Builders FirstSource (BLDR) Q3 2026 Earnings Call Transcript

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DATE

Thursday, Oct. 29, 2026

CALL PARTICIPANTS

• Senior Vice President, Investor Relations - Heather Kos
• Chief Executive Officer - Peter Jackson
• Chief Financial Officer - Pete Beckmann

TAKEAWAYS

• Net Sales -- $3.9 billion, representing a 2.2% decrease primarily due to a lower housing starts environment and related headwinds.
• Gross Margin -- 27.8%, a decrease of 260 basis points driven by lower housing starts and affordability pressure on pricing.
• Adjusted EBITDA -- $311.1 million, down 28.3% versus the prior year period as a result of lower gross profit and reduced operating leverage.
• Single-Family Core Organic Sales -- 6.2% decline, reflecting a softer housing market where mortgage rates remained above 7%.
• Multi-Family Core Organic Sales -- 2.0% increase, though management noted developers remain cautious about new starts as existing projects are completed.
• Productivity Savings -- $23 million, achieved through targeted supply chain initiatives and manufacturing efficiencies during the third quarter.
• Cost Action Plan -- $140 million total run rate, including $115 million expected in 2026 from facility consolidations and reduced headcount.
• Acquisition Impact -- 1.8% contribution to net sales growth, partially offsetting organic declines through the purchase of Gleckler and Sons and ICG.
• Free Cash Flow -- $76 million, down from $464.9 million in the prior year due to lower net income and higher net working capital.
• Lumber and Lumber Sheet Goods Sales -- $1.0 billion, up 4.7% as the company captured market share despite a deflationary commodity environment.
• Windows, Doors and Millwork Sales -- $937.8 million, a 7.3% decrease reflecting softness in single-family housing activity.
• Manufactured Products Sales -- $845.4 million, down 2.8% due to the overall decline in residential construction volume.
• Net Debt to LTM Adjusted EBITDA -- 4.1x, an increase from 2.3x last year and above the company's long-term target range.
• Full Year Net Sales Guidance -- $14.2 billion to $14.6 billion, with management narrowing the range while maintaining the midpoint.
• Full Year Adjusted EBITDA Guidance -- $1.075 billion to $1.125 billion, assuming single-family starts decrease nearly 7% across company geographies.
• Full Year Free Cash Flow Guidance -- $400 million to $450 million, supported by disciplined capital expenditure management.
• Capital Expenditures -- $71 million invested in the third quarter, focused on technology and capacity expansion.
• M&A Deployment -- $91 million for acquisitions during the quarter, bringing the total to 44 deals since the 2021 BMC merger.
• Diesel Cost Impact -- $40 million to $45 million annually, representing a significant headwind that management is addressing through delivery surcharges.
• Facility Consolidations -- 45 locations consolidated year to date, contributing to the structural cost reduction program.
• Total Liquidity -- $1.5 billion, including $1.4 billion available under the revolving credit facility and $55 million in cash.
• Commodity Price Assumption -- $390 to $410 per thousand board foot for lumber, aligning with long-term average pricing levels.
• Share Repurchase Program -- $500 million remaining under current authorization, following zero repurchases during the third quarter.

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RISKS

• CFO Beckmann stated, "higher diesel and transportation costs are also adding pressure across the supply chain," noting fuel costs doubled over the past year.
• CEO Jackson warned that some builders will likely need to slow starts further to bring inventory in line with sales due to mortgage rates moving back above 7%.
• CFO Beckmann noted that "the value of a comparable start has declined by about 10% on average since 2019 as homes have become smaller and more value engineered."
• CEO Jackson stated that immigration enforcement is creating "meaningful stories" of declining available labor in markets like Texas, Florida, and the Carolinas.

SUMMARY

Builders FirstSource, Inc. (NYSE:BLDR) reported third quarter results that met management's expectations despite a 2.2% decline in net sales and significant compression in gross margins. Management reported that higher mortgage rates and weak consumer confidence impacted single-family housing starts, which the company expects to decline nearly 7% for the full year. To mitigate these headwinds, the company is executing a $140 million cost reduction plan and continuing to invest in AI-driven technology platforms and value-added manufacturing. The company maintained its full-year guidance midpoints while narrowing the ranges, signaling confidence in its ability to navigate a soft residential construction market.

• Management reported that the value per housing start has declined 10% since 2019 because builders are constructing smaller, value-engineered homes to address affordability constraints.
• The company invested in technology platforms Digs and Scaffold during the quarter to integrate AI into the homebuilding ecosystem and streamline data flow between trades and suppliers.
• CEO Jackson stated, "The industry is still fragmented, and we see a long runway for M&A to contribute to our growth," highlighting the 44 acquisitions completed since 2021.
• Operational efficiency improved through a new sales app that management reported reduced order placement time for "will call" customers by up to 90%.
• The company expects multifamily activity to remain muted in the near term as developers work through existing projects and monitor the impact of higher interest rates on cap rates.

INDUSTRY GLOSSARY

• BTO: Build to order; a construction strategy where a home is built after a customer has signed a purchase agreement.
• Core Organic Sales: Net sales excluding the impact of acquisitions and commodity price fluctuations.
• LBM: Lumber and Building Materials; the industry segment focused on supplying construction products to professional builders.
• Mbf: Thousand board feet; a standard unit of measurement for the volume of lumber.
• OSB: Oriented Strand Board; a type of engineered wood similar to particle board, formed by adding adhesives and then compressing layers of wood strands in specific orientations.
• Value-Added Products: Manufactured components such as trusses, wall panels, and pre-hung doors that provide higher margins than raw commodities.

Full Conference Call Transcript

Operator: Good day, and welcome to the Builders FirstSource 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 Kos, Senior Vice President, Investor Relations for Builders FirstSource. Please go ahead, ma'am.

Heather Kos: Good morning, and welcome to our third quarter 2026 earnings call. With me on the call are Peter Jackson, our CEO, and Pete Beckmann, 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 could 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. With that, I'll turn the call over to Peter.

Peter Jackson: 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 four.

We delivered third quarter results in line with our expectations for sales and EBITDA, even as single-family activity remained 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 Beckmann 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 five 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 six 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 seven, 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 eight, 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 and 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 nine, 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 home building 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 Digs, 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's AI connects trade contractors to the home builder 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. It's 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 home building ecosystem.

One of my favorite parts of these calls is recognizing a member of our team. Today, I want to recognize Kay 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 Builders 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 in Wasilla. 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 Beckmann to discuss our financial results in greater detail.

Pete Beckmann: 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 acquisition. Core organic sales declined 6% in single family, increased 2% in multifamily, and were roughly flat in repair and remodel. Even in a softer single-family backdrop, we gained roughly 1-2 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, tighter control of discretionary spending, and the 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 includes 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 12-month basis, our free cash flow yield was approximately 4%.

Our net debt to adjusted EBITDA ratio was approximately 4.1x, 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%, multi-family 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 billion to $14.6 billion, adjusted EBITDA of $1.075 billion to $1.125 billion, and 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 million 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 foot, 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. They do not include cost actions beyond those already announced. They are 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 will turn the call back over to Peter for some final thoughts.

Peter Jackson: Thanks, Pete. We are the nation's largest supplier of building materials and value-added services to home builders. 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 BFS a more efficient, faster-growing business with meaningful earnings upside, built to compete and win in any environment.

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

Matthew Bouley: Wanted to ask a question around the 2027 margin outlook and cost reductions. I think if I am looking at the midpoint margins, sort of in the low 6s, and correct me if I am wrong, I know this year you talked about $140 million of cost actions that are beyond productivity. 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 sort of austerity measures in that environment? Do these scenarios include those type of cost reductions? Thank you.

Peter Jackson: Hey, Matt. Good morning. Yeah, it is a fair question, and I think as you have seen, we were able to react to the downturn in the market. Very experienced team. As much as we do not enjoy shrinking the business, it is a lot more fun to grow it. He knows how to do it. We have executed against that, a whole variety of ways that we have made the business smaller to match the size of the market, whether it is location closures, variable costs, fixed overhead reductions. A lot of forms there, whether it be discretionary or the field support center, staffing reductions, all actions that we have taken.

We will continue to execute on those based on what the market gives us. Yeah, those are opportunities into the future. That is not what we are doing here. This is just our kind of high-level view based on what we are seeing and some of the key variables right now. We have not gone through our annual operating process, our planning process. That will happen here over the next month and a half and into the beginning of next year. We will roll that out to all of you so you know the details.

Matthew Bouley: Got it. Okay. I appreciate that, Peter. Thank you. 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. Then secondly, I would 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 were competing with them now that you have acquired them. Any more details on their financials? Anything along those lines, would be great to hear.

Thanks.

Peter Jackson: Sure. Yeah, so M&A continues to be an area of focus for us. When we look at the business, we continue to be confident in the balance sheet, the strength of what we have borrowed, the tenure of it, which we have borrowed, the interest rates at which we have borrowed. So we feel confident in what we have got established on the balance sheet. These deals are relatively modest. They are in the range of our cash flows that we are seeing. For us, if you just look at it mathematically, it is ensuring you are on the right side of the interest coverage ratio.

It is making sure you are on the right side of the valuation in terms of the multiples. I think we can demonstrate, and while we would never get into 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. I think that is a good dovetail into Gleckler. It is a great business. You are right. We are excited to bring the Gleckler team on board.

The BFS 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 locations, 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 BFS to deliver on that. Pricing is always part of that as well, but I think that is a real opportunity for us. We are 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 Bouley: Well, got it. Thanks, Peter. Good luck and see you in a couple of weeks.

Peter Jackson: Thanks. Looking forward to it, Matt.

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

Chris: Hi, this is Chris off from Mike. Thanks for taking our questions. Maybe just on gross margin, I was hoping you guys could flesh out your thinking around kind of sequential gross margin from 3Q-4Q, and as we exit the year, and given your range of outcomes for 2027, how should we think about the potential impacts on gross margins on the high end of that range, the low end of that range? That would be helpful. Thanks.

Peter Jackson: Well, I'll start at the high level, and Pete Beckmann 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. I think that's the only question mark that remains for us now is, what is this most recent move in mortgages going to produce from a starts perspective? You've heard our commentary around it. We think it's likely some builders will have to change their trajectory a little bit.

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. Keith Hughes?

Pete Beckmann: 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 COGS, 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.

Just that as a framework is a way to think about what transpires or transposes over into the 2027 scenario modeling.

Speaker 5: 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? Then particularly on the commodity side, realizing that always tends to be a tougher part of the market, but just what are you seeing there specifically?

Peter Jackson: Well, I will reiterate that I think things have stabilized by and large on the competitive side. We will continue to monitor it and react appropriately. I do not see anything dramatic playing out there, but like I said, movements in starts have a tendency to cause reactions, so we will keep a close eye. When it comes to commodity side, I think what you have 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 is 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 have been facing. I think the broad statement is there is no meaningful movement up in our mind until the markets start to move a little bit more aggressively to the north, to up and to the right. But at least the bottom it seems to be found and the industry is taking the appropriate actions to respond to the real demand on the ground.

Speaker 5: Okay. Appreciate the color.

Operator: Thank you. Once again, that is all one of you would like to ask a question. Our next question comes from Charles Perron-Piché with Goldman Sachs. Your line is open.

Charles Perron-Piché: 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 is quite encouraging, especially while you are 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. 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: Yeah. Great question. Thank you. The short answer is yes, and the way that we are going to execute on that, we will drill you into more of the details when we are 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 have got an opportunity to take advantage of available capacity, and focusing our sales efforts, whether it be 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 are 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 is really yielding results, and we are 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 have built this year. Started with a great team. We are just giving them more tools to be able to win.

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

Peter Jackson: Yeah. So it's good, I think, on balance. The primary benefit from BTO is visibility. 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, right? Visibility around build to order is usually pretty good, 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 Perron-Piché: All right. Thank you for the color, guys, and good luck with the quarter.

Peter Jackson: Thank you.

Operator: Thank you. We'll move next to Rafe Jadrosich with Bank of America. Your line is open.

Rafe Jadrosich: Hi. Good morning. Thanks for taking my questions.

Peter Jackson: Good morning.

Rafe Jadrosich: 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: I don't think we break out the quarters. As a frame of reference, it is a meaningful number for us, right? We run a top 20, top 30 fleet in the country, so you can imagine diesel is an important number. Based on sort of the peak numbers, we're looking at it $40 million-$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've announced a delivery surcharge to try and offset some of that. It's meaningful and it's something that we paid a lot of attention to.

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 ourselves. That's an ongoing battle. It ebbs and flows, as you might imagine, based on the daily price. I'm looking at Pete, I don't think we have anything for the third and fourth quarter breakdown, do we?

Pete Beckmann: 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. Our fuel surcharge is up 30% from a 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 it passes through naturally.

Rafe Jadrosich: Okay. That is helpful. Then, you sort of commented on the market share trend improving more recently or through the year. Are there specific categories within your different segments where you are seeing market share gain and more traction versus others?

Peter Jackson: It is pretty mixed. What we have, I would say, acknowledged, and you can see a little bit in the trajectory of the product categories. We have 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 is a bit of a synergistic benefit, I guess, where we capture on both sides. But I think just looking at the numbers, you can see that lumber is an area that we have, I would say, picked up more on a percentage basis.

Rafe Jadrosich: Thank you. That is helpful.

Operator: Thank you. We will move on to Ryan Merkel with William Blair. Your line is open.

Ryan Merkel: Hey, 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: No. I got to be real careful how we thread the needle on this one, right? The momentum for us hasn't shifted yet in response to the mortgage rates. But I don't want to misstate. We're waiting to see what happens in that demand shift. There's an expectation that it will move. We've been insulated from it a little bit in two ways. One, it takes a little bit of time for the acknowledgement 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 couple-month gap from the start until we start delivering things to the job site.

Prep the site, 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 pretty sobering. That move 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 has a lot to do with what we put out there for the 2027 directionality. But these things have a tendency to move quickly and in any direction you might choose to model. So there's a wait-and-see kind of component here. So far, good shape.

I think our share growth has helped us. Not teeing up a dramatic fall off because I think we've got enough of a window to flow through with what we have, but certainly expecting something is going to come through here.

Ryan Merkel: Yep. That all makes sense. Okay. I'll take a shot at the 2027 framework. I guess my question is on gross margin. What are the puts and takes? I realize that the framework doesn't include more cost out, so that's an important consideration that I know you got the Investor Day coming up, but anything you can tell us on gross margin would be helpful.

Pete Beckmann: Yeah. 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 Jackson 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.

Ryan Merkel: All right. Got it. Best of luck, guys. Thanks.

Peter Jackson: Thank you.

Operator: Thank you. We'll move on to John Lovallo with UBS. Your line is open.

Matt Johnson: Hey, good morning, guys. This is Matt Johnson on for John Lovallo. 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 is 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 was trying to get a handle on what you are assuming for your single-family organic sales performance relative to single-family starts.

Pete Beckmann: Yeah. There is some level of acquisitions that are lapping from the 2026 timeframe, but no new acquisitions that we have built into it. So I think that is the way to think about that impact from M&A.

Matt Johnson: 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 your results and also I think US LBM's filings, it seems like leverage is becoming 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? And how would you frame your appetite for M&A with leverage where it is at? And are you seeing more targets come to market just given the state of things out there right now?

Peter Jackson: 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. I will start by saying that hasn't changed, and we don't think that will change. The ups and downs of the M&A sort of transaction space, that is absolutely true. I would say in the scheme of things, this 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 is 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. 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. By partnering with BFS, they see a path to do that. 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. 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 is a weaker or a slower time for that. But like you said, leverage is certainly something we're keeping an eye on. 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. 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: Yeah, thank you. Good morning, guys.

Peter Jackson: Good morning, Dave.

David Manthey: I'll take my shot at the scenarios here. Last year, you gave us a +5 flat, -5, and then what you call the normalized scenario based on 30%-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: Yeah. So, normalized gross margin for us is still anchored on normal volumes. So that's sort of 1,115 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 number. The challenge today is the sheer number of starts, the quality of the starts, the dollar value of the starts, and the available capacity in the industry. That's a tough combination. 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 don't. 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: Okay. Thank you. And with the scenarios, I get it, in terms of even on the 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: I agree with the first part, I don't agree with the second part. 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, the ability to stabilize pricing and say no to 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 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: Thank you. I'll keep harping on the same thing on the scenarios. You talked, Peter, about, I guess, a little bit of a normalization in pricing, and margin, and the jobs, and some of the pressure going away. But the scenarios look like a really extreme decremental margin, more akin to what's happened in the last couple of years. Are you not making an assumption that the pressure relents a little bit in any of these scenarios?

Peter Jackson: Yeah, definitely not.

Keith Hughes: Okay.

Pete Beckmann: We started with snap the line today, what is the business if you annualize it, so on our current levels. Then try to layer on, okay, what happens if it goes down 5%? What happens if it goes down 10% from a market-based perspective? It is sort of an early pass. It is a good look. Your point is right on. This is not all the things we are going to do or how we think we can react to it.

It is a first pass, but it is 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 get appropriate credit when we outperform it. I think if it goes down 5%-10%, it is going to be hard. Yeah. Peter already alluded to it. There is extra capacity that we are still digesting in this environment. If we see more step downs, there is still excess capacity, and that has to be processed through, which continues to put further pressure on margins in those downside scenarios. That is the way to think about it. Did we lose you, Keith? Uh-oh. Did we lose everybody?

Operator: Nope, we are still here. Yep, we are still here. We will move on to Sam Reid with Wells Fargo. Your line is open.

Sam Reid: 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 if 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: 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 is likely the same mix modeled in the scenarios.

Sam Reid: Understood. Thanks so much.

Operator: Thank you. We'll move on now to Trevor Allinson with Wolfe Research. Your line is open.

Trevor Allinson: Hi, good morning. Thank you for taking my questions. First one's on the multifamily commentary you had in your prepared remarks. I think you said near-term you expect that to remain muted, but how should we think about that pipeline as we move into 2027? Is that an end market that you think you're flipped to growth as we get into next year, or does the recent increase in rates mean that remains more muted, not just near-term, but as we think about next year?

Peter Jackson: Yeah. You've got some crosscurrents there. This year, the build-to-rent market, I would say, went into a bit of a pause, if you will, while the whole ROAD to 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 jeebers 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 sort of 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, pretty, I won't call it beneficial, but not really detrimental to the space. 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, right? The cap rates and the ability to pencil a deal got a lot harder. I think mixed right now. On one hand, a relief rally. On the other hand, a pause again because of the mortgage rates. We'll see. But the way we look at it, more than half of that business for us is stuff that we can see into the future.

So back order type stuff, trusses and install millwork 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. 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.

Trevor Allinson: Okay. Thank you for all that color, Peter. Second, there has been a lot of talk in the industry about the builders running into labor constraints in certain markets. Is that re-accelerating demand for some of your value-added products? If so, I suspect that is very market-to-market specific. Any specific markets to call out where you are seeing outsized impact there?

Peter Jackson: Well, you are right about the labor issues. Initially, it was a little bit of pressure because they were all "going to the data centers." I do not think that is necessarily as big of a deal. I think the bigger deal has been the enforcement, the immigration enforcement. There is a substantial amount of conversation with the builders in our markets. 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 is probably right. Yes, it is market specific, but I want to be real clear. We are 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 would not 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 the job site. The troublesome aspect of it is sort of this knee-jerk reaction in trying to deal with jobs under construction. It is 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. I think it is part of the story and part of how we can help.

Even to the extent we do install, it can be challenging. But 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 are getting great utilization and the teams are meeting the needs of customers, which kind of proves our value as the partner of choice once again.

Operator: Thank you. We will move on now to Reuben Garner with StoneX. Your line is open.

Reuben Garner: Thank you. Good morning, everybody.

Peter Jackson: Good morning.

Reuben Garner: Multifamily and R&R have been a little bit more stable of late. Just curious how you thought about them in your scenarios for 2027 and any other kind of comments on those two markets in particular.

Peter Jackson: 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 Jackson just talked about, we look at multifamily, we think it is going to probably have a similar behavior to the single family. As we look through those scenarios, I think we- Without giving guidance, because it is not guidance, we took a conservative approach to the multifamily again. 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 is a down the middle way of saying it is consistent with what we are seeing today.

Reuben Garner: Okay, great. Thanks for the detail, guys, and good luck. Look forward to seeing you in a couple weeks.

Peter Jackson: Thanks, Ruben. See you soon.

Operator: Thank you. We'll move on now to Collin Verron with Deutsche Bank. Your line is open.

Collin Verron: Morning. Thank you for taking my question. Just wanted to ask one on SG&A. When we look at margins when housing starts were last 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: Well, we're going to have an opportunity to take you into some of that detail when we get together for Investor Day. 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. 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 do 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.

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. We think that productivity is still a meaningful opportunity for us as we go forward and give our teams the tools they deserve.

Collin Verron: Great. I appreciate the color and good luck.

Peter Jackson: Thank you.

Operator: Thank you. We will move on now to Phil Ng with Jefferies. Your line is open.

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

Peter Jackson: Yeah. The discussions with customers are ongoing. I would tell you the real reset, if there is any, is not going to happen for a few months. That is happening at year-end and into the beginning of the year. Maybe starting now, but it is going to be a little while. Like I said, I think it is industry-driven, so it is not obviously just us. These are not bilateral negotiations. They are multilateral negotiations, for better or worse. There are a couple of assumptions in the numbers with regard to price. One is the run rate, the other is the market downturn. It is not massive, as you can tell.

But that is 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. That will be rolled out in our actual guidance in February.

Phil Ng: Okay. But it's fair to assume that within this framework, you've baked in some price bleed from current run rates. 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?

Peter Jackson: A little. That's right. That's how we do it. When you move down starts, you move down margins a bit.

Phil Ng: Okay. Very helpful. Appreciate the color. Thank you.

Peter Jackson: Thanks.

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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