84 Lumber talks with state about financial aid
84 Lumber Co. has talked with the state's Department of Community and Economic Development, as the company looks for assistance with debt financing after its sales fell by $1 billion last year, a state spokesman said Monday.
"The 84 Lumber people did have a meeting ... as they are looking to readjust their financing," said spokesman Steve Weitzman. "They were interested in seeing what DCED has to offer."
CEO Maggie Hardy Magerko and company founder Joe Hardy were unavailable to comment, and other 84 Lumber executives were out of town attending meetings, spokesman Jeff Nobers said.
Washington County-based 84 Lumber, like competitors in the home building industry, is trying to adjust to the slump in new home construction nationwide. New home construction -- which 84 Lumber depends on for 95 percent of its business -- has fallen in 18 of the last 20 months, dating back to April 2007, according to the National Association of Home Builders.
Last week, 84 Lumber said its 2008 sales had fallen about 32 percent, to $2.1 billion from $3.1 billion in 2007. The 2007 sales total was down 20.5 percent from $3.9 billion in sales recorded in both 2006 and 2005.
Since early 2007, 84 Lumber has closed at least 78 stores nationwide, and laid off 113 employee at its headquarters in Eighty Four. It has shuttered seven components plants. Total stores today stand at 319 versus 450 in 2006, while the number of components plants totals six, down from 13 in April. The employee is 4,900, down from 9,500 in 2007, according to ProSales magazine.
"It's no surprise that housing volumes are way off, and people aren't looking for housing to correct before the end of this year or into next," said Nick Beare, managing director of investment bank Stephens Inc.'s Dallas office. "All of these companies (like 84 Lumber) are having to come to grips with business off perhaps 50 percent, and their capital structure wasn't built on those kind of numbers."
In April, 84 Lumber said it had signed new credit agreements with SunTrust and Wachovia banks totalling $590 million, which it said would increase its strength as it worked through the nation's housing and credit crises.
Talking to the state about possible financial assistance isn't a new idea, particularly given the recession. In November, Gov. Ed Rendell announced a plan in which the state secured a $35 million loan to help Reading-based department store chain Boscov's Inc. as it exited bankruptcy protection.
Seven counties, all of which have Boscov's stores and employees, were asked by the state to pledge future federal Community Development Block Grant funds as collateral for the loan. Five counties have approved the plan, Snyder County rejected the deal, and Butler County commissioners have yet to vote.
In late January, it was revealed that Philadelphia Media Holdings, the company that owns both the Philadelphia Inquirer and Daily News newspapers, has been in discussions with Rendell concerning a $10 million loan or grant. Philadelphia Media Holdings has missed its debt payments since June, and is in technical default on its loans, according to Bloomberg News.
"You hear rumblings about everybody in this business," said Chris Cluss, CEO of Uniontown-based OC Cluss Lumber Co., the nation's 46th-largest lumber/building supplies company in 2007, according to ProSales magazine. "The government really has to do something for the housing industry."
Cluss said his sales in 2008 were down 9 percent, or about $10.8 million, based on 2007 sales of $120 million, according to ProSales. The family-owned, 91-year-old company operates nine locations in Pennsylvania, West Virginia and Maryland.
Cluss said the biggest problem for his business with the current state of the new home building industry, is that building materials prices have fallen as new home construction has declined.
"Lumber, plywood and (composite) board all are down about 40 percent," Cluss said. "I'm selling (wall) studs for $1.75 each -- I can't even deliver them at that price."
Beare said a majority of lumber-building supply companies are doing just what 84 Lumber has done, cutting back in terms of stores and personnel, trying to match cash flow with business volume.
"There simply is too much capacity today, and so there has to be a general downsizing," Beare said. "Either all the players will grow smaller together, or they will have it done for them, with larger companies acquiring smaller firms."
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