UFP Industries Inc (UFPI) 2004 Q4 法說會逐字稿

Good day, 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 conference, please press * then 0 on your touchtone telephone.

I would now like to introduce your host for today’s conference, Mr. Jeremy [School]. Sir, you may begin.

Good morning, and welcome to Universal’s Fourth Quarter 2004 Conference Call. This is Jeremy [School] 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’d 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, and Section 21B of the Securities Exchange Act of 1934, as amended.

Forward-looking statements are based on the beliefs 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 uncertainty. These risk factors and additional information are included in the Company’s reports on Form 10K and 10Q on file with the SEC.

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’d like to turn the call over to Bill Currie. Go ahead, Bill.

Thank you very much, and welcome, everyone, on today’s fourth quarter and 2004 conference call. It’s kind of a fun day for us, so we can talk about the outstanding results and the powerful performance of our team and our plants, nationwide. And that’s just what we have for the fourth quarter and year ended December 25th.

Very strong results. Sales went from $1.9 billion to over $2.4 billion. So we’re ahead of our 5-year building-it-forward plan. Our operating profits exceeded expectations, and our return on capital jumped over 0.5 percent. And our stock responded nicely to it, with a very nice move up for our shareholders -- recognizing the performance of the Corporation.

I look forward to talking about our markets and opportunities for the upcoming year. But first, Mike will discuss our financial results for the fourth quarter and the year ended December 25th 2004. Mike?

Thanks Bill, and good morning, everyone. I’ll start by reviewing our income statement for the quarter. As you noticed in the press release, our total sales increased 18 percent over last year. We estimate that the higher lumber market and the switch to ACQ increased our sales prices by approximately 6 percent. Unit sales were up 12 percent for the quarter, including organic sales growth out of existing plants estimated at 9 percent.

By market, our sales to the DIY market decreased 1 percent for the quarter as a result of a 4 percent increase in selling prices, offset by a 5 percent decline in unit sales. Our unit sales for this market have been off all year, which appears to be due to a decline in demand resulting from higher prices that have been passed along to consumers. Factors affecting higher consumer prices include higher lumber and preservative costs, combined with greater margin expectations of certain retail customers.

Our sales to the manufactured housing market increased 27 percent for the quarter, primarily due to higher lumber prices, a change in sales mix toward more complex trusses that require more engineering costs and higher prices, and an increase in shipments to modular producers. In addition, industry shipments of HUD-code homes was up approximately 9 percent for the quarter, based on preliminary numbers.

Our sales to the site-built construction market increased 34 percent for the quarter, despite the sale of our interest in [ASCOR] earlier this year. 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 existing plants -- particularly those in our Atlantic and Colorado regions.

Finally, our sales to the industrial market were up 28 percent for the quarter, including unit sales growth estimated at 18 percent. This represented very profitable organic growth, spread over several regions, as we continue to take market share.

Due to the strong growth of our site-built, manufactured housing and industrial markets, our sales to Home Depot comprised less than 25 percent of our total sales in 2004 -- compared with 30 percent last year.

Moving down the income statement, our gross profit percentage decreased to 11.8 percent this year from 12.1 percent last year, due to the higher level of the lumber market. As you know, we try to place our products so that lumber costs are passed through, and we earn a fixed profit-per-unit. So in periods of higher lumber prices, our margins decline.

We believe a more-meaningful analysis of our profitability is a comparison of our changing gross profit dollars versus our change in units shipped. We’re pleased to report that our gross profits increased over 15 percent this quarter -- exceeding our 12 percent increase in units shipped. Our improved profitability was primarily driven by a more favorable product mix, as our value-added sales ratio increased to 55 percent from 52 percent last year -- driven by increased sales to the site-built and industrial markets.

SG&A expenses increased 10 percent for the quarter -- which was slightly below our increase in unit sales. Underneath SG&A expenses, you’ll notice that we reached an insurance settlement associated with the fire at our plant in London, Ontario, and recorded a gain of $1.4 million. We also recorded approximately $451,000 in income taxes associated with that gain.

Moving on to the cash flow statement. Our cash flow from operations declined by over $20 million compared to last year. As we’ve discussed in previous quarters, this was primarily due to our inventory levels and purchasing practices at the end of 2002. Specifically, at the end of ’02, the lumber market was at a very low level, and our purchasing offices bought advanced requirements to lock in low prices. This resulted in higher-than-normal cash flows in 2003.

CapEx totaled almost $41 million for the year -- including costs to rebuild our plant in London, Ontario, totaling $6.5 million. Insurance proceeds of $2 million were received in ’04, and we expect to receive another 3 million in the future.

A few points I’d like to make about the balance sheet. First, our total debt at the end of December was $207 million versus $213 million last year -- primarily due to an increase in our sale of receivables program, which was renegotiated in November of ’04. Included in debt was $29 million outstanding on our new 5-year revolving credit facility, which has a total availability of $215 million, after considering amounts reserved for letters of credit. Finally, we’re pleased to report that our leverage ratio has decreased to 37 percent from 41 percent a year ago.

Now, I’ll conclude with a review of our 2005 targets. As you’ve seen in the release, we’re targeting a unit sales increase of about 7-12 percent, and an increase in net earnings of 10-15. Regarding the earnings growth target, it’s important to note that we’re excluding the insurance settlement and related income taxes from the 2004 results, when we express that target. In addition, the earnings growth target does not include the impact of expensing stock options, which we will be required to do, beginning in the third quarter of ’05.

Our CapEx target for ’05 is approximately $41 million, which includes over $10 million of expansionary projects. We expect depreciation and amortization to total almost $33 million in 2005.

That concludes my comments on the financial statements. Bill?

Thanks, Mike. Let’s just go through a couple things that I think will be important to you. First, the lumber market and the impact on the quarter. Last year was a very volatile lumber market, and the busiest on record. More wood fiber was consumed in the US than ever before.

The market saw lots of movement. We had record highs, and we also had record lows toward the fourth quarter. So it was very volatile. This year, we expect the market to be more stable. We expect it to be a higher price than average, but nothing that we can’t manage.

Taking a look at the markets that we serve -- our DIY market for 2004 was basically flat, as we were trying to grow our other markets around that. It’ll be flat again for 2005. Our Home Depot sales for 2004 were 24.5 percent -- down from 30 percent the year before -- putting us well in line with our goal to get it under 20 percent of our sales.

Our composite products are doing well. We’re selling all we can make. But we’ve got some resin problems, and we’ve got some efficiency problems. We’ve just named Bob Coleman, our EVP of manufacturing, over those two operations to get our efficiencies up and to get us a little better operating margins. So we’re looking for good results out of our composite branch next year.

Our site-built performance -- very good. Very powerful. Next year, we’re looking real strong. We’ve got good backlogs. Our startup operations in 2004 did very well -- probably better than we expected. They’ll all be adding to the bottom line this year. Our framing operations grew nicely, except the problem we had on the West Coast, as we wind down. We’re down to fewer than 3 jobs to finish out there, and should be completely done this year. We’ve accrued for any possible problems.

We continue to seek and evaluate additional opportunities in the site-built arena, as well as the framing arena. And we think that we’ll eventually be able to provide more turnkey operations for our customers.

Lastly, on the site-built side, our new Thorndale, Ontario plant is a state-of-the-art plant. It’s up and running. The open joist line -- the [inaudible] line and the truss lines are all operating at capacity, and we look for them to add nicely to our bottom line, this year.

In terms of our industrial business, we grew that business last year 36 -- almost 37 percent, and we still see a lot of growth. Right now, we’re growing at about $1 million a week. Our sales are up about $1 million a week over last year -- industrial. And we see that being a nice segment for 2005.

We simply have a lot to offer this market that others don’t have -- including the leverage of our buying power, the integrated sales teams where we use packaging engineers and production managers to work through customers solutions. And also the vast amounts of available downfall that we have from our other manufacturing processes that allow us to utilize that profitably, and give our customers very competitive pricing.

Manufactured housing -- that’s another bright star for next year. For the fourth quarter of ’04, HUDs actually were up 9 percent, and modular sales are soaring. As you know, we have a commanding market share in the modular home business because of our new products. Our side-steps played, our double-hinge, our open joist floor system. And we really look for that manufactured housing business to give us a big boost for 2005.

Summary of the year. This year we’re celebrating our 50th year of being in business. We started in 1955. So we’ll have a big celebration all year long. We’re planning on doing some nice things for charities. And also, we’re entering it in a position of strength and opportunity.

I’m really proud of the results of last year, but I’m bullish on next year. I think we’ll do even better in 2005. We’re positioned right, and that’s where we are. I think we’ll kick ass and take names, and I’m pretty sure that we’ll reach our 2.65 billion 2007 goal early. We’re going to continue to be a good investment for you, and we appreciate your support.

I’d like to open the floor up for any questions.

Frank Dunau.

Just a quick question. You said the forecast for 2005 didn’t include option expense? Do you know what those numbers are going to be?

Well, last year in 2003, that amounted to about $0.05 a share.

Yes. I know. But under the new whatever -- the accounting standards I guess kick in on July 1. Is there going to be a ramp up or anything?

No. You start accruing from that date forward.

Kevin Berg.

Quick question. Can you elaborate on the framing operations out west? You’re still out there, but what do you mean by there are 3 jobs left to go?

We haven’t taken a new job since the summer of last year. And we have 3 that we’re finishing up. We’ve accrued for any possible problems with them, but we’re still finishing up the final building. So it’ll be mid-year to the third quarter before we’re out of those last 3 framing jobs.

How’s the [TrimTrex] product been doing?

Sold out. We could sell 3 times what we have -- what we’re manufacturing. But you know with the resin prices way up where they are, we’re not expanding that business 'til we’re more comfortable with our cost-of-goods.

David Leibowitz.

Congratulations on a great year! Your announcement that you expect to reach the 2007 targets in advance… Does that mean that the growth rate is coming internal, or from another acquisition or two?

Well really, what’s happened, David, is the lumber market has made a structural move upwards. And that’s really fueled a lot of these number changes. Our unit sales growth -- we figured we’d have to be at about 10 percent growth a year. In the last couple years, we’ve hit 11 and 12 and maybe even a little better than that. So I just think that we will hit our 2007 sales goal probably a little early. It will be a combination of a little better lumber market, organic growth, and some more acquisitions.

And that leads to the obvious next question, which is if you’re going to reach your sales target early, does that mean you’ll exceed the earnings target?

Well, that’s sure what we would hope.

In other words, I’m not saying that we’re not going to get the earnings earlier. I’m asking will we have even higher earnings at the point when we reach the sales target, than originally projected?

It’s looking pretty good.

Excellent. Then let me leave it at that and say thank you.

Yes, sir.

I’m showing no questions at this time, sir.

Okay, then. Thank you all for being part of the call. We’re going to go back to work and make sure we remain a good investment for you. Thank you.