UFP Industries Inc (UFPI) 2004 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Universal Forest Products first-quarter conference call. At this time, all participants are in a listen-only mode. Later, we will be conducting a question-and-answer session and instructions will follow at that time. If you need operator assistance, please press star, then zero on your touchtone telephone. As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Jeremy School (ph) from Fleischman-Hillard. Mr. School, you may begin.

Good morning, and welcome to Universal's first quarter 2004 conference call. This is Jeremy School of Fleischman-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, and Section 21-E of the Securities Exchange Act of 1934, as amended.

Such forward-looking statements are based on the belief of the Company's management, as well as on the assumptions made by, and 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 uncertainties. These risk factors and additional information are included on the Company's report on Form 10-K and 10-Q on file with the Securities and Exchange Commission.

This call is the property of the 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. Bill?

Thank you, Jeremy. Good morning, everyone, and thanks for joining us on our call today. As you probably read, we had a very strong first quarter. Our sales were up 31 percent; earnings were up 20 percent; and our earnings were not up what they should have been because of some problems with one of our joint ventures. It is important to tell you that February and March were two of the strongest months we have ever seen in our history, and looks like more of the same as we see April start out.

The $466 million in sales was a combination of unit sales increases and price increases. They were about 50-50, and Michael Cole will talk to you a little bit more about that breakdown. But we did have very powerful sales dollar increases and also good units.

The challenges that we faced with the framing company in the west are a few different reasons. The first is that we had some folks that were not long-term Universal employees and their bidding processes and some of the systems that they use did not give a very accurate bid. And besides that, the number market screamed, and we did not have our lumber and panels covered for a lot of these jobs. So consequently, our costs were more then we bid on and that we estimated, and we took some licks. We estimate that the framing operations cost us between 5 and 8 cents for the first quarter. We have gotten rid of the associated management people. We put some Universal systems in. We think we have most of this behind us, if not all of it. We still believe in the combination of our components and training. We are just going to have to be a lot more precise on how we attack that business.

I look forward to giving you a more in-depth overview of our performance, but I would like Mike to go through the numbers with you, and the we will start talking about our mid- and long-term strategies. Mike?

Thanks, Bill. Good morning everyone. I will start with a review of our income statement for the quarter.

Our total sales increased 31 percent over last year, as Bill said. We estimate that the higher lumber market and the switch to a ACQ increased our sales prices by approximately 18 percent and that our unit sales were up 13 percent for the quarter, despite the sale of our interest in Nascor. We've also estimated that acquisitions and new plants drove 4 percent of our unit sales increase, and organic sales growth was about 9 percent for the quarter.

By market, our sales for the DIY market increased 15 percent as a result of higher lumber and chemical prices. Our sales for the manufactured housing market increased 35 percent for the quarter, primarily due to higher lumber prices and an increase in shipments to modular producers. Industry production for HUD code homes was down 13 percent for the quarter.

(indiscernible) for the (indiscernible) construction market increased 49 percent for the quarter, despite the sale of our interest in Nascor. We had a very strong increase in unit sales this quarter that was driven by a combination of acquisitions and organic growth out of several plants. Finally, our sales for the industrial market were up 45 percent for the quarter. Again, our unit sales growth was very strong this quarter, and was primarily due to organic sales increases spread over several plants.

Moving down the income statement, our gross profit percentage decreased to 12.1 percent from 14.6 percent last year, due in part to the higher level of the lumber market in this quarter of 2004. 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 gross profit dollars versus our change in units shipped.

Our gross profits increased 8.8 percent in the first quarter of 2004, which was short of our 13 percent increase in unit sales. This was entirely due to the disappointing results of the training joint venture in the Southwest (ph).

Selling, general, and administrative expense increased 9.3 percent for the quarter, which compares very favorably with that 13 percent increase in unit sales.

Our effective tax rate was 39 percent for the quarter, compared to 35.4 percent last year, primarily as a result of tax incurred on the sale of our interest in Nascor.

Finally, the sale of our interest in Nascor resulted in an after-tax loss of $442,000, which was partially offset by an after-tax gain of 351,000 we recognized on the sale of one of our small plants in Oregon (ph).

Now, I will move on to the cash flow statement. As you may recall, our first quarter had high seasonable working capital requirements, and as a result, our operating cash flow for this period is always a large negative amount. Our cash flow from operations declined by almost 18 million compared to last year, as a result of higher unit sales and the lumber market. This is illustrated by comparing our ratio of working capital to sales at the end of March 2004 and 2003. Collectively, our accounts receivable, inventory and accounts payable, as a percentage of March sales, was 66 percent at the end of March '04, compared to 77 percent last year.

As you know, we believe our cash cycle was one of the best metrics for measuring how well be manage our working capital and cash flows for the period. We are pleased to report that our cash cycle for the quarter decreased to 48 days from 62 days last year.

Capital expenditures totaled over 7 million for the quarter, compared to almost 10 million last year. We still expect to spend approximately 38 million for the year.

Business acquisitions consist of amounts paid for inventory, real estate, and equipment for our new Dallas and Indianapolis facilities. In addition, we collected 4.7 million in cash from the sale of our interest in Nascor.

A couple of points I would like to make about the balance sheet. First, included in that was 108 million outstanding in our revolving credit facility, which has total availability of 171 million. So we have plenty of availability for growth in 2004. We've been able to bring our leverage ratio back down to 48 percent versus 53 percent a year ago. That concludes my comments on the financial statements. Bill?

Thank you, Mike. The last time I chatted with you, the question came up about what did I think was going to happen to the lumber market, and my answer was that I thought we would have a fairly stable market similar to last year because I didn't see anything that was going to change it. Well, I was wrong. And the lumber market has been screaming this year, as you know. Prices are at all-time highs. And, thank God, our purchasing department had a little different take on it than I did and had us in very good shape going into this year.

We've seen increases in just about everything. There's freight increases, labor increases. You know what's happening to gasoline and fuel prices. Ships are scarce; the vessels coming in from Brazil and Chile are difficult to obtain because so much cargo is needed to go from the Far East into the California coast -- a lot of the vessels are being used for that for higher shipping prices.

There's a lot of problems with the rail transportation in the US. It a very inefficient system, and with the kind of volumes that are going on now, it is showing its ugly head. In terms of scarcity of product, it is a little scarce. And with the new regulations on trucking, that has also become an arduous process. So there are a lot of challenges out there affecting our business right now. And we anticipate it to go on through the second quarter. I will tell you, though, that we have an outstanding team of professionals in our purchasing and freight sections of the Company, and we have handled most of these problems very well.

Let's talk a little bit about our performance DIY -- flat. The reason is that our Home Depot unit sales were down about 8 percent, and that was a calculated decreased. We didn't take a couple of the outlying markets that we used to take because the profit margins were not there. So we did a little of that business (technical difficulty). What we are happy about is that for the first quarter, Home Depot sales were only 23 percent of our total sales, and that's the number we have been trying to work it down to and grow our other businesses around it. So that is good news.

On the composite side of the business, our composite decking, our Everx, is doing very, very well. As a matter of fact, Georgia-Pacific has chosen our Everx product, and we're branding it for them as Lakeshore. And we will be their manufacturer for their composite decking.

A brief update on CCA -- we've had some good news this quarter that supports our position that CCA is a good and safe product. One first, in March, a federal judge in the U.S. District Court in Louisiana refused to grant class-action status to a CCA Lawsuit. This is the third time a court has denied class-action status to a CCA Lawsuit. And also, just last week in Denver, we had a significant victory when a jury confirmed our belief that a carpenter was not injured by CCA as he claimed in his lawsuit. The jury returned a verdict in our favor on all counts. So that is very good news, and that is starting to be part of our history rather than our future.

Under the site-built market, our performance was very powerful. We continued to build and evaluate our training operations to become more vertically integrated. We are still sure that that is the right process for us to be in -- producing the components and installing them. We just have to continue to work on our processes and our systems to get very efficient at it.

A few of our acquisitions became operational during the first quarter and are allowing us to meet the growing demand for our products in some new strong regions. We opened in Indianapolis; Berlin, New Jersey; North Dallas; and Houston. And all those plants are now operating and I expect most of them to be profitable by the end of the second quarter.

We also recently closed on our purchase of 50 percent interest in Shawnlee Construction, which is the largest framer in the Northeast and a very, very good partner. We're looking for that to be an outstanding acquisition for us. They have about 280 employees, and they have annual labor sales of about $20 million. They will use universal component in these jobs.

Also, by the end of May, we will be opening in Tecate, Mexico, which will be a large component planned to service the San Diego and Southern California markets, and we look for that. We are out about 13 or 14 weeks backlogged in our Southern California operations and we need additional production capacity. And this will fall in line just in time.

Manufactured housing -- we are starting to see the inevitable turnaround. The decline has stopped. Our sales are up nicely in it, mostly associated with the new products we talked about the last time for the modular industry. We have a very significant competitive advantage in that marketplace because we do have some patented products that are better than anything else out there. The industrial growth is again in the 40, 49 percent range, 45 percent range -- all mostly organic, very powerful. We're getting new and better accounts each year, each quarter, and we still look for significant growth in that market.

You'll probably see an acquisition in this area in the near future. We're working on a couple of them; we're getting close. And we are looking at acquisitions in all four of our market areas, and are actively looking to grow the business.

A quick summary -- all-in-all, it was a very good quarter, very strong quarter with record sales moving into the second quarter. The lumber market, although it's a challenge, I think we played it right. We had the product on the ground and we should do very well with it. Our people perform very well in this marketplace. Our internal theme this year is "feel the pride." And that's what we all do everyday. The pride of being associated with the great people, and also with the great investment community that follows us.

I will open it up for questions.

Operator, are there any questions?

(OPERATOR INSTRUCTIONS). Sir, no questions at this time.

Okay, then, thanks again for taking time to hear our story. We will go back to work. Thank you.

Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.