UFP Industries Inc (UFPI) 2003 Q4 法說會逐字稿

Good day ladies and gentlemen and welcome to the Fleishman Hillard conference call. At this time all participants are in a listen-only mode mode. Later we will conduct a question-and-answer session and instructioning will follow at that time. If anyone should require assistance during the conference, please press star then zero on your touch tone telephone.

As a reminder this call is being recorded. I would now like to turn the conference over to your host, Mr. Tom Smith. Mr. Smith, you may begin.

Good morning and welcome to Universal's fourth quarter 2003 conference call. This is Tom Smith with Fleishman Hillard. Joining us today are William G. Currie, Vice Chairman and CEO and Michael R. 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 27 A of the Securities Act of 1933 as amended in Section 21 E of the Securities Exchange Act of 1934 as amended. Such forward-looking statements are based on the beliefs of the company's management as well on on the assumptions made by any information currently available to the company at the time 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 uncertainty. These risk factors and additional information are include in the company's reports on form 10K and 10Q 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 without form A -- excuse me, without any 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, and thank you all for joining us on the call today. We closed out 2003 with a strong quarter. It was much better quarter than the first quarter where we had weather problems. We grew our sales by 34% and we grew our earnings per share by 36% over the same period last year.

That helped us close out the year with net sales of $1.9 billion, which is a 16% increase in diluted earnings per share of $2.18, which is about an 11% increase over 2002. Those two targets we hit were better than what we thought we could do internally. Our outlook remains strong. We are doing a really good job in all four of our markets.

We are being very aggressive. We are picking up market share and the markets are healthy themselves. Before I talk about specifics on our outlooks and strategies, Mike Cole will discuss our financial results for the third quarter and for the year end -- for the fourth quarter and year end. Mike?

Thanks Bill, and good morning everyone. I'll start with the view of our income statement for the quarter. Our total sales increased 34% over last year. We estimate that the higher lumber market increased our sales prices by approximately 16% and that our unit sales were up 18% for the quarter.

We've also estimated that acquisitions drove 7% of our unit sales increase and organic sales growth was about 11% for the quarter. By market our sales for the DIY market also increased 34%. As a result of three factors. Acquiring the [inaudible] manufacturing plant and certain treating plants from Quality Wood, higher sales prices primarily due to the lumber market organic growth totaling approximately 9%.

Our sales from the manufactured housing market increased 20% for the quarter primarily due to higher lumber prices. Although industry production was down 21% for the quarter, our unit sales were flat as we continued to build share and increase shipments to the modular market. Our sales to the site built construction market increased 36% for the quarter.

Our increase in unit sales was driven primarily by our new framing operations based out of Phoenix and Las Vegas and organic growth out of existing plants totalled approximately 8%. Finally our sales to the industrial market were up 44% 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 operating margin, decreased to 2.7% this quarter from 3.2% last year. Primarily due to the higher level of the lumber market the fourth quarter of '03.

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 margins decline. In order to take this factor into account, a more meaningful analysis is a comparison of our change in operating profit dollars versus a change in unit shift.

Our operating profits increased 13% in the fourth quarter of '03, which is short of our 18% increase in unit sales. We believe this was primarily due to costs associated with our conversion to ACQ and losses incurred by some of our joint venture framing operations.

Now I'll move on to our cash flow statement. We're pleased to report that our cash flow from operations improved by almost $48 million compared to last year as a result of several factors. First, our sales receivables program resulted in net proceeds of approximately $9 million at the end of the year, second, we sold through extra inventory we carried at the end of last year from and throughout the first quarter that we had from opportunistic buying in poor weather. The current inventory levels are in line with demand and our expectations.

Third, we have succeeded in efforts to lengthen our payable cycle. And finally, these positive factors were offset by an increase in receivables due to strong December sales levels. As you know, we believe our cash cycle is the best -- is one of the best metrics for determining how well we manage our working capital and cash flows for the period.

We're pleased to report that our cash cycle for the quarter decreased to 48 days from 56 days last year. This decrease was primarily due to a 7 day improvement to our supply of inventory. Capital expenditures totalled over $40 million for the year compared to $31 million last year, as a result of increased spending on expansionary projects in '03.

For example we have expanded the capacity of our composite decking plant and completed four new plants. We also purchased two treating plants and equipment, our third plant, from Quality Wood in the third quarter.

A couple of points I would like to make about the balance sheet, included in debt was $27 million outstanding on our revolving credit facility, which has a total availability of $172 million. So we have plenty of availability for growth in 2004. And we've even been able to bring our leverage ratio back down to 41% versus 48% a year ago.

I will conclude with a review of our 2004 targets. As you can see in the press release we are targeting sales and an EPS including 10 to 14% next year. We have plans for moving out with the [inaudible] share market in those comments. Our capital expenditure target for 2004 is approximately $38 million, which includes an $11 million of expansionary projects.

We expect depreciation and amortization to total almost $30 million in 2003 and we have completed the sale of our shares of Nascor and expect to record a loss on the transaction between 4 and $600,000 in the first quarter. That concludes my comments on the financial statements. Bill.

Thanks, Mike. Now I will try to give you a business update and then we will try to candidly and honestly answer any questions that you might have for us.

The lumber market, the lumber market for the year was basically flat but for the last quarter it showed some life. So the lower market in the first three quarters in the expanded market in the fourth quarter helped our fourth quarter but basically left us with a flat year as far as our sales numbers were concerned for the lumber market.

I think this year you're going to see a stronger lumber market for the first six months and then you probably see a back off. I also think you're going to see a strong panel market for the first six months and then as new capacity comes on the marketplace, you will see those panels start to get back to more realistic levels.

The DIY business, we are continuing to see very strong growth for our composite products we picked up besides Home Depot additional business we picked up some really good sized accounts, Georgia Pacific and some other ones where we should see some really good growth in those composite products. We're also getting very -- the market likes them. They like the -- they like the straightness and the strength and they also like the appearance, so we're looking for that to help us.

A CCA update, we've converted all of our plants. Most of them are converted to the ACQ product but we did take a couple of our smaller plants and turn them into borace[ph]. Both of these have nonhazardous -- are using nonhazardous chemicals and eliminate some of the litigation that was out there in the past. One of the most ambitious efforts that we have ever undertaken in a long time is to convert these plants and we did it on time and we did it without an interruption in business.

We now are in full stock of ACQ product versus our CCA and we're ready for the spring season. Many costs associated with cleanup and also the inefficiency of our chemical treating process under the new system has cost us some money. We probably could have done that a little better than we did but we're through it now.

We have a real good understanding of our costs and we feel like we should be the best company going forward with this new chemical process. We do see the same or maybe a little more demand for ACQ products.

The -- a lot of hesitation that was out there in the past on consumers that understood that there might be arsenic or chrome in their treated products will come back to that product line now because it is still the most cost effective product on the market for outdoor use. There's nothing new on the litigation front, we seem to be handling that in a clean manner. And other than that, the treating business looks like it's back on a real strong footing for next year.

Outlook for the DIY, we look to see continued strength throughout the year, probably a -- you know, 5 or 6% increase, overall increase in the business an we're growing our relationship with Depot and just as importantly, we're growing our relationship with other large customers. I think you saw our Carter lumber business last year went from $3 million to $41 million. We've had some increases in our Loews business and we are really trying to grow besides our Home Depot relationship.

You will also see some strong growth on independents this year. We have developed an Everx composite product that is different than the one going to Home Depot. We will be taking that to our independent customers. And we see good growth in both our Everx and Tech Trim composite products.

On the site built side, you know, we're doing very well. Our component plants are doing very well. We're getting better and better at producing engineered floor systems, wall systems and panelized wall systems, but what's happening to us is some of these new joint venture framing operations that we're involved in, we don't have that business figured out yet.

That's a new business for us. So we put some universal veterans in there and Mike Glenn, the President and myself are also getting much more deeply involved in these joint ventures for framing operations and we'll get our arms around it this year and we think that will be nice growth for us and that will start to make that very good part of our business.

The outlook for site built, we see continued growth and especially in production builders and luckily that's where we've really put our strength and our marketing and manufacturing expertise and we have very powerful relationships with the large builders. As a matter of fact Pulte and KB and Centex and Ryland and DR Horton, our relationships are growing with all of those major production builders. We continue to serve the strong markets, California, Las Vegas, Florida, Phoenix and several northeast markets that are very mature and very profitable for us.

In the first quarter we will open five new plants. They are in New Jersey, Dallas, Texas, Houston, Texas, Indianapolis, Indiana and Tecate, Mexico where we will manufacture product for the San Diego and southern California market. Manufactured housing, despite the continued but slowing decline of the industry, we had very strong performance in this.

The new products that we brought to market, the double hinge plate, the side step, the open joist 2000, the caper truss, we are kicking butt with those products and nobody really has an answer for the stuff that we've developed for that market, so, our market share continues to grow. These products are being very well accepted and we look for strong growth in the land/home type packages, the modular packages and then start to see a revital in the HUD homes and more chattel financing available. We think this will be a turn around year for manufactured housing.

Industrial, very powerful business for us. It's -- you know, it's almost like a forest fire. You get it started and the wind starts to blow and the thing gets out of control and our ability to capture new accounts and grow our industrial business is going to be significant for us in the future. We have put a really good group of sales people combined with manufacturing people, team selling and we're picking up large accounts that are going to have -- give us substantial growth in the industrial business.

Acquisitions, we have haven't announced any yet. We have been working on them all year. We are pretty much true to our word where we didn't get involved in many in 2003 but we do have some that will be exposed to the market in the first quarter of this year and probably the second quarter of this year. We have picked out some nice companies. We've been working through the issues and we will be announcing something on acquisitions in the first and second quarter.

The selling of Nascor, I think I explained it in the press release, that, you know, we thought that that would be a proprietary product. It's become commoditized. It's now on a span of calculation rating with the American Plywood Association and it doesn't give us the unique niche that we like to have in our business.

So we put all of our marketing and manufacturing expertise behind our open joist 2000 product line, which by the way we have three factories. We're the only manufacturer in the U.S.. We have the license for it. We're running three factories around the clock and we're growing that business substantially. It's a competitive advantage for us and it will enhance our site-built growth and also our margin opportunities.

In summary, it was a strong year. We had really good growth, up almost a quarter of a billion dollars, or a little better than a quarter of a billion dollars. We're moving towards our goal of adding a billion dollars in sales by 2007 to our building forward strategy. We're hitting on our key performance indicators. We did great strides in our safety programs last year. And the people of Universal stepped up to the plate and they're making good on what we say we're going to do.

We had an interesting morning this morning, acknowledging Mike Glenn who is 51 years old and has been with the company for 30 years, today was his 30 year anniversary. It's because of people like him and our other management team that Universal continues to meet or exceed our customers and investors expectations. Thank you very much for taking time to be with us. Well open the floor up now for any questions.

Thank you. If you have a question at this time, please press the one key on your touch tone telephone. If your question has been answered or you wish to remove yourself from the queue, press the pound key. Our first question comes from Rod Cackley.

Good morning, Rod.

Good morning. I wondered if you could go into a little more -- give us a little more information on those acquisitions. Can you tell us what division they might be in or what sector they might be in?

You know, we mentioned that the two areas that we were going to concentrate on was the site-built business and the industrial business and the only thing I have to say is that we're living true to our word in that but we're looking at opportunities in our other markets also.

Are you looking domestically, overseas, can you tell us anything about that?

The only overseas operation that we have planned for in year -- not overseas but out of the country is Tecate, Mexico. That will open before the end of March.

Thank you.

Our next question comes from Frank Bisk.

Good morning. Very nice quarter, guys. I just had a few questions. One, could you just maybe go over what some of the problems were with the joint ventures and maybe just add a little more color? I just forget what's going there.

Well, it's a business where you -- you actually go out and you quota completed job, so you're supplying the materials and also supplying the labor. That's new for us. You know, we primarily were component manufacturers and we never worried about the labor or the actual cost for the finished job. We got off base on some of our labor estimates and also we got involved in a market where historically, wafer board, which is one of the many items in one of these multi-family and commercial structures went from a normal $170, $180 bucks a thousand to $450. So every one of these jobs that we had quoted out where we missed on the labor and underestimated the cost of the panel products, we took a haircut. And some of them we actually lost some money on the projects and we had to learn the business. And I think that's the important part of it. We -- we're getting our arms around it now. Some of our most recent ones have been much better and we still are very -- we're still very powerfully behind the opportunity to supply the components and also the finished job to the developer.

Okay. And what are the main locations in the U.S. that these JAV's are in again?

We're in Las Vegas, Phoenix, we're producing product in southern California. We even started to do a little on the east coast and we're doing them in Colorado.

Okay. Okay. Good. And would there ever be a time when you buy out the JAV or is that something you would be looking at?

The opportunities are there nor us to exit if we don't like it or take more if we like it.

Just on an I guess the composite side, where would you expect -- I don't know if you could even tell me or in a revenue or ball park -- what sales were in composites, you know, in '03 and, you know, where you see those going in '04?

Last year was a huge jump where we went from just a couple million up to $20 million. This year we're looking to go from $20 million to between $25 and $30 million. We would eventually would like that to be a $50 to $100 million business for us.

Great. Thanks a lot. Good quarter.

Thank you.

Our next question comes from David Liebowitz.

Let me add my congratulations for a great quarter.

Thanks, David.

In looking at the outlook for the current year, you made some projections which appear to be a bit light given the optimistic forecast you made looking at the four major industry groups. Why is revenue only projected where you're making it or is there something in one of those four groups that will not even come up to the 10% threshold?

You know, David, Mike Cole and I, we struggle with this on how we want to guide the market and, you know, my dad always told me when I was a little boy to under forecast and over perform and so I think you might see a little of that in there.

Okay. You have a very wise pappy, I'tell you that. I guess the other way to put it, given that we're not in Lake Wobegon where everybody's above average, which of the four groups will be the lager in terms of growth this year as you view it?

Probably still manufactured housing this year will be the lager in growth but I think we will see some growth.

And the second question is your overall profit margins, where are we going to get the biggest goose in profitability this year?

I think the site-built and the industrial still have the best opportunity for us to enhance our margins.

And lastly, in looking at your major accounts, did you gain share of market at these venues or were you holding your own or might you have dropped some share of market against the competition?

We gained substantially in all four markets.

And with your major customers as well?

Yes, sir.

Excellent. Let me add my congratulations.

Thank you.

Again, if you have a question, please press the one key on your touch-tone telephone. I am showing no further questions.

Okay. Then we want to once again thank everybody for listening in on our results and we will continue to keep our head down, shuffle our feet and work hard for you. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. The program has concluded. You may all disconnect. Thank you and have a good day.