Decking & Railing Distribution Realignment: AMERICAS CONSTRUCTION: BUILDING PRODUCTS

Research evidence excerpt

Decking & Railing Distribution Realignment: AMERICAS CONSTRUCTION: BUILDING PRODUCTS

Goldman Sachs Americas Construction: Building Products

inventories remain lean. In turn, the adj. EBITDA of ~$112mn was 3% above GSe of

$109mn and consensus of $110mn, though the margin at 26.8% was 50bps below our

estimate despite increased operating leverage. Given the underlying strength in demand

and solid execution, the full-year sales guide was raised 2% while adj. EBITDA goes up

5% at the mid-point, signaling upside to second half margins vs our estimates. We note

the updated outlook assumes no material disruption to channel dynamics from

yesterday’s announcement and fully accounts for the transition’s incremental training

and merchandising costs.

BCC Well-Positioned to Fill Distribution Gap: As part of yesterday’s news, Boise

Cascade will cease to distribute Trex products though its BMD (building products

distribution) network. Although this could have a near-term impact on BCC’s operations,

we believe the company’s geographic reach, commitment to service, and investments in

growth will allow it to readily fill any gaps. Our view comes as yesterday’s news follows a

series of changes across the composite decking industry—at the manufacturing and

distribution levels—over the last 12+ months. We believe this is one more step in the

evolutionary process, as players across the value chain look to leverage the industry’s

accelerated growth and above average margin profile. In our view, Boise is

well-positioned given an existing relationship with JHX, which owns Azek, the number

two player in the space. This is in addition to efforts in key categories such as doors &

millworks, and roofing as the company has made meaningful strides in diversifying from