UFP Industries, Inc. (UFPI) on Q2 2021 Results - Earnings Call Transcript
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the UFP Industries Second Quarter 2021 Earnings Conference Call . Please be advised that today's conference is being recorded . I would now like to hand the conference over to your speaker, Mr. Dick Gauthier, Vice President of Business Outreach. Dick Gauthier: Welcome to the Second Quarter 2021 Conference Call for UFP Industries. Hosting the call today are CEO, Matt Missad and CFO, Mike Cole. Matt and Mike will offer prepared remarks and then the call will be open for questions. This conference call is available simultaneously in its entirety to all interested investors and news media through our webcast at ufpi.com. A replay will also be available at that Web site. Matt Missad: Thank you, Dick and good afternoon, everyone. As you can see from the press release, the UFP family is en fuego. While Mr. Bezos is flying into suborbital space, the UFP team made a quantum leap to another galaxy in the second quarter. The first six months of 2021 constitutes the best earnings year in UFP’s 66 year history. I send a sincere thank you to all of the UFP family of companies for your incredible effort. When the company is successful, we share that success with our teammates and we are grateful to share over $10 million in additional benefits and bonuses with our hourly employees for the first six months of 2021 to thank them for their exceptional effort too. You have seen the truly remarkable financial performance, and Mike will provide more analysis shortly. I would like to highlight a few items while providing some insight into the balance of 2021. We saw more records in the second quarter than the Grammys, yet our team is not focused on receiving awards. For them, it is about competing, improving, growing our people and opportunities and making our company stronger. They had a grand slam in the second quarter. We can't talk about Q2 without acknowledging the significant impact of the lumber market. We had top line help from a rising lumber market during the first half of the quarter. However, the last half saw a drastic drop in lumber prices, which made an impact on our retail variable price products. While we had anticipated a market reduction in that late second or third quarter, we did not anticipate that it would fall as far and as fast as it did. Included in our quarterly results was a charge of $23 million to reduce the value of inventory on certain of our variable priced products in our retail segment. Since the Southern Yellow Pine market has dropped nearly $1,000 per 1,000 in the last several weeks, the impact would have been much worse if not for the skill and dedication of our purchasing and operations teams who managed inventories very well under the circumstances. This lumber market drop also highlighted another benefit of our new structure as our teams were able to coordinate movements of inventory and maximize utilization of on hand items to limit the impact of the market decline. Thanks to our balanced business model, diverse product and customer mix and a variety of pricing methodologies, we are well positioned to weather these kinds of events. As we have discussed on many occasions, these diverse markets and pricing methodologies enable us to create a natural hedge against lumber market fluctuations like we just experienced. Mike Cole: Thanks, Matt, and hello, everyone. Our consolidated results this quarter are highlighted by unit sales growth of 47%, including 11% organic growth and 36% growth from acquired businesses. Organic growth included of new product sales growth, which continues to provide a margin lift for us. And operating profits grew by 157%, as acquisitions contributed $15 million in operating profit and $18.5 million in EBITDA for the quarter. Now I'll review our income statement and sales by segment. Sales to the retail segment increased 107%, consisting of 59% increase in selling prices and 52% unit increase from acquisitions, offset by 4% decrease in organic unit sales. Organic growth was impacted favorably by 27% increase in UFP-Edge, an 11% increase in Deckorators and 6% increase in Outdoor Essentials. New product sales for the retail segment were also strong, growing by over 32%. Unfortunately, our ProWood business unit reported 17% decrease in units compared to last year, reflecting a decline in demand as consumers shifted spending as a result of pandemic related restrictions being lifted and the economy being reopened. Sales to the Industrial segment increased 172%, consisting of 99% increase in selling prices, 26% organic unit growth and a 47% unit increase resulting from acquisitions. Year-over-year organic growth was strong due to the impact of the pandemic related restrictions last year and strong demand this year, while market share gains from new customer and new product sales contributed $33 million and $27 million respectively to sales growth for this quarter. Finally, our sales for the Construction segment increased 106%, consisting of 77% increase in selling prices and 29% unit growth, including 3% contribution from acquisitions. Organic unit growth was driven by our factory built and site built housing business units, which achieved 56% and 24% increases respectively. Our commercial business unit also achieved an 11% unit increase. Again, these organic increases were largely due to the impact of the pandemic related restrictions last year and a strong demand environment this year. Matt Missad: Thank you, Mike. Now I'd like to open it up for any questions you may have. Operator: Our first question will come from Stanley Elliott with Stifel. Stanley Elliott: Can you talk on the Deckorators business, it sounded like there was somewhat inventory constrained. Curious to kind of get your view a little bit of a step down from Q1 but still very good numbers in terms of the units. But just curious kind of what you're seeing in the marketplace there? Matt Missad: We're still seeing very, very strong demand. And again, I think we’re kind of lapping year-over-year where we had capacity issues a year ago. We were full up, as I mentioned, on the mineral base through the end of the year and on wood plastic composite in November. So we're still feeling really good about the demand there. Obviously, I mentioned a couple of cost challenges that I think will be rationalized out and so we should be able to get ahead of those, certainly by the end of the third quarter. So again, very, very optimistic about where we are there. Stanley Elliott: And when we think about kind of the working capital unwinding in the back part of the year, it's going to be a very nice boost. With so many growth opportunities, it sounds like that we could still see a fair amount of M&A activity on the horizon? Matt Missad: I think that's one of our forefront ideas, that's what we're trying to get accomplished here. And again, we want to make sure valuations are right and continue with our conservative approach to how we value and acquire companies. But definitely, the pipeline is full. There's a lot of opportunities out there. And we just want to make sure we choose the right ones and the market for valuations is right. Stanley Elliott: And last for me. Any comments on the visibility that you're hearing from your construction customers as it relates to state projects moving forward, other infrastructure projects moving forward? Matt Missad: We have not gotten a whole lot more insight into the kind of infrastructure-type projects. And maybe it's because I probably turned a little bit of a deaf ear to some of that until it becomes a reality. There's been talk about it for several years. And as soon as something hits, I think then it will become much more real. But our Concrete Forming group is probably going to be the one that would be most impacted there in a positive way. So we're hopeful that we end up with something that's reasonable and rational and that we can participate in it. Operator: Our next question will come from Kurt Yinger with D.A. Davidson. Kurt Yinger: Just a couple of questions here. I mean, first, you touched on customers and site built looking to you to perhaps add capacity. I think in the past, that's been an area where you've been kind of cautious growing the footprint given the cyclicality. Has that changed at all? And do you feel like in this type of environment, the adoption of component solutions can be more significant than it has been in the past? Matt Missad: Kurt, I still think there's opportunities for us to convert. There's maybe not as many people that are doing total stick framing. But our floor cosset concept, roof trusses, wall panels, selling more components is definitely where we want to go. And I think that's the capacity they're looking for as labor is tight, particularly skilled labor in the field. We're still going to be cautious about it. But if we have good insight into both the customers’ plan and our own ability to service it, there will be areas that we will continue to expand. Again, we're trying to keep it within our basic geography that we're in today. We want to still stay away from the old, the so called boom and bust markets. But where we are today, I think, are very steady, stable type markets. Kurt Yinger: And then obviously, it was a great 2020, but your commentary this afternoon seems to be more cautious than we've heard previously in terms of the repair and remodel and DIY side. Just curious how recently you've maybe seen some deterioration there. And are you concerned at all that this is more than just a tough comp situation and that the market could really start to slow down quite a bit? Matt Missad: I think, I tried to outline the differences there. The professional builder contractor, they're still extremely busy and so that indicates that demand is solid. I do think DIY, you can discuss whether they pulled forward from sales in 2020 from future years or if it was because people were locked down at home and they just did more projects. So I think it will normalize. What I'm trying to convey mostly is that we just had a blowout quarter. And I'm trying to moderate people’s expectations relative to repeating that type of quarter. Kurt Yinger: And then on the idX and commercial construction businesses, what type of progress have you made there in terms of getting that business back to breakeven? And are you seeing any green shoots in terms of pent up demand or new coating activity, anything along those lines? Matt Missad: I think there's been a really fundamental shift as we've tried to focus on it, and that team has been working extremely hard trying to to get the ship rightsized, I'd say, in terms of both looking at and analyzing their customer base, their margin profiles for those customers and what I would call the imbalance, where the customer has historically held most of the leverage and us taking the position that -- we need to be able to make money, as I mentioned in my remarks. We need to be able to make money in order to stay in business. So we've changed our pricing methodology and we probably have lost a few customers along the way, but that's the right thing to do. And they are running at a profitable rate here for the last couple of months and we anticipate that will continue. So it's a big turnaround. We're still not there yet. But they're on the right path and I really thank them for all the effort that they've put forward. Kurt Yinger: And then just last one for me, kind of higher level. I mean with the performance over the last year and some of the benefits from the rise in the lumber market, I think there's been a lot of concern here that as that's rolled over, you'll give a lot of it back. But I think Mike said that with the trend you're seeing in lumber, you expect the benefits from the fixed price products to kind of outweigh the headwinds you might see on the variable side. Could you just maybe walk through some of the other puts and takes there as we think about the back half of the year and into 2022? I mean is the comp issue associated with lumber in your view a much smaller issue than it seems to be to people you talk to or at least in terms of maybe what the stock might suggest? Matt Missad: I think the way that I would encourage folks to look at, at least our company is we try to focus on unit sales. Sales dollars is not going to be a good comparable, because the lumber market pricing impacts so much of that. But if we look at unit sales and more particularly gross profit dollars on a per unit basis and overall that's kind of where I would focus the attention and we feel good about that. As you mentioned the fixed price and Mike talked about fixed price items in Industrial and Construction, and they actually had a headwind a year ago as prices were rising. So they’ll have hopefully a little bit more of a tailwind this year with the lower price levels. And your question is, how do that balance off against the challenges at retail we’ll face from declining market in that area. So we feel good overall. As I mentioned, I think we feel very comfortable with our original forecast for the year. But I think as we look at the different stress points and the different margins within the segments that's what we would expect to see. Operator: Our next question will come from Jay McCanless with Wedbush Securities. Jay McCanless: I guess the first question on ProWood, have you ever communicated or tried to find out from the field what the split from the sales on that are for do it yourself versus contractors installing those decks? Matt Missad: Yes, it's really, really difficult to do. I think in prior years, I'd say, 10 years ago, actually, Jay, it was probably a little easier to do because the big box retailers were primarily DIY. And right now, all the big box retailers have been pushing more to the pro customer. So it's kind of blurred that line. We can kind of tell who our independent retail customers are that generally serve the professionals and the contractors. But we haven't been able to really nor have we necessarily tried to get at the detail level at the big box. Jay McCanless: And then the next question I had, just maybe give me a little more of your supporting I guess ideas that lumber prices are going to be able to stabilize at these levels? Is it the transportation issues and getting better, or you're seeing a little bit better delivery of wood in the South. Just maybe -- because we hear so much in the media about all these transportation issues and supply chain issues. Just what are you seeing that makes you feel like lumber prices can stabilize here? Because with the puts and takes of the acquisitions in there, at least getting close on the lumber price would certainly help. Matt Missad: Yes, that's an excellent question, and I'm not sure I got a great answer for you on that. What I would say is that transportation issues are still there. They've moderated quite a bit. I think the international transportation issues are still a bigger problem, a bigger challenge. But I would say the production side on the mill side has improved, the demand takeaway hasn't been as great as originally forecast, particularly at Retail. And I think that's created a little breathing room in the marketplace. I think a lot of retailers had considerable amounts of inventory in their supply chain and the takeaway being not as great has really opened up a lot of product availability. Again, certain items are still tight, but I'd say, overall, there’s a good supply right now. Jay McCanless: And then just digging down on the retailers. I mean do you feel like the retailers are overstocked right now or is the sell through sufficient to keep you guys, maybe not up in terms of units year-over-year but at least flat to slightly negative? Matt Missad: I would say and it's tough to paint them all with a broad brush. I think they all had different strategies in terms of what their purchasing strategy was. So some wanted to commit early and make sure they had supply given last year when they ran out of supply. So I would say that overall, I think your last statement is accurate though in terms of how we would look at unit sales takeaway. Operator: And our next question will come from Ketan Mamtora with BMO Capital Markets. Ketan Mamtora: First question, maybe to start off on the Industrial side, very strong performance there, especially on the gross profit side. Two part question. Maybe talk a little bit around, from a unit sales standpoint, where you are seeing areas of strength and products where you are seeing increased traction? I know kind of one of the focus areas has been kind of growing on the mixed material side, so with some of the acquisitions you've done. Maybe talk about kind of where you are seeing the most traction? And then obviously, great performance on the gross profit side. Talk a little bit about kind of where you've been able to make the most progress? Matt Missad: Well, there's a lot to unpack in those questions there, Ketan, so I'll try to hit the high points. So on the industrial side, the Industrial teams have been doing just an outstanding job. What they've been focused on is providing more value added customer oriented solutions. And as you will recall, historically, we started out selling sticks and panels to people who made their own crates and packaging materials. And that's been a constant goal of ours is to continue to convert those types of customers who will buy our complete value added program. And I think they've done an outstanding job of that. They've also utilized their own pricing analytics and tools to make sure that, again, as we mentioned before with some of the commercial things, let's make sure that we're properly getting paid for the value that we provide. And I think they've done really, really nice work in that area as well. So I think on Industrial that is part of their strategic plan, and they've just had really, really good execution. Overall, I think, again it's a tale of the different markets. And so if you look at Construction & Industrial, you've seen improvement and enhancement there and a lot of it's efficiency in terms of getting utilization and operating leverage pickups too. But lumber market certainly helps there. Retail is the one that we've already talked enough about that one. So we're hitting it out of the park last year and we don't expect that to happen this year but we still expect it to be strong. Ketan Mamtora: And then sticking with Industrial, obviously, on the pricing side, it was a big help, almost 100% year-over-year increase. As we look into the back half of the year and I know you all don't provide specific guidance. But I'm just trying to underpin what is the right way to think about it, especially given how sharply prices have fallen over the last eight weeks. Can you just kind of help us frame what is the right way to think about it? Matt Missad: Yes. I think Mike and I have talked a lot about that, I'll kind of turn it over to Mike. I think there's some examples and metrics that you can probably look to that will help guide you there. Mike, can you? Mike Cole: Yes, there's a natural lag in the pricing on the industrial side on the fixed price side. One reason is because you got to sell through that inventory that you bought in order to be able to supply the customers. So there's just kind of a natural lag that occurs that helps us. And we would expect that as a result of that lag, that's really going to help us offset in the Construction and the Industrial side with what's going to occur on the Retail side with more variable priced product. I think the other thing that's happening though is there's a lot of pricing rationalization I think that's occurred throughout the company, just making sure now as we're able to add more value and provide more solutions for our customers we're making sure we're getting paid for it in our prices. And so there's all those activities that are going on, which I think sets up for Industrial and Construction, in particular, a nice, healthy operating margin environment the back half of the year. Ketan Mamtora: And then shifting to the retail side, I'm just curious, it seems like on the treated lumber side, there is some easing in demand. We've seen a sharp drop in lumber prices as well. I'm just curious, are you seeing any signs of having any ripple effects on the composite decking side? From what I heard in your prepared remarks, Matt, it seemed like that demand is still pretty strong. But I'm curious if you're starting to see signs for, at least in sort of Q4 and into next year of having any impact on composite taking demand? Matt Missad: Maybe I could kind of frame it in a slightly different way, Ketan. So as I look at the composite products that we provide, more and more of those are do it for me projects as opposed to do it yourself projects. They're spending a lot more money on them and they want to make sure it's done right. So what we're seeing with the composite is consistent with that. And what we're seeing on the DIY side for the ProWood decking, for example, that's much more of a do it yourself type project, people feel comfortable doing that. And it's kind of consistent with the overall theme that says, hey, maybe people are taking a pause and they're going on vacation and they're doing other things now that they're able to do it. So I don't see anything that says the composite demand is going to fall off, again, absent some other kind of change in the economy that isn't obvious today. Operator: And speakers, I am showing no further questions at the queue at this time. I would now like to turn the call back over to you for any further remarks. Matt Missad: Thank you. As we look ahead, we expect that unlike Mr. Bezos’ 11 minutes of heaven, which ended when he landed on earth, the UFP team will continue its incredible focus, adjust to the economic changes that inevitably will come our way and to perform our plans. Our business model helps chart the course but our talented and experienced teammates are the ones responsible for our ultimate success. Whether it's crazy lumber market, unpredictable government or an Ohtani curve ball, I'm confident that we will win. Thank you for your investment and have a great day. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect and have a wonderful day.UFPI Ratings Summary
UFPI Quant Ranking
Related Analysis
UFP Industries (UFPI) Financial Overview and Market Valuation
UFP Industries, listed on NASDAQ:UFPI, is a well-established company headquartered in Grand Rapids, Michigan. Founded in 1955, it operates through subsidiaries like UFP Packaging, UFP Construction, and UFP Retail Solutions. The company provides a wide range of value-added products for residential and commercial construction, packaging, and industrial applications globally.
On February 17, 2025, UFPI reported earnings per share (EPS) of $1.18, which was below the estimated $1.24. The company's actual revenue was approximately $1.46 billion, falling short of the estimated $1.62 billion. Despite this, UFPI maintains a price-to-earnings (P/E) ratio of 15.10, reflecting the market's valuation of its earnings.
UFPI's price-to-sales ratio is about 1.05, indicating that investors are willing to pay slightly over one dollar for every dollar of sales. The enterprise value to sales ratio is approximately 0.94, showing the company's valuation relative to its sales. This suggests that UFPI is valued reasonably in the market despite missing earnings expectations.
The company has a low debt-to-equity ratio of 0.13, indicating a conservative approach to using debt in its capital structure. Additionally, UFPI boasts a strong current ratio of 4.31, highlighting its ability to cover current liabilities with current assets, which is a positive sign of short-term financial health.
UFPI's earnings yield stands at about 6.62%, providing a return on investment for shareholders. The enterprise value to operating cash flow ratio is around 8.42, showing how the company's cash flow is valued in relation to its enterprise value. Despite missing earnings estimates, UFPI's financial metrics suggest a stable and well-managed company.
UFP Industries (UFPI) Financial Overview and Market Valuation
UFP Industries, listed on NASDAQ:UFPI, is a well-established company headquartered in Grand Rapids, Michigan. Founded in 1955, it operates through subsidiaries like UFP Packaging, UFP Construction, and UFP Retail Solutions. The company provides a wide range of value-added products for residential and commercial construction, packaging, and industrial applications globally.
On February 17, 2025, UFPI reported earnings per share (EPS) of $1.18, which was below the estimated $1.24. The company's actual revenue was approximately $1.46 billion, falling short of the estimated $1.62 billion. Despite this, UFPI maintains a price-to-earnings (P/E) ratio of 15.10, reflecting the market's valuation of its earnings.
UFPI's price-to-sales ratio is about 1.05, indicating that investors are willing to pay slightly over one dollar for every dollar of sales. The enterprise value to sales ratio is approximately 0.94, showing the company's valuation relative to its sales. This suggests that UFPI is valued reasonably in the market despite missing earnings expectations.
The company has a low debt-to-equity ratio of 0.13, indicating a conservative approach to using debt in its capital structure. Additionally, UFPI boasts a strong current ratio of 4.31, highlighting its ability to cover current liabilities with current assets, which is a positive sign of short-term financial health.
UFPI's earnings yield stands at about 6.62%, providing a return on investment for shareholders. The enterprise value to operating cash flow ratio is around 8.42, showing how the company's cash flow is valued in relation to its enterprise value. Despite missing earnings estimates, UFPI's financial metrics suggest a stable and well-managed company.
