UFP Industries Inc (UFPI) 2003 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Universal Forest Products third-quarter conference call. (Operator Instructions). I would now like to turn the conference over to your host, Mr. Thomas Smith, Mr.Smith you may begin.

Good morning and welcome to Universal's third quarter 2003 conference call. This is Tom Smith with Fleischman-Hilliard. Joining us today are William Currie, Vice Chairman and CEO, and Michael Cole, CFO.

Before I turn the call over to Bill Currie, I would like to remind everyone that included in this report are certain forward-looking statements within the meaning of section 27A of the Securities Act of 1933, as amended in section 21E of the Securities Exchange Act of 1944 -- excuse me, 1934 -- as amended. Such forward-looking statements are based on the beliefs of the Company's management as well as on the assumptions made by the information currently available to the Company at the time that such statements were made. Actual results could differ materially from those included in such forward-looking statements. Investors are cautioned that all forward-looking statements involve risks and uncertainties.

These risk factors and additional information are included in the Company's report on Forms 10-K and 10-Q and filed 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 express written consent of Universal is strictly prohibited.

At this time, I would like to turn the call over to Bill Currie, go ahead bill.

Thanks, Tom. Good morning everyone and thanks for joining us for our third-quarter call. It was a good quarter for us. It was relatively strong. We grew our sales by 18.5 percent and our earnings by almost 14 percent. Our outlook remains strong. We are picking up market share in each of our four markets, and there are other industry conditions that continue to favor us.

Before I talk about specific market outlooks and strategies, I will turn the call over to Mike Cole to discuss our financial results for the third quarter, Mike

Thanks, Bill, and good morning to everyone. I will start with a review of our income statement for the quarter. As Bill mentioned, our overall sales were up over 18 percent. The lumber market was higher this quarter, which contributed to our sales increase. We estimate that highest lumber prices had the effect of increasing our sales prices by approximately 5 percent. Our overall unit sales were up 13 percent. In addition, we have estimated that acquisitions drove 9 percent of our unit sales increase and that our organic sales growth was 4 percent.

By market, our Samson (ph) DIY market increased 22 percent for the quarter as a result of three factors. First, units shipped have increased substantially due to the acquisition of a composite manufacturing plant and a treating services agreement we entered into with Quality Wood in November of last year.

There is something new to report you regarding this transaction. During the third-quarter, we entered into an agreement with Quality to purchase two of the plants providing us with treating services and entered into a capital lease for a third plant. The treating services agreement with respect to the remaining three plants has been canceled, but we expect to be able to serve most of the remaining customer base from our existing plants.

DIY sales have also increased as a result of higher sales prices due to the lumber market and organic sales growth totaling approximately 4 percent.

Our sales to the manufacturing housing market remained flat for the quarter, while industry production was down 21 percent. Our sales for the (inaudible) construction market increased 26 percent for the quarter. Our increase in unit sales was driven primarily by new framing operations in Phoenix and Las Vegas and organic growth out of existing plants totaling approximately 6 percent. Finally, our sales to the industrial market were up 20 percent for the quarter. Our unit sales growth this quarter was primarily due to organic sales increases spread over several plants.

Moving down the income statement. Our gross margin decreased 13.5 percent from 13.6 percent last year. We believe this was primarily due to the high level of the lumber market. Please recall that we attempt to price our products to earn a fixed profit per unit, so in a period of higher lumber prices, our gross margin will decline. In order to take this factor into account, a more meaningful analysis is a comparison of our changing gross profit dollars versus our changing unit shipped. We are pleased to report that our gross profit dollars increased by almost 18 percent, while our increase in unit sales was 13 percent.

Selling, general and administrative expenses as a percentage of sales decreased to 9 percent from 9.1 percent last year. This decrease was again due to the impact of the higher lumber market on our selling prices. With respect to dollars, new operations comprised 1.4 million of the 7.3 million increase in SG&A. The remaining $5.9 million increase in SG&A of the core business is primarily due to greater headcount to support our future growth and an increase in incentive compensation and higher insurance costs.

Our interest costs for the quarter increased almost $1 million due to an increase in our average debt balances during the quarter combined with an increase in our average filing rates. As you might recall, we issued 55 million of long-term notes last December and used the proceeds to reduce the amount outstanding on our revolving credit facility. Finally, our diluted earnings per share were up almost 14 percent to 66 cents.

Now I will move onto our cash-flow statement. Our cash flow from operations improved by more than $20 million compared to last year. This increase was driven by three factors. First, we sold through extra inventory we carried at the end of last year and throughout the first quarter that resulted from opportunistic buying and poor weather. Trend inventory levels are more in line with the current demand and our expectations. Second, we have succeeded in efforts to lengthen our payable cycle, and lastly, our accrued liabilities increased.

Our (inaudible) cycle for the quarter decreased to 41 days from 43 days last year. This decrease was primarily due to a two day increase in our payable cycle.

Capital expenditures totaled over $33 million for the year-to-date compared to 21 million last year as a result of increased spending on expansionary items. For example, we have expanded the capacity of our composite decking plant and have completed four new plants.

In addition, and as I previously mentioned, we recently purchased two treating plants and the equipment of a third plant from Quality Wood. We expect to spend approximately $13 million for the balance of the year, which puts us slightly ahead of our stated target of $40 million as a result of the plant's purchase from Quality.

Under Financing Activities, you'll notice that we have a new line item, "Proceeds from sale and servicing of Accounts Receivable," totaling $25 million. This represents a new program we have instituted this quarter, whereby we sold certain receivables for cash and the transaction that qualifies as a true sale for financial reporting purposes. The proceeds from the sale were used to reduce filings on our revolving credit facility. The benefits we derive from the program included cost that is lower than our revolving credit facility, a program size over $30 million which increases our available debt capacity for growth, and further diversification of our funding sources.

A couple of final points I would like to make about the balance sheet. Included in debt was $18 million on our revolving credit facility, which has total availability of 172 million. Our leverage ratio at the end of September was 40 percent versus 44 percent a year ago.

That concludes my comments, and I will turn it back over to Bill.

Thanks, Mike. As you can see, the cash flow was excellent for the quarter, and our balance sheet continues to strengthen.

Let us talk a little bit about the lumber market first and the impact on our current quarter. The lumber market has moved back down to more historical type levels, and that is where we see it for the next couple of quarters. It did have a spike during the third quarter, but the lumber is already being traded at below the print that it is printed at. So we see the market moving back down to normal over the fourth and first quarters.

There was a run on OSB panels that hurt us a little bit for the quarter on some of the large jobs that we had quoted out. We had not covered everything that we needed, so the run in the OSB panels did hurt us a little bit, but nothing significant. We see that panel market also moving down a little -- not as rapidly as the lumber, but we do see it moving down in little bits and pieces. We see the soft market again for the first quarter. The demand will not be anymore than it was last year, and we will have very soft lumber prices. So we don't see much changes going into the next year.

Performance DIY. There were a lot of good things in the DIY. First of all, our sales went up 22 percent. That was 13 percent up to depot, and our depot sales went from 68 percent of our total DIY sales down to 63. So that shows that Mike Glenn's operating people are definitely moving more product to independents, and we are further diversifying that customer base for DIY. That is very good news.

We continue to see growing demand for our new composite products. Nothing that we can talk about now, but we do have some major opportunities with some other big customers. We had nice increases in our installed sales businesses, and we have been doing the fencing products for awhile, and now we started doing the decks in Atlanta and a couple of our markets and we see that as a growing business.

Also, I think it's important to say that Isabel caused us some problems. Again, I cannot put it to pennies per share, but we had a half a dozen plants that were idle for a couple weeks in the Carolinas and the Virginia area that caused us some problems, but no complaints about it. It is in our numbers, and we bored up pretty well with that.

The Quality treating purchase that Mike talked about, what we really did was we maintained the sales volumes and we eliminated three inventory and manufacturing locations, and then made our other plants much more cost-effective by adding more volumes to them. So that was a very favorable transaction for us, and it should be valuable for us especially for 2004.

A CCA update. We converted 13 of our plants. By the end of this week, we will have converted two more. We are on track. We should have them all done by the end of the year. One or two might move into January, but pretty much we will have them done by the end of the year. The one thing we underestimated was the cost of conversion, the soft costs. The plants are down about two weeks, and we are not getting any treated product out, and we are still having to pay the salaries and the rent and the utilities, so it is costing us a little more than we anticipated, but again no excuses. It is in our operating numbers, and I cannot put a penny per share to it.

The outlook for DIY is continued strength through the end of the year. I think a lot of the projects that did not get started earlier in the year will give us a little longer selling season. We continue to grow our business with independents. We are working very hard to really move our percentages up. EverX continues to be a growth product for us, as does our TechTrim, our two composite products, and we see installed sales for 2004 being an even bigger part of our mix.

For the site built market, our performance increased sales almost 26 percent over the same period. We opened new facilities in Houston, Texas; Tecate, Mexico, which will be operating by the first quarter of this year. We were very satisfied with the results of our Norpac acquisition where we acquired 75 percent of a cement framer in Las Vegas. He also had a nice lumber framing company, and we acquired 50 percent of D&L Framing in the quarter, and that has also significantly helped us on our major installed businesses.

Under Manufactured Housing, despite the continued decline of the industry it did last year and when the shipments are off 21 percent and we are flat, we were very very sure that we are gaining market share. And the reason is some of the products I talked to you about last time, our new double-hinged plate which is very well accepted, and our Open Joist products, our new hanger products, we are really becoming almost the sole source supply for anything unique in that industry, and it should help us for 2004.

Industrial, again, Doug Hineholt's (ph) swat team, another 20 percent increase over last year. We expect the same kind of growth, and we seem to be hitting double-digit growth there, and we're gaining momentum. We continue to trade up from smaller undercapitalized accounts to larger national accounts. Accounts like John Deere and Trane, where we do a good job for them in one market and then they ask us to move to other markets with them. So this industrial business has some legs, and it should allow us to open some doors and continue to grow that business handily.

Look for us to be in the acquisition game again next year. We have a bunch of them lined up. We are evaluating; we are doing the due diligence. Expect us to pull the trigger in first and second quarters of next year on some acquisitions that might be in three of our four market.

In conclusion, we have lots of challenges, but we also have lots of opportunities. We are going to continue to run the Company the same way. Block and tackle every day. Keep our head down. Shuffle our feet. Do a good job for our customers, and try to add shareholder value.

We will now open it up for questions.

thank you, Mr. Currie,(Operator Instructions). I am showing no questions of this time, Mr. Currie.

Okay. If there are no questions, then we would like to thank everybody for participating in the conference call. Again, we are looking for a robust Universal Forest Products and wish you the best for the end of the year. Thank you.

Ladies and gentlemen, this does conclude the conference. Thank you for your participation in today's call. You may now disconnect and have a good day.