Greetings. Welcome to the BlueLinx Holdings Q4 and Full Year 2021 Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad, and please note that this conference is being recorded. I will now turn the conference over to Ryan Taylor, Vice President of Investor Relations. Thank you. You may begin.
Thank you. Good morning, everyone, and welcome to the BlueLinx Holdings Q4 and Full Year 2021 Conference Call. With me on the call today are President and CEO, Dwight Gibson, and Chief Financial Officer, Kelly Janzen. Our Q4 and full year 2021 news release and Form 10-K were issued last night, along with our webcast presentation. These items are available in the investor section of our website, bluelinxco.com. We encourage you to follow along with the detailed information on the slides during our webcast. As a reminder, today's discussion contains forward-looking statements.
Actual results may differ significantly from those forward-looking statements due to various risk factors and uncertainties, including the risks described in our most recent SEC filings. Today's presentation includes certain non-GAAP and adjusted financial measures that we believe provide helpful context for investors evaluating our business. Reconciliations to the closest GAAP financial measure can be found in the appendix of our presentation. At the conclusion of our prepared remarks, we will open the line for questions. With that, I'll turn the call over to Dwight.
Thanks, Ryan, and good morning, everyone. Thank you for joining our call today. 2021 was a remarkable year for BlueLinx and extraordinary in many respects. We finished the year on a high note, reporting double-digit net sales growth and record gross margin for the Q4, reflecting strong operating execution and positive market tailwinds. Before diving into the details, I wanna first thank our teammates for their dedication, resiliency, and adaptability. Teammates like Benny Ross, a material handler in Lawrenceville, Georgia, who celebrated his 40-year anniversary with BlueLinx last year. Teammates like Lisa Rodriguez, our operations manager in Miami, who has done a tremendous job building a highly engaged and productive team at her branch. In a year filled with uncertainty and change, I'm incredibly proud of the entire organization's effort and execution. We significantly improved our operating performance while capitalizing on dynamic market conditions.
As a result, we achieved record full-year profitability in 2021. Achieving all-time highs in gross profit, Adjusted EBITDA, and EPS underscores the benefits of fostering a performance-based culture and focusing on a few critical strategic initiatives. Specifically, we implemented actions to emphasize growth in higher-value Specialty products, leveraged centralized purchasing and pricing teams, and importantly, drove a disciplined approach to inventory management for Structural products. These actions underpinned our incredible 2021 financial performance. For the full year, net sales grew 38% to $4.3 billion. Gross margin expanded 280 basis points to 18.2%. Adjusted EBITDA increased 172% to $464 million, which is nearly 11% of net sales.
We generated $131 million of free cash flow, reduced net debt by 19% or $115 million, and recapitalized our debt structure. We ended the year in a strong, flexible financial position with net leverage at 1.1x and available liquidity over $430 million. With a balance sheet fortified, we are increasing investment in our people, in our fleet, and in our distribution branches to support our best customers and drive profitable growth. Beyond that, we have ample liquidity to create additional value through disciplined strategic capital allocation. We continue to build out a world-class leadership team to drive transformational growth by leveraging our scale and increasing stickiness with our best customers through the quality of our delivery, the relevance of our Specialty product portfolio, and our value-added service capabilities.
I believe a consistent, delightful customer experience reaches its highest potential through interaction with talented and engaged employees. Developing this culture remains at the core of everything we do at BlueLinx. We began 2022 with positive momentum in our business and favorable tailwinds in the U.S. housing market. In January, net sales were up more than 20% year-over-year, and gross margins exceeded 20%. We are poised for another strong year and enthusiastic about our long-term future. Taking a closer look at Q4. Net sales grew 12% year-over-year to $973 million.
This growth was led by Specialty product net sales, which were up 29% year-over-year and comprised 66% of total net sales in the period. We achieved record gross margin of nearly 20% and delivered $112 million of Adjusted EBITDA, which is 11.5% of net sales. Overall, we delivered results that exceeded expectations for the quarter and further demonstrated our ability to capitalize on strong demand amid ongoing supply constraints and continued volatility in wood-based commodity prices. Moving on now to the U.S. housing industry. End market trends remain favorable and demand for building products continues to be robust. Single-family starts were up 13% in 2021 and are expected to grow further in 2022 based on multiple industry projections.
Repair and remodel activity remains elevated as rising home equity levels and aging U.S. housing stock and flexibility to work from home have combined to drive homeowner investment. Although mortgage rates have risen recently, they remain historically low. Even with the anticipated rate increases by the Fed, we believe the mortgage market will continue to provide financing at historically attractive levels. As demand remains strong, the housing industry continues to experience ongoing supply constraints with no signs of abatement in the near term. As such, volume has remained stable and the majority of our supply of Specialty products remains on allocation from vendors. Even so, we are focused on expanding relationships with key suppliers who align with our strategy as we look to increase net sales in Specialty product categories, expand our value-added capabilities, and extend our national presence.
Through this strategic focus, we secured approximately $200 million of incremental Specialty product supply in 2022 from about a dozen select vendors. This includes product categories such as Cedar, EWP, and Decking. In Structural products, our focus remains on efficiently serving our best customers while effectively mitigating risk from ongoing commodity price volatility. To this end, we will continue to aggressively manage our Structural product inventory. This approach has served us well, as illustrated by our gross margin performance in the second half of 2021. Over that six-month period, lumber prices per 1,000 board foot ranged from $1,000-$1,390. Even with this volatility, our Structural products gross margin was 9% over the second half of 2021, consistent with our average historical gross margin for Structural products.
In addition to supply constraints and fluctuations in commodity pricing, we have effectively managed rising input costs, competitive labor market, and extended lead times on imports, which represents approximately 20% of our overall vendor supply. To summarize our view of the market, near-term demand for building products remains positive with a healthy economy, rising wages, and ongoing desire for home ownership and renovation. We expect to continue capitalizing on this robust demand while vigilantly monitoring and controlling commodity risk. In parallel, we are executing our long-term strategic initiatives. These initiatives are focused on commercial excellence and continuous operating improvement, which are core levers for profitable growth. In support of these initiatives, we continue to develop a performance focused on people, process, and performance.
From a sales perspective, we have narrowed our strategic focus on increasing our mix of Specialty product sales, growing our private label business, and expanding our value-added service capabilities. On the supplier side, we are working with select vendors to partner on key Specialty products in categories such as engineered wood, cedar, molding, outdoor living, siding, and industrial products. Our ultimate goal is to drive profitable sales growth and expand gross margins through the combination of an engaged and accountable workforce, commercial excellence, and continuous operating improvement. I believe we are in an opportunity-rich environment to deliver on this goal. We continue to strengthen our world-class leadership team with proven executives from diverse backgrounds. On this front, I want to highlight a few recent additions. On January 31st, Seth Freeman joined as VP of Marketing and Communications. Seth has over 25 years of experience leading integrated brand and marketing strategies.
He joins us from American Family Insurance, where he served as AVP of Brand and Marketing Experience. His integrated analytical approach to our marketing and communications efforts will focus on elevating the BlueLinx brand and driving employee and customer engagement through multiple channels. On February 14th, we added Sean Dwyer as Chief Strategy and Corporate Development Officer. He joins us from WestRock, where he built and led the corporate development function. Sean has a proven track record, and his addition gives us dedicated internal resources to accelerate growth. Just last week, we announced that Kevin Henry is joining our team on March 1st as Chief People Officer. Kevin brings over 30 years of strategic and operational human resource leadership experience to our team. Previously, he served as Executive Vice President, Chief of Staff, and Chief People Officer for Extended Stay America.
Earlier in his career, he served in CHRO roles at Snyder's-Lance, Coca-Cola Bottling, and Nationwide Credit. Kevin is also a current board member for Saia, Inc., a publicly traded logistics and distribution company. He is a highly accomplished business leader who will bring a strategic focus to our human capital efforts and spearhead the acceleration of establishing our performance-based culture. We are excited with the additions of Seth, Sean, and Kevin, and they will play critical roles in driving our enterprise strategy. In addition to investing in our people, we are also increasing our capital investment in the business. Last year, our capital investments grew to $14 million, about three to four times our historical levels.
In 2022, we continue to focus on enhancing the safety and sustainability of our assets, and as such, we have earmarked at least $25 million of capital to further upgrade our fleet and continue to improve our distribution branches. We also plan to upgrade a large portion of our traditional gas-fueled forklifts with state-of-the-art, higher-efficiency forklifts, many of which will be electric. Additionally, we are investing in technology upgrades to support branch optimization, process enhancements, and scalability.
From an M&A perspective, we are building a pipeline of opportunities that either expand our Specialty product sales mix, increase our relevance to key customers or suppliers, or extend our geographic reach. With respect to acquisitions, we intend to be thorough and disciplined as we evaluate strategic fit, integration effort, and return on investment. That concludes my opening remarks. At this time, I'll turn the call over to Kelly for a more detailed discussion of our financial results and capital structure. Following that, I'll provide closing remarks before we take your questions. Kelly?
Thanks, Dwight, and good morning, everyone. I'll begin with the Q4. Our Q4 results reflect continued positive momentum in our business and strong underlying demand fundamentals in the markets we serve. Q4 net sales were $973 million, up 12% year-over-year. This growth was driven by Specialty product net sales, which increased 29%. This was partially offset by a 10% decline in Structural product net sales. Total gross profit was $194 million, resulting in a 19.9% gross margin and all-time high on a quarterly basis. Net income was $74 million, and diluted EPS was $7.30 per share. The Q4 tax rate was 25.2%, in line with our expectations.
Adjusted EBITDA was $112 million or 11.5% of net sales. These excellent results reflect the benefits from our operational improvements and demonstrate our ongoing ability to capitalize on favorable market conditions. For the full year, net sales were $4.3 billion, up 38% compared with the prior year. Gross profit was $778 million, an increase of $301 million or 63%, and gross margin expanded 280 basis points to 18.2%. Our net sales growth and improved profitability for the year were largely attributable to robust demand for building products amid ongoing supply constraints, strategic pricing actions, and our strong execution in selling a higher margin mix of Specialty building products, along with continued disciplined Structural inventory management.
Notably, our Specialty product net sales grew 35% year-over-year, with incremental gross profit of 37%. Our Structural product net sales grew 43% when compared to the prior year. The incremental gross profit on this growth was 11%. Net income for the full year was $296 million, and diluted EPS was $29.99 per share. The effective tax rate for the year was 24.8%. Given the significant gross profit, Adjusted EBITDA for the 12 months was $464 million, up 172% year-over-year or 10.8% of net sales. 2021 was no doubt the best annual financial performance we've ever achieved.
Despite unprecedented market conditions, we believe that many of the fundamental improvements we made last year will also support us in the future. Now I'll discuss the product categories for the Q4, beginning with Specialty products. Net sales were $641 million, up 29% or $143 million when compared to the prior period. Gross profit increased $54 million- $140 million, and gross margin expanded 450 basis points year-over-year to 22%. The net sales growth and improved profitability were again driven by strong execution of strategic pricing actions consistently across our branches, reflecting our ability to continue to capitalize on favorable market dynamics. This growth was modestly offset by lower overall net sales volume, which we attribute to ongoing supply chain disruptions.
Despite this, the net sales volume in strategic categories such as millwork and siding increased year-over-year. Through the first half of Q1 of 2022, Specialty products gross margin was in the range of 22%-23%. With current market conditions where demand is continuing to outpace supply in several Specialty product categories, we expect these margins to stay relatively consistent throughout the Q1. now moving on to Structural products. Net sales for the Q4 were $331 million, down 10% or $35 million as compared to the prior year period. Gross profit was $53 million or 16% of net sales. This compares with gross profit of $38 million or 10% of net sales in the Q4 of 2020.
During Q4, wood-based commodity prices recovered from Q3 lows up to averages of $702 per 1,000 board foot for framing lumber and $715 per 1,000 sq ft for Structural panels per Random Lengths. Consistent with the approach that we've taken since the onset of the pandemic, during the quarter, we continued to leverage centralized purchasing and pricing decisions to ensure we maintain disciplined inventory management and position ourselves to effectively mitigate the risk related to commodity price volatility. These actions allow us to continue to optimize Structural products financial performance, while also enabling us to have sufficient supply for our customers.
In the Q1 thus far, average commodity prices have climbed to $1,207 for lumber and $1,147 for panels, roughly a 72% and 60% increase from the end of Q4. Given these increases, we've experienced greater than 20% gross margin for Structural products in the Q1 to date. Touching briefly on SG&A. For the Q4, SG&A was $83 million, down $6 million year- over- year. For the full year, SG&A was $322 million, up $8 million from 2020. For both Q4 and the full year, the changes in SG&A were due primarily to fluctuations in variable incentive compensation related to net sales and profitability. In Q4, we generated operating cash flow of $18 million and free cash flow of $9 million.
Capital investments increased to $9 million in the quarter, as we anticipated. Of this investment, $6 million related to 100 new curtain side trailers, which are safer than flatbeds for our drivers and provide enhanced protection for the products we deliver. $3 million was invested at several of our distribution branches as we continue to upgrade and maintain our infrastructure to support safety, sustainability, and productivity. For the full year, we generated $145 million of operating cash flow and $131 million of free cash flow at an attractive yield to our market cap. Capital investments for the full year totaled $14 million, and net working capital investment was $178 million.
This working capital investment included $146 million of inventory with approximately $115 million attributable to inflation. At year-end, 80% of our inventory balance related to Specialty products, consistent with our sales strategy. This composition of our inventory demonstrates continued progress on our goal to shift our sales mix towards Specialty products. Days sales of inventory increased by 11 days in the Q4 versus the prior year period, and six days as compared to the Q3 of 2021 as our inventory continues to be more concentrated in Specialty products, which turns at a lower velocity than our Structural inventory. Moving on to our balance sheet.
As Dwight mentioned, we recapitalized our debt in 2021, which included retiring our 8% term loan in the Q2, amending our credit facility in the Q3, which reduced our interest rate and extended out the maturity date from 2022 to 2026, and issuing $300 million of senior secured notes at 6% that mature in 2029. These actions significantly improved our debt structure and strengthened our financial position to support future growth. At the end of fiscal year 2021, cash on hand was $85 million, total debt was $575 million, and net debt was $490 million. Net leverage was just over 1x, down from 3.5x at the end of 2020.
Available liquidity at year-end was $432 million when considering our cash on hand and undrawn revolver capacity of $346 million. Given the strong start to 2022 and favorable market tailwinds, we anticipate generating positive free cash flow again this year. Overall, I'm proud of the work our team has done to recapitalize our balance sheet and significantly improve our financial position over the last year. Our new capital structure is balanced and flexible, and we believe we have ample liquidity to support investment in our operations and strategic growth. As we evaluate investments, we will be thorough and disciplined with value creation centered on the highest return on investment opportunities aligned to our business strategy. Looking now at Q1.
Through the first seven weeks of 2022, market conditions in the U.S. housing industry remained generally favorable, with robust demand for Specialty building products and commodity prices well above Q4 averages. These dynamics, in combination with our disciplined approach to inventory management and strategic pricing actions, have had a positive impact on Q1 gross margin. As I mentioned earlier, quarter to date, our gross margin for both Specialty and Structural products exceeded 20%, with Specialty products gross margin modestly above second half of 2021 levels. We expect our Q1 tax rate to be in the range of 24%-28%. In terms of capital expenditures, we expect to significantly increase our investments in 2022, when compared to historical levels. We anticipate that our cash spending will exceed $25 million this year, $2 million of which is planned in the Q1.
As we continue to upgrade our fleet, improve, and in some cases expand our facilities, we'll also invest in more technology. This marks an exciting inflection point in our company's history as we have ample liquidity to invest in our business to optimize operational performance and accelerate organic growth. In summary, 2021 was a milestone year for our team as we set record profitability for key metrics including gross profit and margin, net income and EPS, and Adjusted EBITDA and EBITDA margin. We recapitalized our balance sheet and strengthened our financial position. I'm proud of what we accomplished and excited for our future. At this time, I'll turn the call back over to Dwight for closing remarks.
Thanks, Kelly. In closing, it's an exciting time for BlueLinx. We are an essential part of a complex supply chain and a value-added partner to our customers in an industry that has positive fundamentals. In 2021, we significantly improved our operating performance and demonstrated the ability to capitalize on a dynamic market environment. We are creating a performance-based culture, emphasizing growth in our Specialty products and driving continuous improvement throughout the business. Our financial position is strong, and we are investing for profitable growth. As we look to the future, I believe we are in an opportunity-rich environment to create long-term value for all stakeholders, and we are steadfastly committed to that goal. That concludes our prepared remarks. At this time, we're happy to answer any questions.
Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from the line of Greg Palm with Craig-Hallum Capital Group. You may proceed with your question.
Great. Thanks. Good morning, everybody, and congrats on the continued progress here.
Thank you. Good morning.
I guess starting off with some commentary by segment and, you know, maybe starting with Specialty, you know. If my math is right, I mean, nice growth in Q4, but pretty significant growth on a year-over-year basis. I'm just trying to figure out how much of that was driven by volume versus price. You know, more importantly, just based on supply chain, my guess is there was still quite a bit that was probably left on the table. Just trying to dig into that a little bit more.
Sure. I'll go ahead and start with that. We discussed in the materials, you'll see as we spend more time on that today, that most of that is price. We really had a little bit of a reduction in volume year-over-year, and that's exactly what it is attributable to is the supply chain disruption that we continue to experience. Specifically, we see a little softness in more of our EWP business as well as Industrials, although we had some nice upside, low single digits in the millwork and siding areas of our Specialty business. As a whole, we felt good considering the situation around our volumes, and then very excited about our pricing.
That kind of segues into my next, you know, just in terms of sustainability of pricing, you know, how much do you think that this might be a little bit temporary just based on where supply chains are, versus something that's maybe more structural and something that's gonna hold over time?
Yeah. This is Dwight. You know, that is a critical point, something that we're spending a lot of time on. You know, I think that we have demonstrated the ability to really secure pricing, particularly in the Specialty side of the business, and that's a function not only of the supply constrained environment, but also some of the work we've done as a business to really understand what our customers' needs are and make sure we're providing a service that allows them to be successful, whether it be around responsiveness, additional things we do to the product to get it to them the way they want it, when they want it, how they want it. We do believe there will be some stickiness around pricing, particularly on the Specialty side, as Kelly's alluded to over the past few calls, and holding at a higher level than you've seen historically.
Next question comes from-[crosstalk]
We'll continue to maintain, you know, that we've said this the last couple of quarters, that we believe that our Specialty margins should stay in that kind of 19%-20% range as a normalized rate, and we don't have a different view of that right now.
Yeah. Okay. Perfect. Just on Structural, you know, my guess is, you know, the average price was significantly higher in the December quarter versus Q3. I'm assuming that most of that, you know, sort of delta between a lot higher price and flat revenue is on purpose. It's just sort of purposefully, you know, holding back, you know, volume and inventory. Can you confirm that? That sounds like it's just a continued focus here, you know, not only in the near term, but basically going forward as well, right?
Yeah. Yeah, I can absolutely confirm that. You know, we are focused on being really disciplined as to how we treat and manage our Structural product inventory. You know, we wanna make sure we have sufficient product to meet our core customers' needs, but we're not looking to chase the market up, and we wanna make sure we can kinda manage it and turn it quickly, and that will be the play we continue to run in the business.
Kelly, are you willing to give us what the margin for Structural was in January alone? You said quarter to date running over 20%, but what was it specifically in January? Can you tell us that?
We've had a consistent margin rate, you know, kind of week over week throughout the Q1. I don't plan to give a specific for January, but it was not materially different than the quarter to date number.
Okay, great. All right, I'll hop in the queue. Thanks, and good luck going forward.
Thank you.
Our next question comes from the line of Kurt Yinger with D.A. Davidson. You may proceed with your question.
Great. Thanks, and good morning, everyone. Just wanted to go back to the Specialty pricing. You know, if you look at the 2021 performance, hoping you could maybe just talk a bit about how much of that was kind of supplier-driven price increases versus, you know, your own internal pricing strategies.
Sure. You know, of course, we continue as well as everyone in the industry to see supplier-driven price increases since actually towards the end of 2020. We started seeing that in the Q4 of 2020 and throughout 2021. While that is part of what's behind it, I think what our team has done an excellent job of taking those, pushing those through all the way to the end customer process and really capitalizing on that, and really showing the premium we can get on these products that are, you know, in very high demand and very specialized. I think it's a both answer in that we feel there's a good bit that's sustainable as it relates to our pricing strategy. Of course, the underlying impetus is that there's been supplier hikes as well.
Yeah. The other thing I'd add to that, in addition to that, the team has really been intentional around just improving our pricing approach and rigor. So really looking at our portfolio, you know, our A items or B items or C items or D items and making sure they're priced appropriately, you know, minimizing leakage, driving better, you know, discipline and a stronger governance around how we do pricing and looking at that from more of a centralized perspective than a more decentralized perspective. So just the quality and the completeness of our pricing has improved in addition to, you know, the points that Kelly has mentioned. We'll continue to drive that across the business going forward.
Got it. Okay. That's helpful. Then, you know, I thought the call-out of the Specialty inventory investment in Q4 was kind of interesting. Dwight, I think you touched on a $200 million number kind of along those same lines. So maybe you could just, I guess, clarify what that $200 million number was. Talk a little bit more about the inventory investment as well as how you think about, you know, the ability to start growing segment volumes against what don't look like particularly challenging comps from 2021.
Yeah. No, it's a great point. Hey, as we mentioned, driving our mix is an important part of our approach going forward and really strategic for us. We wanna shift our mix in terms of the percentage of volume that we sell to be more Specialty business. That's an intentional thing as we think about inventory we bring in and how we wanna get that out to our customers. Obviously we're operating in an allocated environment, so getting more product is an important part of making that happen.
You know, the team has been really intentional on reaching out to some of our core vendors and some of our core categories. If you think about EWP, if you think about Outdoor Living, Cedar, trying to secure more supply, and that's what that $200 million represents. It's split between kind of our Private Label brands, a good portion of EWP, some Decking, some Cedar, and we're trying to bring more product in that kind of supports this mix effort across the business.
Gotcha. Okay. That's helpful. You know, you touched on some of the different Specialty categories that you're kind of focusing on. Wondering if you could just highlight, you know, one or two where you see the most runway or feel like you're kind of most under-penetrated. As you think about going after that opportunity, is it a downstream kind of sales and marketing push expanding, you know, brands or product to new locations? Maybe you could just walk through that.
Yeah. Hey, I really like our Outdoor L iving segment. It's an area where it's really consistent with where all the energy you see in the market right now around, particularly on the repair and renovation side, people thinking about their homes differently. It's a place not just to live, but a place to work and to play and invest in those in a meaningful way. Outdoor Living, Decking and other things in particular is a really hot area that I think we could add a lot of value to. I think we have the opportunity to offer that portfolio of products across more of our network. We don't have that across majority of our network now, so that creates market opportunity.
We've built some really good relationships with a couple of vendors and brands, MoistureShield being a good example that we're really seeing pretty significant growth in 2021, and we're looking to drive even more growth in 2022. A part of that incremental volume is supportive of that as well. I think that's a category that the runway is long, the demand environment is really robust and we have a lot to offer.
Got it. Okay, that's helpful. Just last one for me on Specialty margins. I mean, it sounds like, you know, kind of bouncing back up sequentially thus far in Q1. As you think about kind of coming off the peak in Q2 and coming down to about 22% in Q4, maybe you could just touch on what the big driver was there. Was it mix or, you know, some other factor and, you know, how we should think about that going forward?
Sure. Yes, the volatility we see in that fairly tight range is around mix. It really is driven by, you know, two quarters ago, we had some really nice strength in EWP. Allocations have taken more of an impact in the last quarter or so. We also see some treated lumber and panels in our Specialty business that have a little bit of fluctuation. Certainly there's a mix element as it relates to Specialty, which is why we give that kind of floor on the margin from a normalization perspective.
Got it. Okay. Well, appreciate all the color, and good luck here in the remainder of Q1.
Thank you.
Thank you.
Appreciate it.
Our next question comes from the line of Reuben Garner with The Benchmark Company. You may proceed with your question.
Thanks. Good morning, everybody. So the back half of the year, if I'm doing my math right, the Specialty business accounted for about two-thirds of revenue and something like 83% or so of gross profits. That's despite kind of an elevated price environment for the commodities. Is there any way you could tell us kind of roughly what price you realized in your Structural business over the back half of the year so that as we're trying to figure out a normalized earnings run rate for your business, we could just kind of make an adjustment there?
Because it seems to be, you know, the gross margin is kind of in line with your historical average. The Specialty business is much more stable. That's kind of the only component we'd need to adjust to kind of see what maybe you would have earned if lumber was at $500 instead of $800.
Yeah. Well, the way our pricing works for Structural is really taking that random lengths price and then putting on top of it our margin and some freight costs, kind of a freight adder. So that's really how we ultimately price. While we don't disclose the actual prices, it's, you know, that's really the way that you can get to that number.
Okay. Maybe a different way to ask a question that was asked earlier. I think Greg asked about the sequential move in Structural business. It was down 9% year-over-year. Can you disclose how much I assume price was likely up year-over-year. Can you tell us how much volume maybe you walked away from or were unable to serve because of the supply chain issues?
On the Structural side?
On the Structural side, yeah.
To clarify. Yeah. For one, I just want to make sure we're clear that I don't think we walked away from business because of supply chain issues on the Structural business. I think that lower volume really is coming as a result of us really maintaining that lean lower inventory to mitigate the risk related to the volatility and to really. We've been pushing on margin over volume as it relates to our Structural business. I would say it's in the 10%-ish range is where we are on a kind of a year-over-year as it relates to that impact as we continue to really focus more on the Specialty side and continue to hone in on that inventory approach.
Okay, perfect. To be clear, that's what I meant to say.
No worries. Mm-hmm.
One question for me on the Specialty margin profile. A lot of talk about gross margin, and I know you guys don't disclose EBIT or EBITDA, but directionally, can you help us with maybe how to think about Specialty versus Structural in terms of profitability further down the line? Are there higher costs to serve in one or the other? You know, swings in commodity prices obviously can impact operating expenses with the Structural business. Anything you could tell us about maybe what the margin profile looks like maybe at an EBIT or EBITDA level between the two businesses?
Sure. Well, the Q4 gross profit, Specialty was a little over 70% of our gross profit. Our cost to serve are really. There might be some small nuances, but at the end of the day, our distribution branches serve both Structural and Specialty together. We often even have those products on the same truck. We don't have a distinction really in the cost to serve as it relates to one versus the other, which is important. I think you can kind of think about it that way as you really kind of see how it trickles down into the EBITDA number.
Okay. Then I guess as a quick clarification or a final question on that note, how do rising prices impact your cost to serve? In other words, Specialty price is up Call it 30%+ year-over-year. If that number were volume increasing 30%, would that have a different impact on your SG&A expenses?
It would not directly have an immediate impact on that. We, you know, our SG&A is relatively stable and mostly fixed. We do have variability related to labor, you know, pricing, labor cost and some fuel costs in there. It's not directly correlated to the pricing of our product.
Okay, great. Congrats guys on the strong results and good luck moving into the rest of 2022.
Appreciate it. Thank you.
Thank you.
Our next question comes from Jeff Stevenson with Loop Capital. You may proceed with your question.
Hi. Thanks for taking my questions today, and congrats on the great quarter.
Thanks.
Hey, thank you. Appreciate it.
Sure. My first question is just on Specialty volume growth in the first half of the year, given that supply constraints remained elevated. Do you expect it to be kind of a similar level of declines as the Q4? Will maybe it be a little higher due to tougher first half comps?
Yeah. I think, you know, I think we'll see continued challenges on the supply side. You know, I was having some conversations over the past couple weeks, some of our large vendors. Also, I had the opportunity to meet with some of them at the Builders' Show not too long ago. Here's the reality, I mean, they got hit pretty hard in late December, early January from a labor perspective with the Omicron variant. In many instances, they had, you know, absenteeism in the 20% range.
You couple that with some of the struggles we've seen on the transportation side, be it the weather-driven or trucker-driven Freedom Convoy in Canada and some other challenges, it's really put a damper on their ability to get product out to the extent they wanted to. I think we're gonna feel some of that through the Q1 for sure, and hopefully see that easing a bit as we move into the Q2. I think on an overall basis, I'm expecting the supply environment not to be significantly different than it was second half of 2021. Hopefully, we'll see some improvement as we move into the second half of 2022.
Got it. No, that makes sense. Just to ask a different way on Specialty products margins. Obviously, in the Q1, they're gonna remain elevated due to continued supply constraints. You'll get some tailwinds from wood commodity prices since you have 10%-15% exposure there. As you look at kind of more normalized 19%-20% levels, and I know this is probably hard to answer right now, but do you think that normalization will occur maybe more in the Q2 or will be more of a later back half story?
Yeah. I mean, I really don't think we can tell. Not because we know. I think we don't know. You know, I think the outlooks that we see and what we've read and seen in the research recently says that we expect supply chain disruption to continue for a decent amount of time, maybe, you know, definitely through the first half, maybe into the second half. That's just what we read, but we don't officially know. I think as long as we have that situation, we're gonna see similar to what Dwight said, a consistent output coming out of Specialty.
Got it. No, that makes sense. Lastly, between the added flexibility from October's debt offering and recent appointment of a chief strategy officer, it seems like BlueLinx is looking to return to M&A sooner than later. Dwight, I was just wondering if you can talk about kind of where things stand there and when we maybe could expect a deal to come at some point here in 2022.
Yeah. I mean, absolutely. If you look at our business and we look at the levers we pull to create value, I think our scale is one of them. I think we've opportunity to fill out our footprint in certain markets where we like the end market profile, and we think we could offer really good value there based upon our expertise and our capability. That's something that we're looking at as we think about inorganic opportunities, in addition to anything that accelerates our mix movement to a stronger Specialty focus and/or allows us to service our really core customers or key customers in a more holistic way.
That's kind of the thesis as we think about M&A. It's an interesting market out there. There's activity, but we wanna make sure that it's something that we are excited about, that kind of fits and checks some of those boxes that I just mentioned, and that we feel that, you know, we could integrate well and, you know, really turn one plus one into three. We're active, we're looking, we're in conversations, and, you know, we're optimistic that we'll be able to to kind of move the ball down the field over the course of 2022.
Great to hear. Best of luck moving forward.
Thank you very much.
Our final question comes from the line of Kurt Yinger with D.A. Davidson. You may proceed with your question.
Great. Thanks, and appreciate you taking the follow-ups. Just wanted to go back to the comments on operating expenses. You know, if the costs are spread there between segments, and you know, both sets of products on a truck, why not maybe lean into more commodity volume at some stage? I'm not saying go out and load up on lumber at $1,200, but you know, if we saw prices come back down with the improved balance sheet and liquidity position, you know, how do you think about maybe more aggressively going after that business and leveraging that largely fixed SG&A.
Yeah. Listen, you know, I wanna be clear. The Structural business is something that we appreciate and allows us to really be a full service partner for our customers. We're gonna look to continue to make sure that we are able to service them well, and we have availability that's appropriate. That being said, you know, if you look at our results, if you look at what generates margin for us, if you look at what generates cash for us, it's a Specialty business. We wanna make sure that we're investing in that appropriately, and we're able to kind of meet the needs and get growth there in a consistent basis. You know, we like our operational capabilities and our cost to serve.
We think there's opportunity to kind of leverage that effectively across both parts of the business, and we'll continue to do so. We're gonna do it in a thoughtful way. We're gonna do it in a way that kind of creates the most value for the organization and allows us to deliver the best experience for our customers. We're not gonna chase Structural volume. We're gonna make sure we have sufficient, and we can perform at a high level. You know, we're gonna really look to to kind of be balanced and really drive our mix to Specialty in a consistent path.
Got it. Okay. That's helpful. You guys talked about M&A a little bit, but maybe you could just touch on how you're thinking about potential kind of greenfield organic expansions and the puts and takes there. You know, what type of kind of level you think is appropriate in terms of cash to hold on the balance sheet?
Yeah. Hey, we are ramping up our investments in organic activity. You know, we talked about increasing our CapEx investments. We're excited about that. You know, we absolutely believe, you know, that the best investments you can make is in organic investments and driving your business forward. Whether that be new equipment, whether that be increasing capacity in our branches, whether that be technology to drive efficiencies, we're focused on that.
We have a healthy pipeline in place of CapEx activities and projects that we're gonna be executing in 2022 and beyond, inclusive of, you know, consolidating branch locations or expanding branches and adding more capacity where we have the space. We're excited about that, and we're gonna lean into that. We think that will create the opportunity to drive growth and service our customers better. You know, we're always gonna be thoughtful about other opportunities, inorganic in particular, that can accelerate progress on our strategy. We're excited about the opportunity to really lean into our business and make it better.
Okay. All right. Well, I appreciate the color and good luck again.
Thanks again. Appreciate it.
Thanks, Kurt. This is Ryan. I wanna thank all of our Analysts for thoughtful questions and for joining us today on the call. I appreciate all those that also joined us on the webcast. At this time, we're gonna conclude our Q4 and 2021 full year earnings call. We appreciate the support. Alexandra and I will be available through the rest of the day and through the remainder of the week to answer any follow-up questions you may have. Thank you so much for joining us. We'll talk to you next time.