BIA Executive Insights

Analysis, strategy, and insights for decision makers in the building products industry. November 2018

Welcome to a New Source of Experience, Insights, and Guidance

By Michael Collins, Managing Director, BIA We are very pleased to welcome you to the first issue of our monthly newsletter, which has been developed with building products manufacturing and distribution executives front of mind. Each month, we’ll bring you our perspective on trends and events in the industry, how they will impact your business, and what you can do to overcome challenges or maximize opportunities. Rather than simply serving as another source of news or information, our goal will be to present you with actionable ideas and best practices that will be helpful to building products executives in managing their businesses, making strategic decisions, and increasing the value of their companies. In addition to the market experience and practical, real world guidance of our professionals, the BIA Executive Insights newsletter will bring you, each month, exclusive content from industry veteran Craig Webb.  This content, unavailable from any other source, will be an impactful resource for executives who need to go beyond reading news and take action on market developments. Additionally, we will feature articles by thought leaders in the building products industry, who will share the wisdom they have gathered from helping a wide array of building products companies.  Our primary goal in publishing this newsletter is to provide decision makers with helpful insights. We would like to have your help in ensuring that our newsletter is of help to you in leading your company.  Please contact me at mcollins@buildingia.com to let us know of topics you would like us to cover in future issues or questions that you have about growing and maximizing the value of your company.

These Product Pricing Trends Will Help Shape Dealers’ Bottom Lines by Year-End

By Craig Webb, President, Webb Analytics Lumber people are a contrary lot. By that, I don’t mean they are ornery. Rather, they are contrary because they react in the opposite direction from their builder and remodeler customers when lumber prices change. Earlier this year, record-high prices for framing wood and OSB produced lots of smiles—smiles that dealers had to wipe off their faces whenever they presented those prices to builders. But since June, however, that situation has reversed. The latest Random Lengths numbers show framing lumber prices have tumbled 48% as of Nov. 2 to reach $337 per thousand board feet. That’s their lowest point since at least February 2017. Panel prices have taken a similar fall, and even this fall's hurricanes failed to boost demand. This is a big deal for dealers, as it’s common for them to get at least a third and often much more of their revenues from lumber. On one hand, rapidly falling prices boost gross margins because dealers make sales to builders at one price and then go onto the market later to buy the wood at a lower price. (The reverse happens when prices shoot up, because dealers find themselves committing to a sale at one price and then can't acquire the needed lumber at the same price on the spot market.) In general, though, dealers prefer high prices because they generate more profit against their operating costs, like trucks and gas and people. And thus it follows that the dealers who fared best this year will be those with nimble, efficient operations. The pricing updates delivered at Do it Best’s semi-annual markets do a sterling job of reporting trends across a range of products. Here’s the upshot from those updates, delivered Oct. 12: Lumber —No prospects for significant price increases barring unforeseen events, such as forest fires, increased shortages of rail cars, or Canadian provinces’ decisions to reduce annual cuts from government-owned land. Roofing —Prices will be even to down through December, with manufacturers attempting to increase prices in Q1. Drywall —After a mid-July increase push prices to 15-year highs, current levels through remain for the rest of this calendar year. Expect vendors to seek another price increase in Q1. Insulation —No more price increases by manufacturers until early 2019. Steel —Tariffs have pushed up prices dramatically, rebar imports have nearly stopped, and thus prices show no signs of dropping. Those factors, plus tariff issues affecting farms, have led to fewer pole barns going up.  Flooring —Consumer tastes are shifting from ceramic waterproof vinyl plank flooring. Webb Analytics is the new consulting firm created by Craig Webb, the longtime editor of ProSales. Webb Analytics specializes in services that enable construction supply dealers and distributors to boost their profits and maximize their investments. Contact Craig at cwebb@webb-analytics.com

Hire Better People for (Comparatively) Less: Maximize Your ‘Compensation Currency’

By Tony Misura, Founder, Misura Associates One key thing I’ve learned in 19 years as a recruiter in LBM is that many dealers think too much about attracting people with high salaries and too little about how other qualities they have can be just as powerful a lure. I call these non-dollar benefits “compensation currency,” and suggest you root around your operations to see how many of these you can find. For instance, suppose you and a rival dealer down the road in your Snow Belt town are both looking for yard workers. You have a covered warehouse; your competitor does not. As the temperature drops, your odds of hiring the yard worker go up, because you can offer a warm, dry place to work in the winter. Even if you don’t pay quite as much as the competitor, your compensation currency more than makes up the difference. In hiring as in so many other things, you want to promote your special qualities, and that often begins with understanding your company’s culture and identifying which candidates would revel in it. You may be family-friendly, with policies that let people adjust their schedules. That culture is likely to appeal to working moms and dads who need to take kids to the doctor or a ballgame. You may celebrate winners by sending your top performers on a cruise. One dealer on the Kansas plains owns several homes in mountain resort towns that it makes available to its employees for free.  Whatever you do that’s special, highlight that uniqueness and seek out people who flourish in such conditions. As I like to say: "We’re all crazy. The trick is finding co-workers who share the same level of crazy.” So think hard about what makes your company succeed, then promote that attitude on your website for all job candidates to see. You’ll be winning them over even before you ever mention pay.  Contact Tony at tmisura@misuragroup.com

Is there something that you would like to see covered in a future issue of BIA Executive Insights? Write to us with your request.

Recent Dealer and Distributor Transactions

Homewood Holdings, a unit of Building Industry Partners, acquired Building Supply and Lumber of Sacramento, Calif. Central Valley bought Foster Lumber Yards of Vallejo and Fairfield, Calif. The Jackson, Mo., company known as Kasten Building Supply has changed its name to Mill Warehouse Building Supply and expanded its range of products. Riverhead Building Supply acquired United Builders Supply, a four-unit pro dealer based in Westerly, R.I., with other locations in Niantic, Conn.; Waterford, Conn.; and Richmond, R.I. American Construction Source (ACS), a recently launched venture that seeks to become a big-time LBM player, on Oct. 2 purchased Breckenridge (Colo.) Building Center and Edwards (Colo.) Building Center. ACS is a portfolio company of Angeles Equity Partners and Clearlake Capital. This is ACS' second deal. Its first was the Sept. 26 acquisition of Meek's Lumber Co., which has divisions based in California and Missouri. ABC Supply bought DRI Supply, a specialty dealer with locations in San Andreas, Calif.; Merced, Calif.; and Carson City, Nev. Erickson Lumber, a 101-year-old institution in Hibbing, Minn., has been sold to Jerry Yoder, who will rename the business Yoder Building Supplies, the Hibbing Daily Tribune reported. Foundation Building Materials (FBM) announced Oct. 1 that it has acquired Agan Drywall Supply, Sioux Falls, S.D.; Agan Drywall Supply Rapid City (S.D.); and Agan Tri-State Drywall Supply, Sioux City, Iowa. FBM also revealed in late September that it will sell its mechanical insulation business to Dunes Point Capital for $122.5 million. FBM had been wanting to shed its mechanical insulation arm and focus on drywall, steel studs, and ceiling systems. Kodiak Building Partners revealed Oct. 1 its acquisition of Frontier Building Supply, a Puget Sound-based dealer with facilities in Anacortes, Freeland, Friday Harbor, Oak Harbor, Sedro Woolley, and Coupeville, Wash. Don Abel Building Supply, Juneau, Alaska, purchased another Juneau lumberyard, Valley Lumber Building Supply.

Recent Transactions Involving Manufacturers

Polycor, a Quebec City-based company that calls itself the largest producer of natural stone in North America, completed its merger with Indiana Limestone Co. Boise Cascade is selling to Woodgrain Millwork its lumber mills in Pilot Rock and La Grande, Ore., and the particleboard operations in Island City, Ore. USG stockholders have voted to merge the company with Germany's Knauf.

10 Ideas for Hiring Hourly Workers

Hourly employees—the truck drivers, inside sales reps, yard people, and others who get things done—are the true face of LBM, many would agree. So why, Dr. Jan Flynn wonders, are they also typically the least-trained, least-acknowledged, least paid-attention-to people in construction supply? Given those deficiencies, it’s no wonder that many dealers have trouble hiring and keeping people. Dr. Flynn specializes in organizational development at family-run businesses. She believes dealers can improve their recruiting and retention provided they adjust long-held, often out-of-date attitudes and create a corporate culture that makes their operation a desirable place to work. Now an associate professor at Georgia College and University and previously a human resources director at Nestle and TRW, Dr. Flynn shared her philosophies in Broomfield, Colo., on Oct. 4 at the joint annual meeting of the Mountain States Lumber and Building Material Dealer Association and the Mid America Lumbermens Association. Here are 10 tips from her presentation:  Understand Hourly Workers’ Goals. A U.S. Labor Department survey of hourly workers nationwide found more than 80% work within a five-mile radius of home, and 74% prefer to work 30 hours a week or less. Only 56% consider their current job to be a full-time career. Develop a Compensation Philosophy. People want to understand how and why they are being paid. For instance, you might say you pay minimum wage, or that you pay prevailing wages, or that your paychecks average 10% above minimum wage. You also should explain what it takes to qualify for a pay raise. Whatever stance you take, make it clear and consistent. Favor “Lump” Over “Bump.” Flynn said she’s seeing more dealers give bonuses rather than raising base pay. “If you give me a $1,000 bonus, I can do something that,” she said. ”If you give $1,000 spread out over the year, you don’t see it as much.” Have a Team Write Job Descriptions. Ask the person holding the job, that person’s boss, and that person’s underlings to contribute to the job description. They likely will have differing views of what’s involved as well as ideas of what the job should be. Avoid Formal Profit-Sharing Programs with Hourlies. “They never work,” Flynn said. “Expectations are created that it’s an entitlement.” Pay for Training. It’s always in your interest to promote skills. Pay high school dropouts to get their GED, and create programs to help pay off workers’ college student loans.  Celebrate Wins. “Never underestimate that power of hamburgers, pizza, and T-shirts.” Flynn said. If the celebration comes near November, buy gift certificates and say “Have Thanksgiving dinner on me.” Goodbye Doesn’t Mean Forever. Roughly 25% of hourly workers who leave their jobs are unhappy at their new job. Call them up and see if they’d like to return. Hire Out of the Probation Office. If a person is on probation for a non-violent crime, they have to report regularly to their probation officer and could be in need of work. “You can find some really good people” this way, Flynn said. Put Your Job Notice in Church Bulletins. As Poor Richard’s Almanac says, God helps those who help themselves.

Key Vote Nears for Tall Wood Buildings

The long campaign to promote the use of mass timber in mid-range high-rises cleared a major milestone in October when International Code Council advanced a proposal to change model codes in ways that make it easier to erect tall wood buildings. Such a change could create dramatic new sales opportunities for timber mills and lumber dealers. Next up: two weeks of online voting by governmental officials nationwide. The result could be known as early as year-end. Most codes today effectively forbid the use of wood in structures taller than five stories, though local governments can make exceptions. The proposals under discussion at the ICC would sanction wood buildings of roughly six to 20 stories. Most of those buildings would employ cross-laminated timber or similar forms of what's known as mass timber. Seattle's Bullitt Center, shown here, is an example. Supporters in the lumber, architectural, and other communities say tall wood buildings are cheaper and easier to build than most concrete-and-steel structures and no less of a threat of burning down. Most of the opposition comes from firefighters and--no surprise--concrete and steel people.

We Can Answer Your Most Pressing M&A Questions * How do the most active buyers in today’s market value my company? * What parts of the business should I change to improve its valuation? * When is the right time to sell? These are questions that are commonly asked by the owners of building products manufacturers and distributors. Our work in selling and raising capital for companies puts us in a unique position to help answer these important questions. Regardless of when you might decide to approach the market, please contact me to have a confidential discussion about your company and ways to maximize its value for the owners.  Michael Collins mcollins@buildingia.com Work 312-854-8036 Cell 312-282-5462