Builders FirstSource (BLDR)

Building materials company Builders FirstSource (NYSE:BLDR) reported Q3 CY2025 results beating Wall Street’s revenue expectations, but sales fell by 6.9% year on year to $3.94 billion. The company expects the full year’s revenue to be around $15.25 billion, close to analysts’ estimates. Its non-GAAP profit of $1.88 per share was 8.8% above analysts’ consensus estimates.

Company Overview

Headquartered in Irving, TX, Builders FirstSource (NYSE:BLDR) is a construction materials manufacturer that offers a variety of lumber and lumber-related building products.

Traditionally, home construction materials companies have built economic moats with expertise in specialized areas, brand recognition, and strong relationships with contractors. More recently, advances to address labor availability and job site productivity have spurred innovation that is driving incremental demand. However, these companies are at the whim of residential construction volumes, which tend to be cyclical and can be impacted heavily by economic factors such as interest rates. Additionally, the costs of raw materials can be driven by a myriad of worldwide factors and greatly influence the profitability of home construction materials companies.

Competitors in the building materials industry include Beacon Roofing Supply (NASDAQ:BECN), Home Depot (NYSE: HD), and Lowe’s (NYSE: LOW).

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Luckily, Builders FirstSource’s sales grew at a solid 10.1% compounded annual growth rate over the last five years. Its growth beat the average industrials company and shows its offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Builders FirstSource’s recent performance marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 4.9% over the last two years.

We can dig further into the company’s revenue dynamics by analyzing its most important segments, Manufactured products and Windows, doors & millwork , which are 22% and 25.1% of revenue. Over the last two years, Builders FirstSource’s Manufactured products revenue (floors, wall panels, and engineered wood) averaged 12.9% year-on-year declines while its Windows, doors & millwork revenue (self explanatory) averaged 4.8% declines.

This quarter, Builders FirstSource’s revenue fell by 6.9% year on year to $3.94 billion but beat Wall Street’s estimates by 2.6%.

Looking ahead, sell-side analysts expect revenue to decline by 2.4% over the next 12 months. While this projection is better than its two-year trend, it’s tough to feel optimistic about a company facing demand difficulties.

All else equal, we prefer higher gross margins because they make it easier to generate more operating profits and indicate that a company commands pricing power by offering more differentiated products.

Builders FirstSource’s unit economics are better than the typical industrials business, signaling its products are somewhat differentiated through quality or brand. As you can see below, it averaged a decent 32.4% gross margin over the last five years. Said differently, Builders FirstSource paid its suppliers $67.65 for every $100 in revenue.

Builders FirstSource’s gross profit margin came in at 30.4% this quarter, down 2.3 percentage points year on year. Builders FirstSource’s full-year margin has also been trending down over the past 12 months, decreasing by 2.6 percentage points. If this move continues, it could suggest a more competitive environment with some pressure to lower prices and higher input costs (such as raw materials and manufacturing expenses).

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.

Builders FirstSource has been an efficient company over the last five years. It was one of the more profitable businesses in the industrials sector, boasting an average operating margin of 12%.

Analyzing the trend in its profitability, Builders FirstSource’s operating margin decreased by 4.6 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

In Q3, Builders FirstSource generated an operating margin profit margin of 5.8%, down 4.3 percentage points year on year. Since Builders FirstSource’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, R&D, and administrative overhead increased.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Builders FirstSource’s EPS grew at an astounding 29.6% compounded annual growth rate over the last five years, higher than its 10.1% annualized revenue growth. However, this alone doesn’t tell us much about its business quality because its operating margin didn’t improve.

Diving into the nuances of Builders FirstSource’s earnings can give us a better understanding of its performance. A five-year view shows that Builders FirstSource has repurchased its stock, shrinking its share count by 6%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Builders FirstSource, its two-year annual EPS declines of 24.8% mark a reversal from its (seemingly) healthy five-year trend. We hope Builders FirstSource can return to earnings growth in the future.

In Q3, Builders FirstSource reported adjusted EPS of $1.88, down from $3.07 in the same quarter last year. Despite falling year on year, this print beat analysts’ estimates by 8.8%. Over the next 12 months, Wall Street expects Builders FirstSource’s full-year EPS of $8.08 to shrink by 16.5%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Builders FirstSource has shown robust cash profitability, enabling it to comfortably ride out cyclical downturns while investing in plenty of new offerings and returning capital to investors. The company’s free cash flow margin averaged 9.9% over the last five years, quite impressive for an industrials business.

Taking a step back, we can see that Builders FirstSource’s margin expanded by 1.9 percentage points during that time. This shows the company is heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose while its operating profitability fell.

Builders FirstSource’s free cash flow clocked in at $461.9 million in Q3, equivalent to a 11.7% margin. The company’s cash profitability regressed as it was 3.2 percentage points lower than in the same quarter last year, but it’s still above its five-year average. We wouldn’t put too much weight on this quarter’s decline because investment needs can be seasonal, causing short-term swings. Long-term trends trump temporary fluctuations.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although Builders FirstSource hasn’t been the highest-quality company lately, it found a few growth initiatives in the past that worked out wonderfully. Its five-year average ROIC was 21.6%, splendid for an industrials business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Builders FirstSource’s ROIC has unfortunately decreased significantly. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Builders FirstSource reported $296.2 million of cash and $5.08 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $1.80 billion of EBITDA over the last 12 months, we view Builders FirstSource’s 2.7× net-debt-to-EBITDA ratio as safe. We also see its $120.7 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were also glad its EBITDA outperformed Wall Street’s estimates. On the other hand, its and its full-year revenue guidance was in line with Wall Street’s estimates. Overall, we think this was still a solid quarter with some key areas of upside. The stock traded up 4.1% to $120 immediately after reporting.

Updated: December 4, 2025 at 9:06 PM EST

When considering an investment in Builders FirstSource, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

Builders FirstSource isn’t a terrible business, but it isn’t one of our picks. Although its revenue growth was exceptional over the last five years, it’s expected to deteriorate over the next 12 months and its diminishing returns show management's prior bets haven't worked out. And while the company’s astounding EPS growth over the last five years shows its profits are trickling down to shareholders, the downside is its projected EPS for the next year is lacking.

Builders FirstSource’s P/E ratio based on the next 12 months is 18.5x. While this valuation is fair, the upside isn’t great compared to the potential downside. We're fairly confident there are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $134.41 on the company (compared to the current share price of $111.36).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.