Editor's Note: At the end of this story, see comments from readers.
The Construction Supply world first learned on Aug. 28, 2018, that an executive from the food service industry named David Flitman would become President and CEO of BMC. Almost exactly two years later, Builders FirstSource and BMC announced they would merge, and Flitman—who ran the smaller company—became CEO of America’s biggest full-service lumberyard. Now, fewer than two years after the merger took effect, Flitman is gone from LBM, having resigned to become CEO of US Foods. On Jan. 10, BFS named 23-year company veteran Dave Rush as Flitman's successor.
Flitman's four years in the business are a blip compared to many other LBM executives. What did he accomplish? A lot, according to Tony Misura. As founder of Misura Group, he spends a lot of time evaluating leaders. I focus more on the numbers. So Tony and I decided to have a virtual conversation on the Flitman years.
Tony: Dave was a great example of what happens when the right talent comes from outside the industry and has a huge impact. Lumberyard executives can be a pretty insular group. When you isolate and restrict your search for leaders solely inside that silo, the wrong tradeoffs end up being made. No one wants to hire the tallest midget. Flitman was a true Fortune 500-level executive. At US Foods, he’s taking over the No. 117 company on the Fortune 500 list.
Craig: Flitman’s tenure certainly produced a marked change in the bottom line. Consider these earnings percentage for BFS and BMC before and after the merger:
* — Results for the merged company
** — BMC’s results for first nine months of 2020. BMC didn’t file a 4Q or annual earnings statement for 2020.
Craig: In an industry where 3% net profit is common, jumping to 8.7% net for all last year and 12.9% through Sept. 30 of this year merits some applause. But Tony, we all know these are unusual times. The National Hardware & Paint Association (NHPA) Cost of Doing Business survey found that pre-tax profit for 38 “typical” LBM outlets was 6.9% in 2021, and for 12 “high-profit” dealers the pretax earnings were 10.6% of revenues. The 3% yardstick shouldn’t apply.
Tony: Yes, but those LBM companies that answered the NHPA survey tended to be operations with around $60 million in revenue and a heavy retail emphasis. BFS plays a different game. It serves national production builders, which have a history of demanding low margins. Flitman and BFS led margin increases across the nation. Sixty percent gross margins on truss and components became the norm. Independents complain, saying home builders hate BFS, but the independent dealers reaped profits falling in behind the BFS pricing strategy.
Craig: Speaking of trusses and components, that definitely was a big part of Flitman’s legacy. Since the merger, BFS has acquired several dozen truss manufacturing facilities. Some of those facilities were from specialists like Trussway while others were part of deals like the one for National Lumber. In Q3, BFS got 26% of its revenue from manufactured products, and when you add sales of windows, doors and millwork, BFS gets nearly half its sales from value-added products rather than commodities.
Tony: Truss and wall panels are here to stay in the progressive LBM company’s portfolio; witness how US LBM purchased 13 truss-making facilities in 2022 alone, and opened a greenfield one as well. Flitman made bold moves by buying Trussway and doubling down on manufacturing.
Craig: Getting deeper into components is a logical step. In contrast, I got quizzical reactions when BFS spent $450 million to buy WTS Paradigm. One critic asked why BFS was buying a software company when its branches still were running diverse ERP systems.
Tony: Do you know how many old white-hairs complained this was a foolish buy? BFS today turns a bid around 48 hours, with full 3D rendering, in four days. The outside sales rep never touches it, and there’s amazing accuracy: Out of 100 custom homes tested, one was missing a handrail on the deck. That's it. And can you imagine the potential impact on home design and component integration, with manufacturing collaboration? The opportunity for SKU optimization for the entire supply chain is colossal.
Craig: I remember you doing a podcast with Jim Robisch of The Farnsworth Group right after the merger was announced, in which you talked about the different personalities of BMC and BFS.
Tony: Yeah. BMC and BFS had major cultural differences. Flitman pounded through the BMC manufacturing excellence culture and superior BMC leadership/culture (less-political, more consistently performance-based) meritocracy for promotions. Prior to the merger, BFS still had some legacy fiefdoms from when BMC took over Stock and BFS absorbed ProBuild. BFS had been more M&A driven, with operations improvements through a memo approach, and there was not much investment in developing people.
Craig: Difficult as that work might have been, I have to think the cultural challenges involved in the merger were significantly less than what executives like Paul Hylbert faced back in the days when ProBuild, Stock Building Supply, and others were rolling up scores of companies. Flitman basically had to combine two cultures. Hylbert and his kin had far, far more.
Tony: Yes, timing makes a difference. Flitman was able to stand on the shoulders of Paul Hylbert and Floyd Sherman.
Craig: Speaking of timing, Flitman definitely benefited from the COVID-era housing boom, plus the rise in lumber prices. And the stock market responded. Check out BFS’ share price as of Jan. 1 in recent years. Then look at its latest price:
1/1/19 -- $10.66
1/1/20 -- $25.59
1/1/21 -- $41.25
1/1/22 -- $86.20
1/1/23 -- $64.88
That 25% decline beats the 30% decline this year in the S&P Homebuilders Select Industry Index. In 2022, the entire S&P 500 dropped 19%. For all Flitman has done, he can’t beat the tide.
Tony: I hear the old LBM guys saying Flitman never was a building industry leader, and that he’s leaving just as revenues drop and inflation rises. What a bunch of BS. He is a Fortune 500 leader. He moved big and fast, and accomplished a lot in just four years. Results matter. BMC proved you can attract top CEO talent from other industries. BFS and Dave Flitman proved sawdust in your veins is not a core tenet to be a successful CEO in the LBM industry.
What's your view? Send your thoughts to cwebb@webb-analytics.com.
+++
Reader Comments
A reader who prefers to remain anonymous wrote:
I’m a gray-headed guy Tony refers to often when talking about our building supply industry. I will not argue Flitman's tenure at BMC/BFS wasn’t successful. I do think there are other variables that factored into that success, the combination of which helped make his tenure the success it was.
There is no argument he got out at the right time before any industry contributors could really see how good a leader he could have been if he would have stayed longer. Four years does not make a career.
[Flitman] came into our industry when it was on an economic upswing not seen in years. I know Craig said that in the article, but in my view it was not talked about enough. Flitman did have the advantage to work with a growing economy not seen in years.
BMC, Stock, ProBuild and BFS all have had and continue to have some very talented people. Since I’m a former Stock employee, I’ll reference leaders like Gary Robinette, L.T. Gibson, and Van Isley, along with many more still in the industry. These individuals have done well in their careers managing through some tough economic times. Today, BFS has a lot of darn good managers in the upper and lower ranks that, in my view, are very talented at managing in our industry. These individuals were mostly hired by former leaders like Paul Hylbert, Fenton Hord, and Floyd Sherman. Those leaders and others formed a strong base of talent for what is now BFS.
You have to face the fact that not one man runs a company of BFS’s size. It takes a lot of leadership up and down the ranks, along with a strong culture. That, in my view, does not happen in four years. Flitman did do a smart thing that many in his role do not do by letting those talented people give him advice--and, more importantly, letting them do their job.
While I understand we all have to bring new talent into the industry, the advisors that consult in this industry do not give enough credit to those who have worked in the industry for years and have good management skills. Mentoring this young generation with these old-timers is something I feel is not stressed enough. These talented individuals give an industry outsider like Flitman a big advantage in managing a company the size of BFS.
All of the above is what gave [Flitman] a roadmap to succeed in his short tenure. It’s like a quarterback in football: He gets all the fame while his team is winning and all the blame when it's losing. Four years only gave Mr Flitman four games to play. I’d say he won them all, but for us still in the industry, the game is still being played and the score is still being kept. Four games does not make a season. Good luck to Mr. Flitman in his new career change.
Comments