PrimeSource discloses weak 2Q19 results, cuts FY19 EBITDA guidance

PrimeSource Building Products delivered an 18% year-over-year decline in adjusted EBITDA during 2Q19, leading management to cut its full-year guidance, said two sources familiar with the matter. Even with the lower target, the issuer will need to book YoY EBITDA gains in the remaining two quarters of the year in order to meet the forecast.

The building materials distributor reported USD 376m of revenue for 2Q19, down from USD 383.5m in the same period last year. The company attributed the decline to general market weakness, unfavorable weather, higher operating expenses and higher logistics costs including driver shortages, the sources said.

Adjusted EBITDA for the quarter came in at USD 32.3m, down 18% from USD 39.4m in 2Q18.

On yesterday’s earnings call, management also cut its 2019 EBITDA guidance to USD 110m-USD 120m, from USD 125m-USD 130m previously. That compares to USD 96m in LTM EBITDA as of 30 June, the sources said.

Leverage is 5.4x through the USD 515m in first lien debt and 8.2x through total debt of USD 790m, given the LTM EBITDA figure of USD 96m.

If PrimeSource meets the midpoint of the full-year guidance, leverage could contract to 4.5x secured and 6.9x total. The company has instituted price increases that should begin to hit the bottom line during 3Q, one of the sources added.

Quotes on the distributor’s USD 425m Libor+ 300bps (1% floor) first lien term loan due 2022 weakened by about a point to the 95.5/96.833 context on 15 August after the earnings report. The loan has recovered slightly to the 96.125/97.375 context today, according to Markit.

The USD 275m 9% senior unsecured notes due 2023 last traded at 94.375 to yield 10.848% on 6 August, according to MarketAxess. The notes haven’t traded in size this week but are quoted in line, in the 93.75/94.75 context, said an analyst.

The company expects to stay on track for USD 350m of inventory in 2019, down from USD 381m of inventory in 2018, one of the sources said.

As of 30 June, liquidity totals USD 200m, based on USD 10m of cash and USD 190m of revolver availability.

PrimeSource’s capital structure was placed in 2015 to back Platinum Equity’s USD 840m acquisition of the company from former parent ITOCHU Corp.

PrimeSource declined to comment.

2019 Debtwire

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