With a combined revenue of $21 trillion and $2.1 trillion in profits, the 2026 Fortune 500 is the definitive list of America's largest companies.

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Almost $20 trillion in revenue—and a record-breaking $1.87 trillion in profits. Introducing the 2025 Fortune 500, the definitive list of the biggest companies in America.

Industries included in the sector are building materials, forest products, metals, and packaging.

Fortune Sector Leaders: Materials

The Fortune 500, in its 70th year in 2024, ranks the biggest U.S. companies by revenue.

The Fortune 500, in its 69th year in 2023, ranks the biggest U.S. companies by revenue.

Industrials came out on top this year, with 22 companies featured on the list.

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This year’s Fortune 500 marks the 68th running of the list.

This year’s group delivered stellar revenue and profit growth, but it underperformed the broader stock market.

This year’s Fortune 500 marks the 67th running of the list.

Formed in 1998, Builders FirstSource is the largest supplier of structural building products, value-added components, and services in the U.S.

This year's Fortune 500 marks the 66th running of the list.

Net sales at Builders First Source, a Dallas-based supplier of construction materials, fell 5.8% in 2019, but profits were up 8.1%; both metrics reflected the impact of falling commodity prices.

This year's Fortune 500 marks the 65th running of the list.

This year's Fortune 500 marks the 64th running of the list.

Everybody loves an up-and-comer: 2018's top three-year performers in revenues, profits, and stock returns.

This year's Fortune 500 marks the 63rd running of the list.

This year's Fortune 500 marks the 62nd running of the list.

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Builders FirstSource is a manufacturer and supplier of building materials, manufactured components, and construction services to homebuilders, contractors, remodelers, and U.S. consumers. Its manufactured products include wood floors, wall panels, stairs, windows, doors, mouldings, wood siding, roofing, insulation, cabinets, and much more. The company also offers software products for drafting, estimating, quoting, and designing home services for retailers, distributors, manufacturers, and homebuilders. Founded in 1998, the company was originally named BSL Holdings, but changed its name in 1999.

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Builders FirstSource (BLDR): Company Profile, Stock Price, News, Rankings

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Builders FirstSource

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Good day, welcome to the Builders FirstSource first quarter 2026 earnings conference call. Today's call is scheduled to last about one hour, including remarks by management and the question and answer 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'd now like to turn the call over to Heather Kos, Senior Vice President, Investor Relations for Builders FirstSource. Please go ahead.

Good morning, welcome to our first 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, 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, a discussion of why we believe they can be useful to investors in our earnings press release, SEC filings, and presentation. Our remarks in the press release presentation and on this call contain forward-looking and cautionary statements within the meaning of the Private Securities Litigation Reform Act and projections of future results.

Please review the forward-looking statements section in today's press release and in our SEC filings for various factors that could cause our actual results to differ from our forward-looking statements and projections. With that, I'll turn the call over to Peter.

Thank you, Heather, and good morning, everyone. Our first quarter results reflect the adaptability of our operating model as we delivered strong strategic share growth in a weak housing market. Across the organization, we remain focused on the factors within our control, including serving our customers, expanding our differentiated portfolio of value-added solutions, and leveraging technology to accelerate growth and drive operational excellence. This disciplined approach continues to strengthen our leading position as a trusted full-service partner to home builders.

By continuing to invest in innovation and the capabilities that matter most to our customers, we are reinforcing our role as the leading building materials provider and extending our competitive advantages. Our strategy enables us to outperform as the market normalizes and to deliver sustainable long-term value for our shareholders. Let's turn now to slide four. Our first quarter results highlighted our agility despite the challenging housing market and seasonally lower time of the year for the industry.

We landed at the upper end of the expected Q1 range for sales in EBITDA, even as the macro was worse than we expected. We continued to lean on our exceptional team, leading value-added solutions, and robust operating model to drive performance. Let me take a moment to share some perspective on the market. The housing market remains weak as affordability challenges and muted consumer confidence continue to weigh on demand. In recent months, geopolitical tensions have added to market volatility by contributing to higher interest rates and additional inflationary pressure.

The surprise of the Middle East conflict and the uncertainty around implications for both affordability and consumer confidence have undermined the spring selling season. While we are managing what's in our control, these conditions have created sales and cost headwinds that we don't expect to fully offset this year. Sales improved the first quarter in line with expectations, and daily sales have continued to build in April. However, sentiment is clearly weaker. As Pete will discuss, our revised full year guidance reflects these dynamics.

Despite ongoing macro challenges, we remain committed to advancing our strategy, including a sustained focus on share growth, continuous improvement, and capital allocation. We cannot control the market, but advancing our initiatives will enable us to realize share gains, improve the way we operate, and position us to accelerate growth with any level of recovery. We expect to capture single-family share growth by delivering outstanding customer service, bundling our broad product portfolio to drive affordability, and leveraging cutting-edge technology.

In multifamily, quoting activity remains active, but the uptick in interest rates has deferred certain projects. Given the current project pipeline, we don't anticipate a meaningful improvement in our multifamily results until next year. In response to the current market weakness, we are prudently managing spending and maximizing operational flexibility, as outlined on slide five. We remain operationally disciplined and have taken actions to reduce costs in line with demand while preserving our ability to partner with our customers and invest in innovation and technology.

So far in 2026, we have consolidated 21 facilities following the consolidation of 55 total facilities over the prior two years, all while maintaining an on-time and in-full rate greater than 90%. Supported by our industry-leading scale, experienced leadership team, and proven ability to operate proactively through the cycle, we are confident in our ability to make the necessary adjustments and continue to deliver exceptional customer service. On slide six, we highlight some of the key initiatives under our strategic pillars.

Our capital deployment is strengthening our competitive position and driving long-term value creation. Since the inception of the buyback program in August of 2021, we have repurchased nearly 50% of our total shares outstanding. Operational excellence is crucial to how we run the business as we develop talent, improve agility, and increasingly embed technology into our operations. We generated $6 million in productivity savings in Q1, primarily through targeted supply chain and logistics initiatives.

Moving to slide seven, our prudent capital allocation strategy focuses on maximizing shareholder returns. In Q1, we deployed $360 million towards return-enhancing opportunities aligned with our priorities. Our consistent, strong free cash flow through the cycle gives us the flexibility to invest in organic growth, pursue strategic M&A, and return capital to shareholders. Drilling down into M&A on Slide 8, we remain focused on pursuing acquisitions that expand our value-added product offerings and advance our leadership position in desirable geographies.

We have developed substantial and proven muscle memory to grow through M&A and have a track record of successful integration and synergy capture. As a reminder, we acquired Premium Building Components in January, marking our company's first truss and wall panel operations in New York. Since the BMC merger in 2021, we have made 41 acquisitions representing over $2.3 billion in annual sales, the equivalent of a top 6 LBM player, demonstrating our ability to execute and integrate seamlessly.

With the industry still fragmented, we see significant opportunities ahead and are confident that inorganic investments will remain an important driver of long-term growth. Turning to slide nine, we continue to differentiate by digitally enabling our team members, strengthening customer relationships, and advancing value-added product development to support long-term growth. Our investments in automation, AI, and digital integrations are focused on simplifying and accelerating the building process for our customers.

In Q1, our digital platform processed nearly $800 million of quotes as we continue to automate key steps of the process. Later this year, we will roll out the next generation of digital solutions, deploying emerging technologies to support builders across key stages of the home building journey. The platform will include four integrated hubs: community, plan, selections, and construction, all accessible through myBLDR.com, with embedded AI capabilities providing actionable insights through a single unified platform.

Builders will have access to connected tools and real-time data to coordinate the build, reduce waste, and sell homes faster. Digital is central to how we operate today, particularly with our sales organization, where these tools create opportunities to capture share, expand product adoption, and deepen customer relationships. Recognizing one of our outstanding team members each quarter is one of my favorite parts of our earnings call.

Today, I'm proud to highlight members of our Middletown, New York, Millwork team, Sam Lane, Dan Livingston, Anthony Legnee, and Eddie Walsh, who were recognized by the New York State Police for their compassion and willingness to help a community member in need during dangerously cold winter weather. Earlier this year, first responders contacted Sam and his team after identifying a local resident whose front door was severely damaged and no longer provided adequate protection from the cold. The officers were seeking to purchase a replacement door to help ensure the individual's safety.

When our team learned of the situation and the resident's need, they stepped in immediately, producing a brand-new pre-hung door at no cost and assisting with the installation. I'm truly grateful to our Middletown Millwork team for living our BFS purpose every day: to build a better future for those we serve. I'll now turn the call over to Pete to discuss our financial results in greater detail.

Thank you, Peter, good morning, everyone. Our first quarter performance reflects disciplined execution in a weak housing market. We remain focused on managing our operations and working capital while advancing key growth initiatives to drive long-term success. Turning to our first quarter results on slides 10 through 12, net sales decreased 10% to $3.3 billion, driven by lower core organic sales and commodity deflation, partially offset by growth from acquisitions.

The core organic sales decrease was driven by an 11% decline in single family, reflecting lower starts activity and reduced value per start, and a 1% decline in both multifamily and repair and remodel, consistent with our expectations given muted activity levels and consumer uncertainty. As we've noted on recent calls, several factors reconcile single-family starts to our core organic sales. First, there is an approximate three-month lag between a start and our first sale. Second, average home value has declined as homes have become smaller and less complex, creating a sales headwind.

We believe a comparable start has declined in value by 10% on average since 2019. Third, housing affordability constraints continue to pressure margins across the supply chain. Against this backdrop, we believe we grew share in the first quarter, reflecting our market-leading offerings and continued role as a trusted partner. For the first quarter, gross profit was $0.9 billion, a decrease of 17% compared to the prior year period. Gross margin was 28.3%, down 220 basis points, primarily driven by a declining starts environment.

Adjusted SG&A of $740 million decreased $31 million, primarily due to lower variable compensation amid lower sales and lower headcount, partially offset by acquired operations. As we touched on in February, we leaned further into our downturn playbook with $100 million of cost actions, which includes $75 million in year-over-year cost reductions and $25 million in cost avoidance.

These actions include deeper cuts to overtime and temporary labor, adjustments to incentive compensation plans, reduced merit and overhead spend, additional facility consolidations, and tighter controls on discretionary spending. To date, all actions are complete or meaningfully underway. We realized $13 million in the first quarter and are on track to achieve our cost reductions this year. This positions us to leverage our costs as the market improves.

Adjusted EBITDA was $214 million, down 42%, primarily driven by lower gross profit. Adjusted EBITDA margin was 6.5%, down 360 basis points from the prior year, primarily due to lower gross profit margins and reduced operating leverage. Adjusted EPS was $0.27, a decrease of 82% compared to the prior year. Let's turn to the cash flow balance sheet and liquidity on slide 13. Our first quarter operating cash flow was $87 million, down $45 million, primarily due to lower net income. For the quarter, we delivered $43 million of free cash flow, underscoring the strength and consistency of our cash generation profile.

Our trailing 12 months free cash flow yield was approximately 10%. Operating cash flow return on invested capital was 13%. Our net debt to Adjusted EBITDA ratio was approximately 3.2x. While higher than our long-term target, we are confident in the strength of our balance sheet with strong liquidity of $1.5 billion. We remain comfortable with our net debt levels and will continue to execute our capital allocation priorities with discipline to maximize long-term value creation. Moving to the first quarter capital deployment.

Capital expenditures were $45 million. We deployed $12 million on acquisitions, and we repurchased 3.3 million shares for $303 million. Earlier today, we announced that our board of directors authorized $500 million in share repurchases, inclusive of the $200 million remaining under our April 2025 authorization. On slides 14 and 15, we outline our latest 2026 outlook and assumptions, which reflect continued weakness in housing starts, ongoing affordability pressure, and a more cautious consumer. Compared to 2025, single-family and multifamily starts are expected to be down 2.5% and repair and remodel down 1%.

As a result, we are guiding net sales in the range of $14.6 billion-$15.6 billion, Adjusted EBITDA of $1.1 billion-$1.5 billion, and Adjusted EBITDA margin of 7.5%-9.6%. We expect our 2026 full year gross margin to be in the range of 27.5%-29%, reflecting the below normal starts environment. We expect free cash flow of approximately $400 million-$500 million. The year-over-year change is driven primarily by a $180 million swing in working capital and lower EBITDA. In 2025, we benefited from a working capital release driven by the lower sales environment to exit the year.

In 2026, we anticipate the second half to be stronger, which requires investment in working capital. Our guidance assumes average commodity prices in the range of $390-$410 per thousand board foot, in line with the long-term average of $400. Despite continued end market softness, commodity prices have pushed higher since mid-December, driven by rising input costs. For Q2, we expect net sales to be between $3.75 billion and $4.05 billion and Adjusted EBITDA to be between $300 million and $350 million.

The shape of the full year implies a heavier second half contribution as we lap the starts decline due to the rapid deceleration of starts to reduce new home inventory levels. In closing, we are closely monitoring the current environment and remaining agile to mitigate downside risk in the near term, while also investing strategically for the future.

Supported by a fortress balance sheet and strong free cash flow through the cycle, we continue to manage capital with rigor, drive for organic growth and productivity savings, and pursue M&A. We remain well-situated to compound value through our strategic initiatives. With that, I'll turn the call back over to Peter for some final thoughts.

Thanks, Pete. We are the nation's largest supplier of building materials to home builders in new residential construction, combining unmatched scale with deep local execution across every major housing market we serve. We are number one in manufactured components, windows, doors, and millwork, providing significant value to builders.

Our footprint, digital platform, and install capabilities create an unparalleled structural advantage. With our experienced, cycle-tested team, we expect to deliver solid results in the near term and significant upside when the market recovers. Thank you again for joining us today. Operator, let's please open the call now for questions.

Thank you. If you'd like to ask a question, press star one on your keypad. To leave the queue at any time, press star two. We do ask that you please limit yourself to one question. Once again, that is star one to ask a question. We'll go first to John Lovallo with UBS. Your line is now open.

Good morning, guys. Thanks for taking my questions. You know, despite the, the headwinds that you've articulated in housing so, you know, so far this year, I mean, we would argue that the spring selling season has probably been a little bit better than feared and generally better year-over-year with most builders posting year-over-year order growth. You know, I mean, I do recognize there's a three-month lag from, you know, for you guys from when you start getting activity. Is this, you know, kind of better than expected spring part of the driver of the second-half step-up that you're expecting along with the, you know, just the easier comps?

Hey, John. Yeah. Thanks for the question. We actually did see a nice build at the beginning of the year. There were a number of different conversations we were having about the positive momentum, both on the public and the private side. It's important to remember that we generally see the headlines for the public builders, but they're a significant but not universal coverage of the industry. That momentum at the beginning of the year, I think, has been good.

It's just not, I don't think able to withstand the negative headwinds around uncertainty. That's what we called out here. I still think we'll see a good year. I just think it'll be a little bit weaker than what we anticipated. That has led to, you know, pressures throughout the business, whether it be on the inflation side or just the competitive dynamic side.

Makes sense. Maybe just digging a little bit deeper, the outlook implies a pretty nice improvement in margin in the second half. At the midpoint, I think two half 2026, Adjusted EBITDA margin would be 9.6, which is, I think, 200 basis points higher than the first half. What are you kind of expecting to be the big drivers of this improvement?

Yeah. Thanks for the question. It's really driven by the leverage that we gain out of the summer selling seasons with the strength in our sales flowing through. Some of it's related to the sequential performance and management of our cost structure. We outlined our productivity was $6 million in the first quarter.

We're still targeting our $50 million-$70 million for the full year, as well as the cost actions that we've outlined. The $100 million of cost actions are well underway. We've completed most actions. Now it's just realizing those benefits as we move forward, which should help accelerate some of that leverage we would see in the back half of the year.

Thank you. Our next question comes from Charles Perron-Piché with Goldman Sachs. Your line is now open.

Good morning, everyone. First, I just want to drill a little bit more into the gross margin guidance embedded for the balance of 2026. I think you mentioned last quarter Q1 would be the low point for the year, but obviously, it sits at the midpoint of the revised range. How does it inform your expectations for the balance of the year? What drives your expectations for the high end versus the low end of that range?

What we had signaled last earnings call is Q1 would be the low water mark as we were anticipating a stronger build in the selling season. As Peter had mentioned, with the uncertainty as well as the increase in input costs, specifically around fuel, a lot of that inbound is still unknown that we're anticipating from our supply partners. It's not a nominal amount of impact that it'll have on the cost. We've left the margin range fairly wide. We look to navigate what that looks like as we move forward. At the same time, we do expect to pass through where a distributor pass through those cost increases.

Some of it's timing related, and as we work through that, it's probably gonna have a muted impact on our margins. We had signaled a build in margins as we go through the year and we leverage our fixed costs and cost of goods sold. That's still the case. We still anticipate that, but maybe not to the same degree given the sales volume expectations.

Got it. Okay. That's helpful color. You know, considering the challenging housing backdrop and the profitability outlook you've highlighted, I would imagine some of your competitors are struggling significantly at these levels. I guess, how are you seeing some of them behave in this market environment? Are you seeing some smaller players exiting capacity?

Yeah, that's a great question, Charles. The answer is, yeah, there's a ton of pressure, and there are smaller players that are certainly struggling. There are players that have closed down a lot of facilities. You know, we've obviously talked about it publicly, but they're doing it privately. We've seen that in the market. We've seen a lot of turnover. People are making significant headcount reductions, talent coming onto the market in some instances. We've seen aggressive behavior, certainly, you know, a mix as you might expect, right?

The bell curve of performers in this market is what we see in terms of reactions. Some people are trying to pursue product categories perhaps that they haven't before, so new entrants and new competition in certain buckets. We've seen irrational behavior where people will throw numbers out and then not be able to fulfill and have to back off, churn in the market. Just in general, a lot of very aggressive behavior.

You know, Pete alluded to it. I think sometimes it's hard to relate to what people are seeing in the market, but we're at- Volume levels for starts that would be comparable to 2019. The content of the house is even smaller by another 10%. We're certainly seeing a market that's at substantially lower levels of volume running through it, even after having an additional five years of capacity adds and things going on. The market is absolutely adapting. Capacity is coming out. Some of the weaker players are really struggling. We're hearing rumors of not being able to pay bills and delays and layoffs, but we'll see how it pans out.

We're still strong in this. We're still able to, I think, take advantage. We alluded to that a little bit. We're sort of leaning in a little bit this quarter harder than we have and taking advantage of some of those opportunities. It's not easy right now, but I'm absolutely proud of this team for what we've been able to do. We're still strong in this market, even though it's tough.

Got it. Thank you for the color, Peter, and good luck with the quarter.

Thank you. Our next question comes from Rafe Jadrosich with Bank of America. Your line is now open.

Hi. Good morning. Thanks for taking my question. I just wanted to start on the share repurchase in the quarter. You are above the sort of target, the long-term target leverage range, but you bought back $300 million. Can you just talk about that decision and strategy going forward?

Sure. When we talk about our capital deployment strategy, it's very consistent with what we've seen. I would say the way I would frame that is first making sure that our balance sheet and our debt is rock solid, that we have plenty of liquidity. Second, that we're investing in the core of the business, continuing to make sure we have what we need from a capital investment perspective. Third, looking at the M&A environment, the inorganic opportunities and what high return targets are out there for us to consider. Then finally, where does it make sense to lean in and buy back shares?

I think we saw the dip this quarter, in reaction to the dynamics of what was going on in the Middle East and saw it as an opportunity to pick up shares of BFS at a tremendous discount. We have a lot of confidence in our balance sheet and where we stand on the leverage perspective. Certainly with the decline in the EBITDA levels, it's resulted in some of the multiples, the leverage multiples you mentioned as being a bit higher, but it's not an area of concern for the business. We're gonna remain disciplined. We're gonna remain thoughtful about how we do it. At no point are we gonna impair our strength on the balance sheet or our liquidity position.

Thank you. That's helpful. Then just on the inflation side, how are you, could you just help us understand how you handle sort of higher diesel costs and some of the inflation? Does that get passed along to your customer through surcharges? Maybe just talk about the exposure in terms of the transport and fuel side.

Yeah, absolutely. We certainly saw, as did everyone else in the space and across the world, increases in fuel costs, diesel specifically. We take those costs as inputs, we will surcharge our customers, pass them along. Sometimes it's embedded in the way that we price our product and how to service our customers. It's all embedded, we do pass that through. We evaluate it very closely. Like I mentioned on the prior question, it's not an insignificant amount on the inbound, it's not insignificant on the outbound. We do take that very serious in passing it through.

Thank you. Our next question comes from Ryan Merkel with William Blair. Your line is now open.

Hey, everyone. Thanks for the question. I wanted to go back to gross margins. What was the biggest surprise in the quarter? You did beat the street on sales. On the guidance, how did you think about that? Did you just extrapolate what you saw in the first quarter, or did you add a little bit of an incremental weakness to the guide?

Hey, Ryan. Yeah, thanks for the question. You know, I think the challenge that we face in this current environment is the variety of products that we're selling and the dynamics that are happening in each one of those categories. What I would say in Q1 is if you look at the trends, the core of the business is pretty well leveled out.

There's certainly hand-to-hand combat in certain areas and certain parts of the country, so you get sort of the normal variability if you think about lumber commodity and the value add. Where I think we were surprised is in the specialty products and the other categories. That was where it was certainly more challenging, more volatile than we expected. Not happy about it, recognizing it for what it is and trying to account for that on a go-forward basis. That's, that's the core of the story.

Ryan, if I could add to that, what's also working really well is our bundling program. Where we picked up a little bit of mix is on the lumber and sheet goods. As we've been successful with our manufactured or value-added sales, we picked up a little bit more on the lumber and sheet, which is a lower margin category, which had a little mix impact. That's all evidence of some of the share that we've been able to capture on the lumber side, leveraging that value-added capability.

Got it. Okay, then just back on the guide. You know, I know it's an uncertain environment. Did you just extrapolate sort of the trends in 1Q, or did you add a little bit of cushion into the guide? I'm just curious how you thought about it.

I would say we don't just extrapolate. We're looking at our build-up from the bottoms up, as we think about our sales projections for the year, what's in the pipeline, what we're hearing from our customers, the economists. We take all things into consideration as we develop our guide. We have a normal seasonal curve, so it's a little more muted than what we had communicated last quarter or, yeah, last quarter. It's still a seasonal curve, and we're seeing certain parts of the country thaw out and start to gain momentum as we get into the summer selling season. We're playing closest to the pin, Ryan.

Got it. All right. Thanks, guys. Good vessel up. Testing on.

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

Hi, thanks for taking our questions. I want to follow up on the kind of strategic share and bundling comments. I think in the past, you've talked about, you know, as others have been more competitive on the lumber and commodities side, not necessarily wanting to take share that way. It doesn't sound like this is specifically kind of the goal of let's win back share in lumber.

It's more kind of the function of some other strategy. Can you just elaborate a little bit more on kind of the shift that you've made there? If there's any way to quantify when we think about the mix impact gross margin, what that really meant in the quarter and in the guide.

Thanks, Mike. Listen, man, there was a lot of feedback there, so I think I got it, but if I don't, please just correct me in the answer. Your question was about what's the bundling, a little bit more on the bundling, what do we think that's doing in terms of the margins and the business. Our bundling is really sort of the culmination of all the work we've done to offer the variety of products.

It's the ability to come in and say, to a builder, "We can make your life simpler and more efficient and put together an affordability package for you if you're interested in buying lumber plus truss plus millwork plus windows or whatever we're offering in that particular market." The opportunity there is to have, you know, some sort of back end or some sort of combined pricing that allows us to fill capacity, keep our operations humming, by combining it, offer a superior value while at the same time offering or capturing more gross margin dollars for ourselves. Pretty straightforward in that regard.

The mix impact right now, I think Pete alluded to it. In the past, I think we've walked away from more of the lumber than maybe we would have to right now. We can kind of pick that up. Has a little bit of a negative impact on margins by virtue of mix. I would tell you that's not the biggest impact for a negative mix in this quarter. Sorry, for negative margins this quarter. I think the primary issue is what I was outlining before about the other products, the specialty products. It's just gotten tighter. It, I would say, surprised us right how quickly it got tight in the quarter. The core of the business, the lumber and sheet goods and the value add, I think is performing largely in line with what we expect.

Okay. Yeah, that's helpful. Sorry for the static. Hopefully, the follow-up comes in clearer. Then to kind of dovetail understanding those comments in terms of, you know, that's not really the main driver. You know, some of the public builders have commented about cost increases or not taking cost increases or wanna push them off. We have heard some concerns about kind of players like yourselves being caught in the middle in an inflationary environment. Obviously, historically, there's been sufficient ability to pass through costs given your position in the market.

Maybe specifically on the commodity pricing right now, there have been periods of time where you might see a quarter or two of margin compression, you know, as commodities rose. I think you moved away from a lot of the longer duration contracts, so that's been a little, a little less of an issue in recent years. Can you talk through, you know, whether there's any timing differentials on, I know you mentioned fuel, but also on the commodity side that might be pressuring margins in the near term?

Yeah. No, that's a good question. I'll start with the commodity side. You're right. We have largely moved away from those long-term contracts. More accurately, we've, I think, done a better job of matching our commitments to our customers with our purchasing profile and the way we're bringing it in. Certainly, there's a little bit of that, but if it was big enough to mention, I'd be calling it out. It's fairly modest in terms of the number. The broader question I think you asked is probably the more pertinent one.

It has to do with while builders are saying they're not gonna take price increases and vendors are saying, "Well, we're gonna get price increases, so that's gonna leave us holding the bag." I'd say that's not true. I think we're pretty good at this, The balance here is we provide a value to this market on behalf of both of those parties, and there's a level of profitability that we're going to need to see in order to continue to participate. To the extent we have good long-term partnerships and the market wants product, there's going to be a pass-through of whatever it needs to be.

Now, do we play a mediating role in that? Absolutely, right? We're in the discussions between vendors and builders and builders and vendors, depending on the dynamic. It's very clear to us that we have an affordability problem, right? We are trying to help the builders achieve that goal in any way we can, but at no point does that involve us becoming a charitable institution and losing money in order to do it.

There's a balance, right? I think they understand that. I've had conversations with a number of them, and I think they're gonna do what they need to do, and they're gonna press, and we're gonna do what we need to do, and we're gonna hold the line where it's appropriate. In the middle, there's a lot of value and a lot of work to be done, and I think we're particularly good at navigating that.

Thank you. Our next question comes from Matthew Bouley with Barclays. Your line is now open.

Morning, everyone. Thank you for taking the questions. Just sticking on the gross margin topic, this guidance change of, you know, 100 basis points or so. You know, I've heard you mention several drivers. You have the competitive environment, you know, change in your starts assumption from flat to down low single digits. Sounds like price cost due to fuel. You talked about lumber mix, and then the specialty products and other margin. My question is really, is any one of those the biggest issue, or maybe if you can kind of rank order the drivers of that change? Obviously, what I'm trying to do is get conviction on, you know, what it would take to sort of halt that decline in gross margin. Thank you.

Thanks for the call, Matt. For the question, Matt. Yeah, I think the answer is, if I'm scaling the level of impact, the biggest one is the specialty. I think the second piece, it's a lot of different stuff. I think the inflationary component is an important one. It's kind of the impact of fuel and what we're trying to do to manage it. Maybe not so much on gross margins, though. That's more of an outbound costing that we're managing. It's certainly, I would say the others are more comparable in size for the starts impact, the competitive dynamic, the mix impact, and the fuel on the gross margin side.

Okay. Got it. Got it. No, perfect. That's helpful. And then, the second one, the cost savings, the $100 million in 2026. You know, it's the same number from last quarter. Obviously, your overall earnings projection has come down. My question is there any more room to press on that, and how are you thinking about the balance of, you know, hanging on to cost, hanging on to labor, et cetera, versus, you know, what it would take to kind of press on more, I guess, austerity type measures? Thank you.

I think that the short answer to that is we're always looking at changing the size of the business and cutting costs in a market like this. The primary focus is, remains on the variable side to ensure that we're matching the people doing the work with the work that we have, and that is the biggest dollar amount by far that you're gonna feel in our results. We're working through, as Pete mentioned, largely through most of the cost outs.

I think at least initially, we need to digest the impact of that and make sure that we're able to deliver on the things that we're committed to delivering before we take another pass. That said, we will continue to look at it, and as the year progresses, we'll see what we need to do. We're not announcing anything today. Nothing new today.

Okay. Got it. Well, thank you, Peter. Good luck, guys.

Thank you. Our next question comes from Keith Hughes with Truist. Your line is now open.

Thank you. With the margin hit on specialty, it seems like it's now everything you do. Has it changed the relative margins amongst the products? The pressures of the downturn, are they still rank order the same top to bottom?

They're still rank ordered pretty much the same. I think what you see, Keith, and it's, I don't know, the academic in me is kind of fascinated by it. You actually saw the wave of cost reductions and competitiveness flow through our P&L similarly, similar to the way you would see it hit the job site. It started with the lumber. It's a commodity. It moved quickly. It reset quickly. All the margins reset quickly.

It worked through some of the value-added products as you get into the structure, and we're seeing it work all the way through to some of the doors and cabs on the backside of the build that we deliver. The relative performance, still very similar, but the timing at which we saw the resets was kind of in that order and why we're seeing the specialty now, it's just a bit more than we thought.

Thank you. Our next question comes from David Manthey with Baird. Your line is now open.

Thank you. Good morning, everyone. Guys, I'm wondering if you're expecting to see any relief in the size and complexity of homes as rates are more or less stable here. I mean, at some point, I think maybe it just mix up naturally as buyers would skew more affluent because of the affordability, but maybe not. Could you just discuss the second derivative rate of change and any expectations you have of that as sort of a leading indicator ahead of unit volumes going up?

Yeah, Dave, thanks for that question. It's a fascinating one. We've debated it internally going back and forth. I think that the dynamic we've seen up until now is very much a bifurcation of the market, right? You've got strength at the large scale, you know, the more affluent buyer, the cash buyer, if you will. On the counter, you have a lot more homes shrinking and reducing in complexity at the bottom end so that the starter homes are more starter. They're simpler, there's less in them. They're also not only is it square footage, but it's single-family standalone to the townhouse offering as well, right?

Those dynamics, we think, have played out pretty aggressively. It is our opinion that stability to improvement in the market will likely lead to a re-acceleration of some of those factors, meaning people would prefer to live in a detached home, people would prefer to have a larger home, people would prefer to have better inputs to those homes. I think until we work through some of the affordability at the low end that's gonna be slow to move. I think as you get more of more certainty, right, a reduction in uncertainty, that would be welcome. I think you'll see more stability through the middle and upper tiers of the market. We will see a little bit of that.

Okay. Thank you. If you could just update us on the ERP, how far are you, and what does the timeline look like from here?

Builders FirstSource (BLDR) Q1 2026 Earnings Call Transcript

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