UFP Industries Inc (UFPI) 2002 Q1 法說會逐字稿

Good morning ladies and gentlemen, and welcome to the Universal Forest Products conference call.

At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. If anyone should require assistance during the call, please press the star followed by the zero on your touch-tone phone.

As a reminder, this conference is being recorded.

I would now like to introduce your moderator for today's conference, Mr. Tom Smith, , please go ahead.

Good Morning and welcome to Universal's first quarter 2002 conference call.

This is of . Joining us today are William Currie, Vice Chairman and Chief Executive Officer, and Michael Cole, Chief Financial Officer.

Before I turn over the call to Bill Currie, I'd like to remind everyone that included in this report are certain forward-looking-statements within the meeting of Section 27(a) of the Security Act of 1933 as amended and Section 21e of the Securities Exchange Act of 1934 as amended.

Such forward-looking statements are based on the beliefs that the company's management as well as on the assumptions made by information currently available to the company at the time of such statements were made. Actual results may differ material from those included in such forward-looking statements; investors are cautioned that all forward-looking statements involve risks and uncertainty. These risk factors and additional information are included in the company's reports on Form 10-K and 10-Q on file with the Securities and Exchange Commission.

This call is the property of Universal Forest Products. Any redistribution, retransmission, or rebroadcast of this call in any form without the expressed written consent of Universal is strictly prohibited.

At this time, I'd like to turn the call over to Bill Currie.

Go ahead, Bill.

Thank you and good morning everyone.

Thanks for taking your time to be part of our call. A couple of brief comments for the quarter before I turn it over to Mike Cole.

It was a solid quarter, 32 cents earnings per share, which was a 28 percent increase over last year's report EPS or 14 percent increase over the pro forma EPS. Sales was also solid for the month, I mean for the quarter, 341.7 million up 20 percent and that was net sales gain and we gained in all four of our market segments.

We were pleased with our people and our efforts for the quarter. A couple of highlights, one is the method in which we managed through the complicated negotiations with the Home Depot and the massive management changes to hold the relationship and the volumes that we we're doing with Home Depot, and we we're fairly successful with that. The second was I think most of that I chaired the Treated Wood Council which was a group put together to negotiate with EPA and the chemical companies, and the on this changing chemical from CCA to a copper based ACQ or nature wood. And we were able to get it done in the timeline that we wanted, and we thought it came out exactly the best way it could have for the industry so. Those are the two highlights for the quarter.

Now I'd like to turn it over to Mike Cole our Chief Financial Officer and he'll go through the financial results. Mike.

Thanks Bill and good morning everyone.

I'll start with a review of income statement for the quarter. Overall sales for the quarter we're up 20 percent, comprised of a 15 percent increase in unit sales and a 5 percent increase in selling prices due to the lumber market. Our sales for the DIY market were up $20 million or 15 percent for the quarter. Six million of this increase resulted from acquiring P&R Trust, supplier that sales through a retail channels. Another 6 million of the increase was from increased sales to Depot and the remaining $8 million increase was due to increased sales to several other retail customers. Our sales to the manufactured housing market were up 36 percent, while the industry most recently reported an 8 percent increase in year over year.

As you might recall our increase in market share as primarily come from acquiring Sunbelt Wood Components and Superior Trust in 2001. Our sales for the construction market were up 11 percent for the quarter, as a result of acquiring Superior Trust and D&R Framing last year.

Finally, our sales for the industrial market were up $8 million for 30 percent for the quarter, primarily due to the consolidation of our subsidiary . In January of this year, we increased our ownership from 45 to 50 percent and under accounting rules we are now require to consolidate their operating results.

In prior years, we accounted for this subsidiary under the equity method. Gross margin decreased to 15 percent from 15.2 percent last year. Decline is primarily due to continued price competition within the market. This off-set margin gains to realize from improving our valued added sales ratio to 53 percent from 51 percent last year. SG&A is a percent of sales was flat at 11.1 percent from the first quarter of 2001 to exclude amortization of goodwill. And lastly, our EPF will increase 14 percent to 32 percent a share on a performer basis.

Now we'll move on to our cash-flow statement. Our cash cycle for the quarter decreased to 53 days from 55 days last year, in spite of an extension in payment terms to Home Depot. Today, we've been successful with working capital management strategies offset the extended terms. Capital expenditures total $5.3 million for the first quarter. For the balance of the year, we expect to spend approximately 21 million, which exceeds our original estimate of 22 to 25 million primarily due to the purchase of equipment from Innotech, we announced last week.

A few points I'd like to make about the balance sheet, first we reviewed our goodwill for impairment as required under FFAF 142. It's been audited and we . Second included in debt was approximately $1.25 million outstanding on our revolving credit facilities, which have a total availability of approximately $215 million. Finally our leverage ratio at the end of March was 52.6 percent versus 47.4 percent a year ago, resulting from our $36 million dollar share redemption in January.

That concludes my comments. Now Bill will update you further on the business.

Thanks a lot Mike. A couple things you might find some interest in the lumber market. We had a favorable lumber market for the first quarter, basically about a 10 or 11 percent increase over last year. Of course, we don't ever get that whole market increase and it only helps about 5 percent. But we don't see the spike that we had last year. Last year, in the second quarter, the market moved up about $100 to $1,000 which really helped our sales number. And we don't see that spike coming this year with all the uncertainty with the Canadian surcharge and the volumes of product that are on the marketplace. We think the market is going to stay fairly stable. That could have the tendency to make our sales as high as they should be for the quarter. If you take a look at the four markets, I don't think there's anything exciting to talk about. The DIY ran solid, we had to increase our Lowe's business and we maintained a fairly large balance of our Home Depot business. And we are definitely increasing our percentage of Independence. So that market looks to stay solid. The site built? we had a couple of acquisitions last year that will add to our growth. Our backlogs are starting to get extended which should help our margin. And we look for the site built side of our business to be pretty powerful this year. And later on in the year, after we get our balance sheet firmed up and our operating ratios the way we want them, we'll probably take a look at some other folks that are in that business.

Manufactured housing in the state of Texas where you now have to have a land package in order to have a manufactured home has really put a dent in their ability to produce the kinds of volumes they want to produce. This industry we still see as in turmoil, not yet out of the woods, and we're still watching the credit very closely. I think you see that closed on a $150 million high interest bond, and that's something we're going to have to watch also.

Our industrial part of our business this new Innotech repurchased of those shares.

As usual we thank you very much for your support. Our stock has had a nice movement upward and I think it was deserved, and we're working hard to reach our performance 2002 goals, and continue to create value for our shareholders. I'm going to open it up now for questions and answers, and we'll try to as usual give you as candid an answer as we can.

Thank you, sir.

Ladies and gentlemen at this time, if you have a question, you'll need to press one on your touch-tone phone and you will hear a tone that acknowledges your request.

Your questions will be taking in the order that they're received.

If your question has already been answered, you may remove yourself from the queue by pressing the pound key. In addition, if you're using a speakerphone, please pick up your handset before pressing the button. One moment for the first question. with , please state you question.

Yeah, Hi, ...

Hello, .

Good quarter. Question, Innotech -- how big could it be for you two years down the road and, you know, do you do you see yourself diversifying into more and more composite products?

Well, , the composite products are never going to take the kind of market share that lumber does. First of all, you can't get a price that way, and second of all, it's just some natural qualities about wood that that will never be replaced. We're going use this in a niche kind of way. If we have a complete line of fencing, we want to have the wood fence, we have the vinyl fence, and then we want to have this very special fence that is unique -- will be on the high side of the consumer that we're going after and we see it as a niche product. It could be substantial in size, I'd say, in a few years; it could be a $5 million to $10 million item for us. And once we once we get established in all four markets, then it's would be very hard for me to give you a level that we think we can take it at. But we're pretty excited about it and we think in two years we can easily being doing $5 million to $10 million.

OK. Is this going to go the DIY channel or more wholesaler?

Oh, no, this will go this will go in to the DIY channel, this will go in to the conventional homebuilding, with some very exciting products, this will go in to manufactured housing for it's strength to weight ratio, and it will go in to the industrial again, for it's ability to stay away from moisture, rot and mold, or any of the problems inherited in that so.

OK.

So, it's it will go to all four markets.

OK, second question here the whole Canadian surcharge situation, I mean when how do you think it's going to play out and what are the possible ramifications for out of your business?

We're firmly and as we're firmly in favor of free and open trade. We do not think it's right that the Brazilians, Chileans, the Hondurans, the Swedes, the Norwegians, the Australians, the Chinese, everybody can ship lumber in the United States without any duty and our best trading partner and our biggest right across the boarder has to pay this ridiculous surcharge.

Oh.

So, that's where we stand. We've been there from day one. And it's a it's a tenuous position to be in, because we use just as much U.S. wood or more as we use Canadian wood. And but right's right and wrong's wrong. We believe in fair trade and that's where we think it ought to be. It's going to come down off today's level, it's too high.

OK.

But where's it going to be? There's going to be some amount of duty because the Canadians have no place to send their lumber except United States. The Japanese market is dried up, there's also other sources going in there. The European breadbasket, the wood basket is getting much larger, they're producing much of what they need. The Australian market again is producing a lot of their own wood that use to come from the U.S. And so the Canadians with their with their wood basket are going to have to come in to North America and that means that prices could go down and the U.S. manufacturers are going to fight it.

OK. And what does that do to your business if anything?

The only -- the only major problem it does for us is it moves jobs out of the United States in to Canada. You know, you can -- you pay a duty on the raw lumber but if you make a out of it or you make a picnic table out of it, or you make something else out of it, you don't pay the duty.

OK.

So it could have a tendency to put more of the sub manufacturing or secondary manufacturing in .

All right. Thank you very much.

Yes Sir, .

with ?, please state your question.

Good Morning Gentlemen, good quarter. I just have a quick question on the value added um sales. Usually you say what they are as percentage total revenue?

Yes, it's 53 percent this quarter, 51 percent last year, so we had an improvement.

OK. And -- but the CCA things are going well there there's not going to be any kind of increment or, I guess, before you indicated that the increment will cost about a million five ...

Those are our capital expenditure costs and we've still got those budgeted for the year.

OK. And just to be clear on how EPS figure 401 with the changes?

EPS, yeah, 18 to 22 percent ...

No 401, what if you if you ...

You said that the first quarter of 401 was 28 cents versus the 25 reported with the accounting change and ...

Right.

What would that do to the 2001 annual figure?

Oh, what, I guess, I'm still not following you. If it's 100 -- $1.60, no the dollar ...

You talked, again, from the 25 cent a share you reported last year to 28 cents this year?

No we're talking about the whole year ...

Excuse me, for the pro forma?

Right pro forma, pro forma.

With pro forma, for the year earnings will go up -- you said net earnings will go up 2.8 million for the whole year. So, so for example this quarter was a 695,000 impact on the bottom line. The next three quarters would be about 750,000 each. That would get you to about that $2.8 million, $2.9 million figure.

OK. So a pro forma EPS number for 2001. I mean right now I'm looking at $1.62, $1.63 it would be closer to $1.75.

Yeah, yeah, just take it and divide it by the number of shares last year.

OK, OK.

With the housing data that came out this morning, I mean could you speak a little bit more toward the site built markets. Permits I guess were down 10 percent for last month. I mean are you seeing any softness there with this so far in April? What -- what's the situation on that side of the business?

We aren't seeing that. We're seeing our backlog extend out a little bit and seeing business quite robust. So don't let those monthly those monthly numbers can really lead you in wrong direction ...

Oh.

Unless you see a trend going three or four months in a row. I would say that if interest rates stay down where they are, we expect that to be a pretty powerful business this year.

OK.

And industry-wide on the manufactured housing side, you indicated that shipments were up, what was that, 8 percent?

Yeah, it was about 8 percent through February.

OK, I guess we're starting to see things change on that side of the business in terms of with those in the market?

Yeah, we figured they still have quite a long way to go.

OK. OK. And with the um Innotech I mean -- how -- what are the -- I mean, it may be on just -- on a relative basis, what are the margins or overall margins, operating margins overall and where are do you really see that that technology having?

In general terms, overall margins about twice what it is, operating margins about twice what it is on our average of our product line today. And what was the other question?

And, I mean, you mentioned that there was some opportunities in your others other markets including DYI and manufactured housing. If you could just give a little more color on what those opportunities would be?

For DIY, we would definitely come out with a fencing product. We will definitely have a product for outdoor entry doors, and garage doors, that is impervious to decay and paints, very nicely, we are also looking at some shingle products, we're looking at some siding products, we're looking at some decking products, quite a large opportunity. Did that give you enough?

Yes, that's fine. Thanks a lot.

Thanks, .

with , please state your question.

Good Morning.

Bob?

How are you doing?

Good buddy how about you?

OK. Thanks. I just wanted to clarify you mentioned the sales so low on Home Depot and Independence. Did I hear you right that the sales to lows in Independence are up but the sales to Home Depot are down a little?

No, our sales in Home Depot for the first quarter are up, but are overall sales in that market are up more than just our Home Depot sales.

OK. Good. Thanks. And also um could you comment on not running for the board again.

has reached the limit.

OK.

Yeah, and he's retiring. Matter of fact, he really did retire. I don't think he made it to the last -- I don't think he made it to the last board meeting. And he's remarried and moved to Oklahoma, so he -- is much on his retirement mode.

OK, is that -- is -- he's remarried -- also the reason that his holdings have been , so it's basically divided up now?

Bingo.

Thank you.

Oh.

with , please state your question.

Let me add my congratulations first and foremost for a great quarter.

Thank you.

I may have missed it, but did you state the cents per share you are going to gain from the change in accounting of goodwill?

Well we gave you the net earnings per year, . It's going to be 750,000 per quarter for the next three quarters, in addition to what we've already recognized so far this year.

And is there any impairment issue to look at here during the quarter, first quarter or second quarter?

We went through and the 142 evaluation on our goodwill. It it's been audited and we have no impairment issues at all.

That's even nicer news. ...

Yes, it is.

In terms of the overall balance sheet, do you have any game plan as to how quickly and how much debt you'd like to pay off this year and next year?

Yeah, we'd like to pay off in the neighborhood of 35 million to 40 million.

And this is all about penalty?

Correct. It's all in our revolving credit facility, so we can pay it off without penalty.

Great.

And the last question, is there anything fundamentally different about the business looking forward the next two or three years versus what we saw the last two or three years?

Boy, Dave that's a tough quest you I don't I don't see anything, but I'm getting older. You know ...

Aren't we all.

To me it's going to be see I just see as much opportunity as we had in the past maybe some more cause our leverage keeps getting better. I look for some pretty good things over the next three years.

Great, thank you so much.

You bet, .

Ladies and gentlemen, if there any additional questions please press one at this time. Gentlemen there are no further questions at this time, please continue.

OK, well then, once again thank you very much for your support and for caring about our company, and owning shares if you do and rest assured that we'll be giving you 24 hours a day 7 days a week trying to add value to your portfolio.

Thank you very much and have a great day.

Ladies and Gentlemen that will conclude our conference for today. Thank you for participating. You may all disconnect now.

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