margin levels in specialty and structural products and a cost structure that is in line with fluctuating in seasonal levels of demand. We are effectively managing our costs as our adjusted EBITDA margin year-to-date is 6%, which we believe is strong given the downward pressure associated with wage, benefits and other SG&A inflation on top of challenging market conditions. We are also making technology investments to support our current growth strategy and to prepare for a digital transformation journey. For example, we have strengthened our data warehouse and analytical capabilities, upgraded some of our back-office tools, expanded EDI capabilities and enhanced our general technology hardware and infrastructure in our warehouses. We'll continue to explore ways to leverage technology to further enhance our sales, operational pricing and procurement excellence initiatives. Third, we remain committed to exploring and executing on opportunities to grow the business via organic expansion in new markets and M&A. The industry remains fragmented, providing the potential for future expansion opportunities through organic market expansion and M&A efforts, we are targeting opportunities geographically and by specialty product line. Importantly, we are going to be disciplined with any potential expansions, geographic or otherwise to ensure they support long-term value creation. Vandermeer Forest Products, which joined the BlueLinx family just over 1 year ago, is a great example of the muscle our team has developed to do a reasonably sized deal, integrated well and leverage the collective skills and strengths of both teams to expand BlueLinx into new markets successfully in a short period of time. As you may recall, Vandermeer provided a strong platform for growth in the Pacific Northwest by giving us the ability to serve all 50 states and to grow our specialty products business in new areas of the country. A year later, Vandermeer is performing very well and has significantly exceeded our EBITDA expectations from the time of the transaction. The business is not only integrated with the rest of BlueLinx, it is a strategic focus area for growing our business via BlueLinx supplier relationships and our commercial excellence capabilities. We're also enhancing the operational capabilities of the Pacific Northwest business by putting our centralized operational center of excellence to work for it in ways they never experienced prior to joining the BlueLinx family. Our strategic priorities are closely tied with our capital allocation philosophy, which is disciplined and focused on reinvesting in business initiatives that allow us to grow sales, improve productivity, expand our geographic reach and provide better service. This discipline will drive organic growth while giving us the opportunity to return capital to shareholders. Our financial position remains strong with liquidity of $816 million at the end of the third quarter, including a record $470 million of cash on hand. As a result, we have the flexibility to make strategic investments that are designed to grow the business and to be more efficient. During the third quarter, we invested $5 million in capital expenditures to improve our business. We also returned approximately $18 million to shareholders through share repurchases under our previous $100 million share repurchase program, which is now complete. Our Board of Directors has approved a new $100 million share repurchase authorization, further demonstrating our confidence in our recent performance and in our long-term growth strategy. Now moving on to our third quarter results. As you all know, the year-over-year comps have been tough, not just for us but for everyone in the housing and building products industry. The comparable quarter last year was at the tail end of a low interest rate and pandemic-induced housing boom. With higher interest rates slowing the rate of housing starts and repair and remodel activity, the current business environment is challenging. Fortunately, however, our teams and supplier partners, combined with the faith and confidence our customers have placed in BlueLinx, enable us to compete effectively in the markets we serve as evidenced by our solid financial performance. Naturally then, I am very pleased with the team's efforts to deliver a solid quarter for our shareholders in the current environment and with tough year-over-year comparisons as a headwind. Our teams are committed to generating more profitable specialty product sales, driving value-added pricing and producing solid returns on working capital to ensure that we can position ourselves to win and the market conditions we're dealt with and to invest in our long-term success, hence the solid results we delivered. To be clear, our success is attributable to our teams and their relentless commitment to deliver what matters to our customers so they can successfully grow their business. We generated net sales of $810 million and $50 million in adjusted EBITDA and a 6.2% adjusted EBITDA margin and approximately 70-30 specialty structural product net sales mix. Adjusted net income was $27 million or $2.98 per share. We delivered solid gross margin performance in the third quarter with specialty products at 19.8%, the highest level of the year and structural products at 11.3%. Our focus on commercial and operational excellence led to effective pricing and cost management, which were contributing factors to our sequential margin improvement of 100 basis points from the second quarter. Our continued focus on working capital has generated significant improvements in operating cash flow. Year-to-date, we have reduced our inventory by over $120 million with most of the reduction coming from the specialty products category. We also generated free cash flow of $73 million in the third quarter. As Andy will discuss in further detail, similar to the first and second quarters of 2023, we experienced deflation and volume declines in some specialty product categories. That said, during the third quarter, our average daily volumes in specialty products remained consistent with the second quarter. Now turning to our perspective on the broader housing and building products market. Looking ahead into the fourth quarter of 2023, industry sources are suggesting a deceleration in the positive momentum observed during the spring and early summer. Builder sentiment has decreased in recent months as mortgage rates have continued to increase and home pricing remains stubbornly high. This is making housing less affordable for many consumers, particularly first-time buyers. It is difficult to predict the interest rate in overall macroeconomic environment, which is causing the industry to be cautious and it's forecast to be muted. Repair and remodel spending continues to be lower than the elevated levels of the past 2 years. However, home equity levels remain high, allowing owners to fund repair and remodel projects, albeit smaller ones. Through the first 4 weeks of Q4, we have maintained solid margins for Specialty Products, although daily volumes are slightly down compared to what we saw during the recent quarter. That said, they're in line with historical seasonality, which we believe further demonstrates normalization. Structural margins have compressed as prices declined throughout October, though daily volumes are slightly higher. Although the near-term outlook remains uncertain, we still believe in the long-term prospects of the building products industry, thereby justifying our strategic and investment focus. The fundamental undersupply of homes, supported demographic shifts, aged housing stock, necessary repair activity and high levels of home equity should continue to benefit the building products industry and BlueLinx. In summary, we delivered solid quarterly financial results despite the challenging environment for housing and tough year-over-year comps. We're also making good progress on our strategic priorities as same-busspecialty product expansion efforts, margin performance, strong cash generation and capital allocation initiatives. We continue to maintain our price and cost discipline, while proactively managing our working capital to generate strong operating cash flows, key strengths of BlueLinx in light of the macro uncertainties and the lingering possibility of an economic slowdown. This discipline will serve us well as the housing and building product sector continues to normalize. As a result of our prudent management of the business, we have a strong balance sheet that allows us to reinvest in the business to pursue a digital transformation strategy to expand geographically and to selectively pursue acquisitions, all of which position us well for the long-term prospects of the business while providing us with flexibility to return capital to shareholders. I'd like to end by thanking my fellow BlueLinx associates for their continued grip, tenacity and competitive spirit in a challenging housing environment and for their continued dedication to our customers and suppliers. I've met with so many of our teams across the country in the last few months, meeting with them has provided an opportunity to be close to the business and our efforts to support customers while allowing me to feel the pulse of the organization, its heartbeat. Meeting with customers in our markets in addition to our strategic suppliers has also provided valuable insights. And when combined with the direct feedback provided by our associates, we are able to make better informed decisions to run the business in these challenging macroeconomic conditions and to make strategic investments that position the company to take full advantage of the underlying fundamentals of the housing industry that support long-term growth. So thanks to our customers and suppliers for enabling us to be better. Our teams are so dedicated to our customers as their commitment to enhancing the customer experience is palpable. Not a day goes by without me feeling a great sense of pride and privilege being on their team. Now I'll turn it over to Andy, who will provide more details on our financial results and capital structure.

[R. Wamser, executive]

Thanks, Shyam, and good morning, everyone. Let's first go through the consolidated highlights for the quarter. Overall, we delivered solid third quarter results, highlighted by strong margins in both our specialty and structural product categories. Net sales were $810 million, down 24% year-over-year. Specialty products sales were down 23% from the prior year due to a combination of deflation and lower volumes. Structural product sales were down 25%, also due to significant year-over-year declines in wood-based commodity prices and lower volumes. As a reminder, when reviewing the year-over-year comparisons, it's important to point out that in the third quarter of 2022, we were experiencing unusually high levels of demand and significant price inflation across the business. So while the variances are quite significant, we are pleased with the financial results we generated this quarter considering recent market conditions. Total gross profit was $139 million and gross margin was 17.2%, down 70 basis points from the prior year period. SG&A was $91 million, flat with the prior year period as lower delivery costs were offset by higher operating expenses due to the Vandermeer acquisition. Net income was $24.4 million, and diluted EPS was $2.71 per share. Adjusted net income was $26.8 million and adjusted diluted EPS was $2.98 per share. The third quarter tax rate was 27.2%, in line with our expectations. And for the fourth quarter of 2023, we anticipate our tax rate to be in the 20% to 24% range. Adjusted EBITDA was $50 million or 6.2% of net sales. Turning now to the third quarter results for Specialty Products. Net sales were $559 million, down 23% year-over-year. This decline was driven by a combination of deflation and lower volumes across several specialty product categories. Gross profit from Specialty Product sales was $111 million, down 27% year-over-year. Specialty gross margin was 19.8%, a strong margin, but down 110 basis points from last year. Through the first 4 weeks of Q4, Specialty Product gross margin was in the range of 18% to 19%, with daily sales volumes slightly down compared to the third quarter of this year, but in line with historical seasonality. Now moving on to Structural products. Net sales were $251 million, down 25% compared to the prior year period. This decrease was primarily due to the significant year-over-year decline in average composite lumber and panel prices as well as volume. Gross profit from Structural products was $28 million, a decrease of 25% year-over-year, and structural gross margin was 11.3%, consistent with the same period last year. In the third quarter of 2023, average lumber prices were about $437 per thousand board feet and panel prices were about $636 per 1,000 square feet, a 26% and a 5% decrease, respectively, compared to the averages observed in the third quarter of 2022. Sequentially, comparing the third and second quarters of 2023, these prices were up 7% and 20%, respectively. The sequential increase helped support the structural margins observed in the quarter. However, lumber and panel prices declined throughout the third quarter and finished the last week of September at $422 and 626, respectively. These prices have declined further in the first 4 weeks of the fourth quarter and are now $376 per thousand board feet and $572 per 1,000 square feet, respectively. Our strong structural margin continues to reflect the excellent job our team does to manage commodity cost volatility risk through leveraging consignment and utilizing centralized purchasing and pricing to keep structural inventory levels low. Through the first 4 weeks of Q4, Structural Products gross margin was in the range of 9% to 10% with daily sales volumes slightly up compared to the third quarter of this year. This excludes any net impact that could arise from inventory adjustments. Looking at our balance sheet. Our liquidity remains excellent due to the strong execution of our strategic initiatives and effective management of working capital. As of the end of the third quarter, cash on hand reached a record level of $470 million, an increase of $51 million from Q2 to Q3. When considering our cash on hand and undrawn revolver capacity of $347 million, available liquidity was $816 million at the end of the third quarter, also a record. Total debt, including our financing leases, was $577 million and net debt was $107 million. Our net leverage is now 0.5x, and we have no material outstanding debt maturities until 2029. Our balance sheet is in excellent shape. And when combined with our solid EBITDA and strong cash generation, we are well positioned to support our strategic initiatives. These include capital allocation projects and investments in our highest return opportunities, such as organic and inorganic growth investments and share repurchases. Now moving on to working capital and free cash flow. During the third quarter, we generated operating cash flow of $78 million and free cash flow of $73 million. Our third quarter cash generation was supported by earnings and a net benefit from working capital, primarily related to a reduction of approximately $15 million in inventory. Specifically, we ended the third quarter with $364 million of inventory, down over $120 million from the beginning of the year. Turning now to capital allocation. During the quarter, we spent approximately $5 million in CapEx, which were primarily for enhancements to our distribution branches. For the year, we still expect capital investments to remain around $30 million, focusing on facility improvements and further upgrades to our fleet. Also during the third quarter, we purchased approximately $18 million of our company's common stock through an open market transaction under our prior $100 million share repurchase program, which as of last month, is now complete. As Shyam mentioned, the Board has approved another $100 million share repurchase authorization, and we plan to be opportunistic in the market when repurchasing shares. As a reminder, this is our second $100 million share repurchase authorization in the last 2 years. Our guiding principles for capital allocation remain consistent. We intend to maintain a strong balance sheet, which enables us to invest in our business through economic cycles, pursuing disciplined geographic expansion and M&A strategy as well as return capital to shareholders. We also plan to maintain a long-term target net leverage of 3x or less. Overall, we are pleased with our third quarter results, highlighted by our strong margins and free cash flows, especially when considering the challenging environment. Our strong balance sheet positions us well to execute on our strategy and provide return to our shareholders as further evidenced by our new share repurchase authorization. Operator, we are now ready to take questions.

[Operator]

Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. [Operator's Instructions]Our first question comes from the line of Greg Palm with Craig-Hallum Capital Group.

[Greg Palm, analyst]

I guess I wanted to start with a little bit of the outlook commentary. It suggests October volumes more or less in line with that of Q3. Just to be clear, is that normal? I assume volumes would likely trend lower in the months of November and December versus October. So just maybe I wanted to be sure I was thinking about that right. I mean maybe get into the point, should we expect normal seasonal trends in Q4 versus Q3?

[R. Wamser, executive]

Greg, this is Andy. It's a great question. And what I would say is October normally aligns with some of the trends that we've seen in the third quarter. And as a reminder, our second and third quarters, I'd say, in a more normalized market, which we're experiencing right now are generally our highest -- and so you're on point, when we think about October, the trends were pretty decent. I mean, in terms of the volume outlook as we still have to close out the month. But as we look to November and December, we then would see a dip certainly in that seasonality. So we certainly would expect, I would say, the fourth quarter to be in line. We're not trying to message the fourth quarter would be in line with the third quarter in terms of profitability.

[Greg Palm, analyst]

Yes. Okay. Understood. And then the gross margin within specialty was, I'd say, a highlight again. And I'm just curious, are there kind of certain categories within that, that you're focusing on more, whether it be higher-margin product lines and kind of long term, how do you think about the focus there, whether it be on higher-margin product lines versus maybe higher growth opportunities?

[R. Wamser, executive]

Yes. Another great question. The way I'd frame it is when we look at the specialty margin in the third quarter, it certainly was a high mark of the year so far at 19.8%. As we saw or we mentioned, we thought as we look to the fourth quarter, it's sort of trending in 18% to 19%. So I'd say, a modest sort of slight dip. But when I think about some of the trend lines, I would say EWP millwork siding continues to do well with some of those volumes. And as those volumes have performed pretty well, those 3 categories have certainly helped the margin profile. But I would say we're focused on all 5 are the ones we consistently mentioned. But those are the 3 that really helped in the quarter.

[Shyam Reddy, executive]

Yes. And just to add to that, as it relates to our margins, I mean, we're leveraging our pricing and service proposition capabilities to make sure we're pricing competitively by charging the appropriate price for the product and service offering we provide while then thinking strategically about our sales based on those characteristics and that customers we're selling to. So basically, those who buy more from us get better deals than those who don't. And ultimately, we are thinking about sales growth in the context of long-term value creation, which is what -- and then the diversified product portfolio helps us execute successfully on that objective.

[Operator]

Our next question comes from Reuben Garner with Benchmark Company.

[Reuben Garner, analyst]

So throughout the quarter, we heard on the commodity side of your business, that things maybe we're starting to get a little bit more competitive. I think I better aggressive was you've thrown around from someone in the industry. Are you guys feeling that? Have you had to defend share position? How are you thinking about that? I see your guidance for the fourth quarter, is a touch below but still very strong in the structural piece at 9% to 10% gross margin. But maybe just walk me through if you're seeing any of that kick-in and how you kind of think about share versus margin in that part of your business?

[R. Wamser, executive]

Sure. So I'll take the first stab at that. What I would say on structural, there certainly has been a little bit of a margin compression as we go from the fourth quarter or go into the fourth quarter. And in some of my comments, I gave sort of a framework in terms of where we ended in September to where we're trending in October. So when we look at lumber and panels, it is down a decent bit. We've seen some real drop off here in pricing, I'd say, over the last, frankly, 8 weeks or so. As it relates to volumes, though, to the first 4 weeks of this year, structural volumes, I would say, are modestly up from a sequential. Again, I wouldn't read too much into that, the same sort of -- I would sort of say the same comments as I mentioned to Greg, where it's good to see that October volumes on a sequential basis in October, up, I'd call it, low mid-single digits, but then we do expect that drop-off in that normal seasonality in November and December.

[Shyam Reddy, executive]

Yes. Look, the structural piece of our business is an important one. We are obviously moving in the direction of achieving an 80% net sales 80%, 20% specialty structural mix. But given the needs of our customers, we really believe that through strategic management of our structural program, and which -- where we use consignment, great inventory management from a centralized perspective gives us the ability to really to take advantage of that piece of our business to drive overall sales growth and support our customers in the way they need in order to be successful on their end. So despite the margin compression, we are seeing those volumes tick back up mainly because it's a core piece of our business. So the focus is on specialty.

[Reuben Garner, analyst]

And on that specialty side, I think more exposure to the R&R space there. And I recognize the longer-term comments about home equity levels and aging of housing stock and that sort of thing. But in the near term, that area, I would assume is maybe a little bit more challenged than new construction. Is that a fair assessment? And are you seeing any particular opportunities or product categories that are doing better than others, so outdoor living, for instance, versus any other exposure that you have?

[Shyam Reddy, executive]

Yes. So yes, I mean, obviously, we'll feel some of the adverse impact as it relates to repair/remodel activity, lowering or the outlook being a little muted heading into the next year. That said, as we look at our product diversification, we do play in many layers of the construction cycle. So to the extent there are changes being made or sacrifices being made, we feel like there'll still be repair and remodel activity. It will just be smaller projects than maybe in the past because the home equity levels are high. But at the same time, our product diversification and our performance relative to the market decline suggests that we're actually comping favorably. So if the market comes down, we're not coming down as much. And I truly believe that that is the case because of our product mix. So in areas like EWP millwork and siding for instance, those are starting -- there's a lag, for example, which we've talked about in the past, which I think is -- contributes to the numbers we experienced in Q3. Outdoor living products is one of those we're absolutely focused on. But to your point, it could be something that a homeowner puts off maybe a quarter or 2 as they wait through their own -- to the uncertainty of the market, but we are focused on it and we'll continue to push it. And we have multiple products within that outdoor living category that we can sell depending on the price point or what the American consumer wants.

[Reuben Garner, analyst]

And within your specialty categories, is there any -- as we go into '24 and beyond, are there any areas where you see inventory very bear in in the channel that you'd have to rebuild or conversely any places where maybe there's too much product and might be some pricing pressure going into '24 in a softer environment?

[Shyam Reddy, executive]

No. Look, no, not at all. But the supply chain constraints have eased. And as far as our inventory management muscle, we manage very strategically. We are actively focused on inventory management to make sure that we have the appropriate inventory levels to meet our customers' needs. And to the extent there are things going on in the market, then we act very quickly to generate cash off the balance sheet in the appropriate manner as evidenced in our performance year-to-date as it relates to working capital management, but I'll sort of let Andy...

[R. Wamser, executive]

Yes. I think just the only thing to echo just add a little bit more detail is just as we think about the inventory through the first 3 quarters of this year, we've reduced our inventory of about $120 million. I would say there isn't that much more room to go. There could be maybe a slight incremental more as we go into year-end. But we think we feel really good about where our inventory levels are as we go into the new year and are ready for '24.

[Shyam Reddy, executive]

Yes. Look, our strategy is to grow this business. And I really believe that our -- the muscle we've developed around managing our working capital will enable us to do that very efficiently and effectively and smartly quite frankly.

[Reuben Garner, analyst]

Great. Good luck through the balance of the year.

[Operator]

Thank you. Our next question comes from the line of Kurt Yinger with D.A. Davidson.

[Kurt Yinger, analyst]

Shyam, I just wanted to stick on that last point in terms of being focused on growing the business. And I guess I'm curious, how do you kind of balance the desire to maintain the pricing discipline and margins in specialty with volumes just because the last several years, that's been an area that's lagged pretty consistently. So just curious whether you think you can do both or if that focus on the margin side might be a detractor going forward in terms of volume potential?

[Shyam Reddy, executive]

Yes. No, thanks for the question. It's a great one. Honestly, I don't think they're mutually exclusive propositions. I think we can do both. We're pricing competitively, like I said, by charging the appropriate price given the service proposition we offer, we do work very closely with our strategic customers and suppliers to make sure we've got great programs in place where we all grow together and build our respective businesses in a way that will create value for the employees and other stakeholders and our stockholders. And when we talk about pricing discipline and margin, for example, we're really talking about the capabilities to manage that pricing across all of our locations to make sure that the local transactions fall within our pricing guidelines and governance, we absolutely do not believe we're losing business we want because of this pricing discipline. In fact, if you look at the -- our volumes and how they trend with respect to construction activity in the context of permits, completions, starts, et cetera, our declines are not as bad as market declines. In fact, they're much better. And so stated differently, we're trending favorably. So that there -- I mean, in that statement suggests that we're not losing the business we don't want to lose. So I think we have figured out -- and look, there's always room for improvement, but I really believe that our focus on commercial excellence, operational excellence, pricing and procurement excellence really puts us in a position to grow share in a way that's profitable and good in a win-win for our customers and our suppliers and ourselves. And look, if you look at our Q2 numbers, we underperformed in Q2. That's on me. transition, got the eye off the ball underperformed in Q2. But in Q3, we got our act together and our teams executed successfully to make sure that we're both doing well, volume-wise, on a relative basis and while maintaining a discipline around pricing for the service we're actually providing.

[Kurt Yinger, analyst]

Got it. Okay. No, that's super helpful color. On the capital allocation front, I mean recognizing the desire to reinvest in the business, which you guys have a lot of capacity to do as well as grow the platform. I mean just with the opportunity set that you see out there, how do you kind of weigh M&A versus buying back your own stock at these levels, just given kind of where you're trading on a valuation basis.

[Shyam Reddy, executive]

Yes. Kurt, it's a great question. What I would say simply, when we look at where our business is trending today, let's say, in trade on a multiple basis, and we think about our long-term prospects, we feel really comfortable in terms of being able to buy back our shares at these levels. I mean it's certainly sub a 5x multiple. So we feel really good about that. And then in the context of M&A, it's frankly is hard to find deals that are trading in the sort of 5x or even slightly below area. So I will say that it's not mutually exclusive because when we -- if we look at Vandermir in terms of what we're able to do there in terms of centralized some of our processes and bring it into, I'd say, to the BlueLinx family. That's turned out to be a terrific deal for us, especially when you look on a synergized basis as we look back over the last year. Now if we could find another banner mirror, by all means, we would do that. But in the context of where the balance sheet sits today at 0.5x we feel really comfortable in terms of where the business has normalized because -- and we have visibility to year-end. So we feel comfortable in terms of whether balance sheet will end at year-end. We think it is appropriate now for us to do this new authorization because we don't need to have the leverage at 0.5x. So we think it's appropriate, effectively considering how we're trading.

[R. Wamser, executive]

And as -- just to add on, as it relates to M&A, I mean, let me reiterate that it is a core element of our growth strategy. In addition to making investments to grow the business organically. So there's opportunity out there. Though our initial excitement has been a little muted by the bid-ask spreads. However, we're now seeing that bid-ask spread start to compress, which means the outlook for M&A remains strong in our view. The pipeline is robust, we'll continue to work it. The multiples they're high, but like I said, they're coming down. And once these 2023 numbers come in, I think there might be some opportunities that we can take advantage of. But like I said, and as we've alluded to, we will be very disciplined in the type of deal we do from a risk return standpoint, also the multiple we pay in light of the overall capital allocation strategy.

[Kurt Yinger, analyst]

Right. Okay. I appreciate that. That's helpful. And then just lastly, in terms of opportunities in the next year, I'm curious whether from a product category perspective and kind of expanding those geographically across more of the platform more specific vendor relationships and any expansions there. Are there any areas where you're particularly excited about in terms of the potential to drive above-market growth in '24?

[Shyam Reddy, executive]

Absolutely. And I wish I could talk about them now, but there will be announcements coming out that will support. Honestly, the faith in our suppliers have in us and the great work our teams are doing to engender that faith and confidence in us. There's only so much I can do, right, or anybody on the management team can do. It's really about those sales teams and the folks who support them on the product management side. So yes, there are examples of expansions of our existing strategic product categories into new markets with existing vendors. And more to come on that front, but we are all very excited about the opportunities that will produce long-term growth in those 5 key specialty product categories.

[Kurt Yinger, analyst]

Okay. Perfect. Well, we'll keep an eye out for that, and I appreciate the color, guys, and good luck here in Q4.

[Operator]

Our next question is from Jeffrey Stevenson with Loop Capital Markets.

[Jeffrey Stevenson, analyst]

So I was wondering if you could talk about how volumes trended during the quarter in your core 5 specialty product categories. And more specifically, did you see any pickup in demand as the quarter progressed from the increase in single-family housing starts this summer?

[Shyam Reddy, executive]

Yes, we actually did from -- again, if you're looking at sort of Q3 relative to Q2, there was a -- through the course of the quarter, our specialty products picked up in volumes. There was a decline with structural, although we're seeing, as Andy alluded to earlier, a pickup in volumes in the first 4 weeks of Q4. But yes, like I said before, I really believe our product diversification allows us to play in every stage of the construction of a single-family home. And we started to see that flow through the P&L in Q3 with volumes picking up in each one of -- in our 5 key product categories, with -- at least 4 of them, for sure. At the same time, as we think about the market trends, as I alluded to earlier, we are generally trending favorably relative to the markets in which we operate in terms of volume. So we're getting we're just doing better relative to market. And I think it's a testament to our teams and the focus we have on these 5 key specialty product categories as opposed to one disproportionately relative to the other.

[R. Wamser, executive]

But Jeff, maybe just a little bit more color. I mean what I would say is, if we were to look at just a handful that were pretty favorable from like a TLE perspective from a volume perspective, it would have been EWP millwork in siding.

[Jeffrey Stevenson, analyst]

Got it. That's very helpful color. I appreciate that. And then you guys had another strong quarter of specialty product margins and they continue to hold well above previous normalized levels in this challenging residential environment. Just wondered if the strong results this quarter and really how they've held in this year gives you further confidence that specialty margins were normalized at or above that 18% to 19% level?

[Shyam Reddy, executive]

Yes. I think it seems to be the right range. As we've gone through sort of the first or third quarters, we've gone from 18.8% to 19.8%. I'd expect a little bit of softness here in the fourth quarter as our guidance was between 18% and 19%. But we think that margin profile has really held in well, particularly as we sort of test what this new normalization looks like. And so I think the results sort of speak for themselves, at least for this year, and it feels like the right zip code.

[Jeffrey Stevenson, analyst]

No, that makes sense. Then just lastly, thanks for the update on kind of why you have the new $100 million share repurchase authorization that makes sense. But just kind of from your capital allocation standpoint, if there isn't the right acquisition, if you feel your shares are undervalued, will you kind of be aggressive in buying back stock? Or how are you thinking about it from the magnitude of share repurchases moving forward?

[Shyam Reddy, executive]

Well, I think we have to put the $100 million sort of in the context first of where we are. And so it is, call it, between 15% to 17% of our market cap. So that's a meaningful amount. I think given market conditions, if they remain fairly decent and as we sit here today, I think it's reasonable that, that authorization could be done as we go through the end of 2024. We have to get to the first one first before we talk about an additional one. So let's see how the market conditions go. But I'll tell you, our intent is to do that over this quarter and then through the course of next year. But we'll be looking at M&A as well. I mean, that's going to be an important focus for us as well. And so it will be a balance between the 2.

[Operator]

Thank you. As there are no further questions, I would now hand the conference over to Tom Morabito for closing comments.

[Tom Morabito, executive]

Thanks, Ryan. Thank you again for joining us today, and we look forward to speaking with you in February as we share our fourth quarter and full year 2023 results.

[Operator]

Thank you. The conference of BlueLinx Holdings has now concluded. Thank you for your participation. You may now disconnect your lines.