Greetings and welcome to BlueLinx Holdings' Fourth Quarter of Full Year 2022 Results Conference Call. At this time, all participants are in a listen-only mode. A brief 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Alexandra, Manager of Investor Relations. Please go ahead.
Thank you, operator. Good morning, everyone, and welcome to the BlueLinx Holdings fourth quarter and full year 2022 earnings call. Presenting today are Dwight Gibson, President and CEO of BlueLinx, and Kelly Janzen, our Chief Financial Officer. Our fourth quarter and full year news release and Form 10-K were issued yesterday after the close of the market, 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. Today's discussion contains forward-looking statements. Actual results may differ significantly from those forward-looking statements due to various risks 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, Alexandra. Good morning, everyone. Thank you for joining us on the call today. Over the past year, our team has built BlueLinx into a stronger, more profitable, and more resilient business. We have transformed our balance sheet with leverage under one times and total liquidity of $645 million. Despite the softer market environment, we are positioned to continue to execute our strategy, which includes growing our higher value specialty product sales, driving operational excellence across our business, fortifying our balance sheet while investing in profitable growth, and building a strong team that is committed to driving a high-performance culture and generating long-term value.
In 2022, favorable market conditions combined with these strategic priorities contributed to us achieving one of the best annual financial performances in our history in terms of net sales, earnings per share, Adjusted EBITDA and operating cash flow, even as market conditions began to decline late into the year. For the fiscal year 2022, we delivered $4.5 billion in sales and $296 million in net income. This translated into Adjusted EBITDA of $478 million, a new record, and more than $32 in diluted earnings per share on an adjusted basis.
We also generated a record $400 million in operating cash flows, of which approximately $170 million was allocated during the year to acquire Vandermeer Forest Products for $67 million, make capital investments that improve the effectiveness of our distribution facilities and fleet, and acquire 9% of our outstanding shares under our share repurchase programs. For the fourth quarter of 2022, we generated net sales of $848 million and $32 million of net income. This resulted in $3.97 per diluted share on an adjusted basis and $63 million of Adjusted EBITDA. We also generated $154 million of operating cash flow, a significant increase of $136 million over Q4 of last year.
Our fourth quarter results were solid despite lower sales volumes resulting from a meaningful decrease in overall market demand, given the macroeconomic environment. Even with the softer demand, we were able to deliver strong margin performance in both specialty and structural products by staying disciplined with our pricing approach. We also continued to emphasize efficiency across our distribution facilities and managed our overall operating costs. We focused on our working capital management, which included a disciplined approach to our overall inventory on hand. These actions allowed us to deliver strong profitability and robust operating cash flows for the quarter. In January, earnings were in line with our expectations. We experienced softness on the top line, and we continue to focus on margin maximization. Now I'll share a perspective on our market.
Our end markets of repair/remodel, residential new home construction, and to a lesser extent, commercial markets, all experienced significant growth over the past few years as demand vastly exceeded supply. Over the past year, however, mortgage rates have more than doubled, impacting both single-family housing and repair/remodel demand as consumers adjust to the higher rates. Home prices have also appreciated meaningfully, contributing to significantly reduced home affordability for most buyers. Inflation has eased some but remains elevated. This lack of housing affordability and general economic uncertainty has led to a significant reduction in new housing starts. In January, single-family housing starts declined 27% year-over-year, with housing starts down single digits sequentially from December.
As we look to 2023, we believe single family housing starts will continue to be in double-digit decline as compared to 2022 as the macroeconomic environment continues to impact the industry and until there is more certainty around mortgage rates. We are more optimistic regarding repair/remodel and believe recent housing turnover, aged housing stock, and high levels of homeowners' equity will support better performance for the repair/remodel market during 2023. Many homeowners are also locked in with a mortgage rate below 5% and may not have the desire to move and trade up for a house with a higher rate. Instead, they will likely seek to customize, update, and upgrade their existing homes. We expect repair/remodel activity to remain relatively flat for 2023.
Despite these market dynamics, we believe that the fundamental undersupply of homes and supportive demographic shifts, along with aged housing stock, necessary repair activity, and high levels of home equity, continue to be positive indicators for the housing industry over the medium and longer term. During periods of market softness, we believe it is important to balance the short-term needs of the business with our long-term strategic priorities. We will continue to prioritize a fortified balance sheet, managing our cost structure appropriately to match the levels of demand and maintain rigor around our pricing discipline. We will continue to work closely with our customers and suppliers to navigate the economic cycle. Our long-term strategic priorities remain the same. We will continue to focus on growing our specialty product sales. We will continue to optimize our operations to improve efficiency.
We will further expand our relationships with strategic suppliers and key customers, and we will continue to create value for shareholders through disciplined capital allocation. The last of these items, disciplined capital allocation, is central to our value creation strategy. Today, we have significant cash and ample liquidity to not only weather a downturn, but also to pursue both organic and inorganic growth investments as opportunities arise. We view the current softer macroeconomic environment as an opportunity for acquisitions. We will remain prudent in our approach, ensuring we secure quality businesses at a fair valuation. In summary, we have delivered strong financial results in a challenging environment and made progress in our long-term goals. Our strategy, along with our strong balance sheet and a disciplined approach to capital allocation, positions us well to navigate the downturn and to take advantage of the market when it improves.
I'm proud of the entire BlueLinx team for their efforts and contributions to delivering excellent 2022 results. That concludes my opening remarks. 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. Good morning, everyone. I'll start with the full year results and then turn to the fourth quarter performance. As Dwight mentioned, 2022 was indeed one of the best financial performances in our company's history. For the full year, net sales were $4.5 billion, up 4% compared with the prior year. Gross profit was $833 million, an increase of 7% from the prior year, and gross margin expanded 50 basis points to 18.7%. Net income was $296 million, and diluted EPS was $31.51 per share. On an adjusted basis, net income was $306 million, and diluted EPS was $32.55.
Adjusted EBITDA for the 12 months was $478 million, up 3% year-over-year, or 10.7% of net sales. We generated $400 million in operating cash flow and $364 million of free cash flow. We ended the year with $645 million of available liquidity along with a net leverage ratio of 0.6x . Our full year performance provides us with a fortified balance sheet that positions us well going into a more challenging cycle while giving us the flexibility to execute on our strategy more effectively. Looking at the fourth quarter, our performance was solid despite a shift in market sentiment and a swift decline in volume starting in mid-November that continued through the end of the year.
We generated record operating cash and delivered strong margins for both our specialty and structural product categories. Net sales were $848 million, and when we compare this to the fourth quarter of 2021, a period where we saw significantly strong demand and price inflation, net sales were down 13%. Specialty product sales represented 70% of net sales, up from 66% last year, and they were down only 8% over the prior year, while structural product sales were down 23% due to significant year-over-year declines in commodity prices as well as decreases in volume.
Gross profit was $151 million for the quarter, while total gross margin was 17.8%, with specialty margin of 21.1% and structural margin of 10.4%. 82% of our gross profit was from specialty product sales, up from 72% in the prior year period. Turning now to the fourth quarter results for specialty products. Net sales were $592 million, down 8% year-over-year. As I mentioned earlier, this decline was primarily driven by lower volume compared to the prior year period, where demand was very strong. Gross profit on specialty product sales was $125 million, down $16 million given the sales decline.
Specialty gross margin was 21.1%, up 20 basis points when compared to the third quarter of 2022, and down 80 basis points year-over-year. Through the first 7 weeks of 2023, Specialty Products gross margin was in the range of 18%-19%, with daily sales volumes down approximately 15% compared to prior year, reflecting the challenging macro environment. Regarding fourth quarter results for Structural Products, net sales were $256 million, down 23% compared to the prior year period. This decrease was primarily due to the year-over-year declines in average composite lumber and panel prices and, to a lesser extent, lower volume.
Per Random Lengths, the average price in the fourth quarter of 2022 for framing lumber was $449 per thousand board ft, down 36% year-over-year, and the average price for panels was $528 per thousand sq ft, down 26%. Structural sales volume decreased approximately 11% year-over-year, particularly later in the quarter as market sentiment shifted. Gross profit was $27 million, a decline of 50% year-over-year, also primarily resulting from lower commodity prices, and gross margin was 10.4% as compared to 16.1% in the prior year period.
As of the end of the year, lumber prices were down to around $380 per 1,000 board ft, and panel prices declined to about $473 per 1,000 sq ft, a 23% and 21% decrease, respectively, compared to the start of the fourth quarter. These prices have improved in the first seven weeks of the year and now are $438 per 1,000 board ft and $507 per 1,000 sq ft. Our solid structural margin amid steep commodity price declines demonstrates the exceptional job our team does to manage structural inventory through leveraging consignment and utilizing centralized purchasing and pricing decisions to keep structural inventory levels low and mitigate wood-based commodity price volatility risk. Over the past two years, we have reduced structural inventory by approximately 67%, which has significantly improved structural margin stability.
Through the first seven weeks of 2023, Structural Products gross margin was in the range of 10%-11%, with relatively consistent sales volumes when compared to last year. As a reminder, we estimate our normal structural margin to be approximately 9%. This range excludes any net impact that could arise from inventory adjustments. We will continue to evaluate market pricing for wood-based commodities and adjust accordingly at the end of each period. For the fourth quarter, SG&A was $92 million, relatively consistent with the quarterly run rate we've experienced throughout 2022. For the full year, SG&A was $366 million, up 14% over fiscal year 2021.
For both Q4 and the full year, the year-over-year changes in SG&A were due to higher delivery costs, along with investments to build capabilities in our workforce and to support our specialty growth and improve the effectiveness of our distribution facilities. Net income was $32 million, and Diluted EPS was $3.50 per share. On an adjusted basis, net income was $36 million, and Diluted EPS was $3.97. The fourth quarter tax rate was 21.5%, in line with our expectations. For the first quarter of 2023, we anticipate our tax rate to be in the range of 24%-28%. Adjusted EBITDA was $63 million, or 7.4% of net sales, a strong result given current market conditions. Turning now to cash flow and working capital.
During the fourth quarter, we generated record operating and free cash flow of $154 million and $137 million, respectively. For the full year, we generated $400 million in operating cash flow and $364 million in free cash flow. Our fourth quarter cash generation was supported by a $122 million reduction in receivables and a $68 million reduction in inventory, reflecting some deflation and impact of the softening demand for building products. We ended the year with $484 million of inventory, down 10% sequentially from the third quarter as we continue to manage buying decisions and adjust overall inventory levels to market conditions. Since the end of the year, we've reduced inventory by 5%, driven by a reduction in specialty inventory.
During the year, we allocated $169 million of capital. In October, we acquired Vandermeer Forest Products for $67 million. Extending our geographic reach to the Pacific Northwest, which provides us a platform for specialty growth. Capital investments for the full year were approximately $36 million, of which $17 million was spent in Q4. The full annual amount, primarily enhancements to our distribution branches and upgrades to our fleet of rolling stock, represents the highest annual capital investment level in our history. We expect capital investments to remain around $30 million in 2023. Earlier in the year, we repurchased 9% of our outstanding shares for $66 million, of which $60 million was done through our accelerated share repurchase program. Currently, we have $34 million remaining under our authorization for additional opportunistic share buybacks.
As a reminder, our guiding principles for capital allocation remain consistent. We intend to maintain a strong balance sheet, which enables us to invest in our business through economic cycles while maintaining a long-term target of net leverage of 3x or less. Looking now at our balance sheet, as of the end of fiscal year 2022, cash on hand was $299 million, a record level. Total debt was $573 million, and net debt was $274 million, and we have no material debt maturities until 2029. Net leverage was 0.6x , down from 1.1x at the end of 2021. When considering our cash on hand and undrawn revolver capacity of $346 million, available liquidity was $645 million at the end of 2022.
Reflecting on the past year, we have been deliberate in our approach to fortify our balance sheet, and when combined with our strong EBITDA and cash generation, has significantly improved our financial position to weather this more challenging cycle and support our strategic initiatives. In turn, enabling us to expand our capital allocation prospects and invest in high return opportunities such as organic growth investments, acquisitions, and share repurchases. As Dwight mentioned earlier, we are expecting weaker demand for 2023 that was foreshadowed by the volume decline we saw late in the fourth quarter of 2022. In the current environment, we expect that volumes will be softer and that specialty pricing will remain under some pressure, which will result in short-term margin compression that is slightly lower than our midterm targets.
Our focus remains on executing our strategy, maintaining a strong financial position, and delivering long-term value to our shareholders. Now, I'll turn the call back over to Dwight for closing remarks.
Thanks, Kelly. In closing, through the fourth quarter and full year 2022, we delivered solid results highlighted by strong margins and record operating cash flow generation. We continue to make good progress in our strategic initiatives by focusing on our higher value specialty product sales, optimizing effectiveness in our distribution branches, and building capabilities within the organization. Our financial position is very strong with ample liquidity, no impending material debt maturities, and a low leverage profile. We have built a stronger, more resilient business and are prepared to navigate the downturn and continue to progress towards our aspiration to be the leading wholesale building products distributor for the top brands and customers in North America. We remain focused on the things within our control and aim to create long-term value for all stakeholders. We are steadfastly committed to that goal.
That concludes our prepared remarks. At this time, we are happy to answer any questions.
Thank you. We will now 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 your line is in the question queue. You may press star two if you would like to remove yourself from the question queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment please while we look for questions. Our first question comes from Greg Palm with Craig-Hallum Capital Group. Please go ahead.
Yeah. This is Danny Eggerichs on for Greg today. Thanks for taking the questions.
Hey, guys. Just more broadly on maybe the overall, you know, housing environment, maybe your thoughts right now relative to a month or two months ago. You know, given what a lot of the home builders have been, you know, comments coming from their calls maybe, a bit better than feared. I guess just looking ahead to 2023, how you're seeing the overall maybe more new home construction market relative to what you were thinking, you know, a month or two months ago.
Thanks for the question. We still expect it to be a challenging market on the new home construction side in 2023. I think the mood is a bit better, but it's still expected to be double-digits down year-over-year, and we think that's appropriate, just given the activity levels, you know, we're hearing from the builders in their communities, the conversations as a part of at the builders show earlier this year and what we're seeing in our business and what we're hearing from our customers. We still think it'll be a down year on the new home construction side and our guidance or expectation is kind of in the double-digit level, mid-teens or so.
Yeah. Got it. Maybe just digging into one on the specialty margin. Appreciate the color, quarter to date so far in that 18%-19% range. Maybe just digging into that a little bit more, you know, obviously coming from that 21.1% in Q4, that's a, that's a fairly sizable sequential decline, which, you know, isn't, you know, normal seasonality. Maybe whether it's pricing or volumes, maybe if you can just bucket some of that stuff and a little more color on what's going on with the specialty margin.
Sure, Danny. Well, you know, I think we've been saying for a number of months now that we didn't expect the 21% to be a sustainable number when we went to a more normalized environment. We've been talking about that 19%-20% type of range. of course, we're seeing a bit more impact than what you would consider normal, I believe. The team has done a great job, you know, holding price in this rapidly changing demand environment. the primary reason we're seeing that decline is really around the demand pressure. Particularly, you know, we've had lower demand on EWP recently. That's a high margin product.
you know, however, as costs adjust, you know, as we keep going, I think we would expect to stay in kind of the similar range that we're seeing right now, that 18% and 19%, unless things get, you know, a lot worse. Right now, I think that's, you know, kind of coming right in line with what we thought we would be when the market, you know, would correct. you know, there's just other dynamics as far as working through market share and inventory management. Yeah, I don't think we are surprised by that impact, and we're managing it really closely. Like I said, the team is doing an excellent job on price right now.
Yeah. I'll add a bit of color to that. I think Kelly captured it really well. I think the demand environment has really evolved meaningfully in the past, you know, 60 days or so. I think the team has been really focused on a couple of things. One, making sure we are focusing on our customers and servicing them in a high-quality way. So we've done a lot of work around customer segmentation, and that just remains a priority for us. To Kelly's point, the mix has shifted a bit. EWP, higher margin category for us, we're seeing fair amount of demand pressure there and working through that.
Also the supply scenario is very different now than it was, you know, a quarter ago, and manufacturers are adjusting prices to reflect that, and we're working to kind of manage through that as well. You know, we're confident that the margin profile in our specialty business will continue to be meaningfully better than it was pre-pandemic, but we wanna make sure we're in a position to be opportunistic, protect our share, and continue to focus on our customers in a high-quality way.
All right. Makes sense. Thank you both. I'll leave it there.
Thanks.
Thank you.
Our first question comes from Kurt Anderson with D.A. Davidson. Please go ahead.
Great. Thanks, and good morning, everyone. There's been, you know, a pretty consistent theme in building products here in the second half of 2022 around channel inventory destocking, and some areas have been impacted more than others, but very few seem to have completely avoided that dynamic. Last quarter, you talked about seeing that a bit in millwork, but as you kinda look across the different areas within specialty today, are there any that stand out to you where you feel like order rates are being really negatively impacted by customers running down inventories or anything of that nature?
Yeah. Hey, hey, Kurt. Thanks for the question. We're absolutely seeing, you know, different demand profiles across the specialty categories. Interestingly enough, millwork's actually holding up pretty well and as well as our industrial categories. We're probably seeing the most pressure on the EWP side, and I think that's probably consistent with what manufacturers are saying and Euro market's saying and just given what's happening with starts and things of that nature. We'll continue to manage through that.
We've actually had some success in that category in a couple of our regions, and we're committed to continuing to position ourselves to be the distributor of choice around that category and all the value add things we do to make sure we can continue to support our customers in a high-quality way.
Got it. I appreciate that. Does it seem like, you know, we've kind of largely moved past that in Q4 and we're kind of back at normalized levels and might be or might see a little bit of a seasonal bump heading into Q2, or where do you think we are in that kind of destocking equation?
Yeah, Listen, I think it's still relatively early in the year. We kinda shared what we're seeing through the first seven weeks, which is volume down in specialty, year-over-year. Granted, you know, the comparable was a pretty strong one, in 2022, with the big bump up in demand and inflation. That's something to be mindful of, but we still think we're not quite all the way there yet. I think our customers are still a bit cautious, still trying to navigate this uncertain environment, and they're being, you know, very lean in terms of their stocking levels. We are making sure that we are also managing that appropriately. You know, not quite all the way there.
Again, we'll see how this year goes, but we think we're prepared and positioned to navigate it successfully and be ready to pounce when we see recovery.
Got it. Makes sense. Just at a high level, could you talk about any kind of vendor wins or expansions with key brands that you're particularly excited about in 2023? Do you feel like the current environment is more or less advantageous in terms of kinda the refreshed BlueLinx platform starting to resonate with suppliers?
I mean, it's a fun topic, and I could talk about that a lot, so I'm gonna try to rein myself in a bit here. The team has worked really hard to make sure that we understand and build deeper relationships with suppliers that we feel are strategic, and we've made some nice progress there. Siding is a good example. We've been able to kinda really secure some more supply and even a stronger distribution relationship in the Texas market and a few others with Allura. Something we're very excited about. We're continuing to kinda make progress with some other major siding suppliers that we've worked with historically in a couple other markets as well and excited around what that's gonna do for the business.
We've also looked to partner even more closely with some of our larger suppliers on the EWP side, and that's gonna help us and position us well in a couple of regions where we weren't at the supply level that I wanted us to be to make sure we could take care of our opportunities. Definitely progress, and I feel encouraged by that. On the customer side as well, you know, we spend a lot of time and energy making sure we understand where critical customers are, both regionally and nationally. We've been able to secure some wins in our specialty categories with them as well. That positions us well, I think, as we move through 2023. Again, against this broader backdrop of a tougher macro environment.
I think our supply situation, probably in the strongest position it's been in a while, and we're starting to make some good traction with the customers that we're focused on.
Great. Great. That's really encouraging. Just my last one, could you talk a bit about the contributions you've seen thus far from Vandermeer and any kind of initial learnings or observations regarding that business and deal?
Yeah, we're really excited about having Vandermeer Forest Products as a part of the BlueLinx family. Tremendously talented team, very customer-oriented, very commercially minded. They have great, deep, high-quality relationships. You know, we're incredibly proud of the progress we've made in a really short period of time. The thing that's really been very exciting is the opportunity for product expansion in that market. You know, they had, you know, really good capabilities and specialty, particularly on the siding side. We've had the ability to improve kinda their EWP offering, bring in some additional products that they hadn't had access to, which is creating some good opportunities for growth, and we're starting to see that. We've been able to kinda grow with some of their existing customers as we establish programs for 2023.
On the operational side, you know, They didn't own their own trucks. They didn't have their own fleet, so they generally delivered products through third parties. We've started to put some equipment into that market, which provides a little bit more consistency around delivery, and we're seeing that translate to growth opportunities as well. Early days yet, but integration's off to a good start, and we're excited about the possibilities of that business over time.
I'll just add that, you know, related to the acquisition model, they're actually over-delivering to that model, so the financials have been excellent, and it's just been a really nice accretive business to our company.
Got it. All right. That's excellent. Good luck here in Q1, guys. Thank you.
Thank you.
Thank you.
The next question comes from Reuben Garner with The Benchmark Company. Please go ahead.
Thank you. Good morning, everybody.
Good morning.
Good morning.
Maybe the follow-up on the mix discussion within specialty. Is it safe to say that EWP probably was down more consistent, I guess you could just use the start of this year, more consistent with that single-family starts decline that you discussed in the month of January, and the other products maybe were, you know, down but much more modestly? Is that a safe assumption?
Yeah, I think it's safe to say that, you know, the biggest impact we've seen is EWP as it relates to just the finishing up of the pipeline that came out of last year, as well as the starts down, as you mentioned. I think both of those are contributing and that's what we're seeing.
... as it relates to the other product lines. The other you know, the other product lines are actually really holding, hanging in there as a whole. Clearly, we have year-over-year variances, as Dwight mentioned, that, you know, are pretty sporty, right? Last year's really not the best benchmark, but I think we're, you know, certainly more that than anything else.
Okay. Those other products would be more exposed to the R&R market that you're thinking is more flattish, right?
Yeah
... in that same vein, is there something going on in the structural side to start this year? I was a little surprised to see those volumes flat. I know you guys weren't exactly chasing business a year ago, so maybe it's just an easier comp dynamic. Any color you could give, is it inventory rebuild at some of your customers after maybe they got carried away at the end of 2022? Any color on why that was so strong to start the year?
Yeah, I think it's more the first thing, which is really we've been just trying to maintain a steady structural business, as it relates to really mostly focusing our specialty business and then continuing on with that, you know, core business volume and market share that we have. I think you're seeing that. In addition, our team is just really stepping up as it relates to ensuring that we're getting everything that we can in this market.
Not only that, the margins we've been able to generate considering the deflationary kind of ups and downs that we keep seeing in the commodity market, albeit it's not as been as dramatic as it was previously, but it certainly has been downward pressure. The team is just doing an excellent job on both fronts, both holding volume and maintaining that price. We're still very committed to the inventory lean inventory approach. That hasn't changed. In fact, it's leaner now than it was even 12 months ago. I think it's just continuing to show that it works and gives us the time to focus on our specialty strategy.
Great. Then, last one for me. Kelly, you made a comment about your midterm margin target, and I missed it. I wanna make sure I heard it correctly. Could you repeat what you said? I think it was something about this year, coming in below that. Could you just clarify for me?
Yeah. I think what we're saying is we're. You know, we put out some midterm targets in June, right? We said, you know, the volumes are gonna be softer this year and that the specialty pricing would remain under some pressure this year. When we did those midterm targets, it was assuming some normalization, but not the really the decline that we've seen in the market, at least to date. We do expect there should be some short-term margin compression. I think we talked, you know, we saw that in the 18%-19% range, which is about, you know, 100 basis points lower than the range we had given previously if we'd moved to a more normal environment, that 19%-20%.
That's what we're alluding to there in the, in the, in the script.
Got it. Very helpful. If I could sneak one more in actually. The specialty structural category is, I don't wanna say it's easy, but it's easier for us to kinda get a sense on where pricing is. Can you give us any kind of indication on what specialty pricing looks like or could look like this year? Maybe what is down year-over-year for the first seven weeks. Just something to kinda, you know, there's a lot of moving pieces within there. I'm sure EWP is the bulk of the pressure, but anything you could give us would be helpful.
Yeah. You know, like we said, you know, it's a bit of a unusual environment where you have rates doubling in under a year, supply constraints easing in a relatively short period of time in the second half, and, you know, other uncertainty in the broader environment coming together that I think has really, kind of, you know, impacted demand in a meaningful way for our products and this, the industry in general. As that settles and there's a little bit more certainty around rates, we think, the overall environment will be closer to what we expect on a normalized basis. All those things together have contributed to manufacturers, kind of looking at price as a way to drive, volume in the market.
We've seen kind of the pricing pressure on EWP side. We're seeing it to a lesser extent in other specialty categories. We expect that to continue to be the case as folks try to find the equilibrium price that makes the most sense in a much softer market. To Kelly's point, we think that'll put pressure on specialty margins a bit. Again, we're prepared to kind of manage through that. We're gonna make sure our costs are appropriately aligned with where demand is. We're gonna make sure that we're focused on the customers that we have an opportunity to grow wallet share with. We're gonna try to be opportunistic around getting share with good customers and markets where we have good capability and kind of manage through that.
We think, you know, the pricing environment should be fairly similar to what we've seen so far this year, until things normalize.
Great. Thanks, guys. Good luck going forward.
Thank you.
Thank you.
Next question comes from Jeffrey Stevenson with Loop Capital Markets. Please go ahead.
Hi, this is Garik Shmois for Jeff. Thanks for taking my question. I wanted to ask, first off, just on the repair and remodel side, appreciate your view of flat for this year, just wondering if you're expecting that to be consistent throughout the year. Are you seeing perhaps any warning signs there as well, just given the inflation and the macro considering? There's been some noise from some of the manufacturers and retailers on the R&R side of the equation.
Yeah. You know, we think it's gonna be relatively flat. You know, depending on which forecaster you look at, it's either slightly up or slightly down. We think it's gonna be within that range. There's a couple of things that are supportive of that, we think. If you look at any of the data recently around home pricing, they're generally holding, for the most part, and even in some instances up slightly year-over-year. We think home equity, again, remains at a historically high level. Just given the cost of debt and the rates that most or many homeowners are locked in at, the opportunity to improve in place and invest in their homes, we think remains meaningful.
Coupled with the fact that unemployment, you know, is still at, you know, record low levels. The homeowner, for the most part, as inflation starts to come down a bit, I think is a little bit more confident around making investments in their home. That's our thinking around what's gonna provide some support for R&R, and we expect that to be, you know, relatively consistent through the course of the year. Obviously, if things change in either direction, you know, that outcome and that outlook could change, but that's kind of where we're at right now.
No, I appreciate that. Thanks. Wanted to switch to SG&A. You've had a pretty consistent run rate here in the, call it $92 million per quarter range. Is that a pretty good assumption to still use here in 2023? Maybe just speak to some of the cost baskets supporting that?
Yeah.
you know, i.e., labor and logistics.
Sure. One thing I do wanna mention is that we did have some Vandermeer cost additive in the fourth quarter, so our run rate was actually a little lower than what it had been the rest of the year, when you consider that. That was probably in the $1.5 million-$2 million range. We're really closer to $90. Certainly, we are going to be, you know, we look at cost very, very closely, and we, you know, are going to ensure that it's aligned with what, you know, what our profitability profile looks like in this new environment.
I would expect it to not be more than that, of course, and we're gonna continue to actually drive efficiency and focus on it, continuing to make adjustments as needed to align with the demand profile.
No, understood. Thanks again. Best of luck.
Thank you.
Next question comes from Walt Liptak with Seaport. Please go ahead.
Hey, good morning, guys.
Good morning.
Okay. Hi, how are you doing? Wanted to ask one from 60,000 ft. At the Analyst Day, you guys talked about lumber prices kind of in your long term at $400, and at that level, the BlueLinx EBITDA at around $250. Obviously, you know, there have been some things that have changed since the Analyst Day. I wonder if how you think about that. Is it still a ballpark or, you know, have you given it some new thoughts?
Yeah. Appreciate the question. You know, as you know, Walt, we don't give, you know, guidance on an annual basis. We think if I break the business in two, between our specialty and our structural, start with the structural. We feel pretty good about our ability to kinda navigate that environment. I think, our performance over the last year and a half kinda supports that with meaningful volatility. Being able to kind of deliver margins in that 9% range. Even with some of the volatility we saw, or the deflation we saw in Q4, we were able to do a bit better than that.
We think given where prices are now, closer to the historical average than they've been in the past, our ability to kind of execute against that business is pretty good. On the specialty side, you know, similar story. I think, you know, we've spent a lot of time and energy optimizing our commercial capability around there as we think about customer segmentation, as we think about improvements around our pricing capability, pricing more consistently, you know, having better visibility around overrides and some other analytics. We think that's gonna be supportive for our specialty margins over the medium and definitely over the longer term. This current environment is very different than it was in June. You know, you got starts down, you know, 15+%.
You have rates and affordability a bit higher, and you have a lot more supply available. I think it's gonna take a bit of time for that to settle. We think the core of our strategy is still good, and we're continued and focused on executing against that, how we drive more specialty volume, both PLEs and margin, and how do we grow the business and be in the markets that we have great excitement around. Think we're gonna continue to do that and still feel pretty good about where this business will be over the medium and long term.
Yeah, just to add to that on the model side. You know, structural is in line with the model, and specialty's off because of the rapidly demanding demand decline that we've seen. That really, you know, that was a normalization model. This is, this is not normal. We're in a fairly severe downturn right now, in the short term. You know, that being said, we still delivered, you know, seven and a half percent EBITDA margin in the fourth quarter. You know, like I said, we're maintaining margins pretty well through the first seven weeks. You know, it's not gonna be that number right now, on a run rate basis.
Certainly, you know, we're holding in as it relates to kind of our, some of our key metrics.
Okay. Great. Yeah, agreed with that. In the first quarter, how are you thinking about your working capital accounts?
Yeah.
I think, you know, seasonally, you typically have to build them a little bit. What are you thinking of, in the current environment?
Yeah. Good news is that, you know, what we've been able to do is adjust our inventory as it relates to kind of seeing this downturn. Instead of build, it's been opposite. We've actually taken 5% out of our inventory just since year-end through right now. What continued to be a big focus on our team to bring that inventory down and adjust it to the demand level. Feel great about that. The team has made a lot of progress there, big momentum within the organization to ensure that we're being very efficient with our working capital.
Okay, great. The last one for me, you know, on the, you know, how are you thinking about the M&A pipeline? What are the discussions like? You know, is it a tough time to buy or to, you know, negotiate with a company now with the market, you know, kind of in this tougher environment?
Yeah, that remains a meaningful focus area for us, a big priority. Our pipeline of opportunity is solid. You know, spending a fair amount of my time, along with Sean, who leads our M&A and strategy for us, having conversations with potential targets and building relationships to allow us to kind of move quickly as things mature. We remain focused on it. You know, we think sellers are adjusting to the new normal in terms of kind of market environment, and we wanna be seen as a partner of choice, as they get more comfortable with where valuations are, where multiples are. We think we'll be in a position to move if and when opportunities present themselves.
Now, it remains a big priority, and we're focused on finding good opportunities to transact in 2023.
Okay. Great. Thanks for taking my questions.
Thank you.
There are no further questions at this time. I would like to turn the floor back over to Alexandra for closing comments.
Thank you, operator, and thank you to everyone that joined us on the call today. We appreciate your engagement and your questions. Our IR team will be available to assist you should you have any questions. We look forward to speaking with you next quarter. That concludes our call. You may now disconnect.