UFP Industries Inc (UFPI) 2005 Q1 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 star then zero on your touch-tone telephone. As a reminder, this conference is being recorded.

I would like to turn the conference over to Miss Sharon Silvers of Fleischman-Hilliard. Miss Silvers, you may begin.

Thank you. Good morning and welcome to Universal's first quarter 2005 conference call. This is Sharon Silvers with Fleishman-Hillard. 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 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 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 include the Company -- 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, re-transmission, 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.

Thank you, Sharon. and thank all of you for joining us today. As you can well imagine, we're pleased with the first quarter and we don't want to sound look a broken record, but, things are in really good shape at Universal. Our sales are up over 15% and our earnings were up 60-some percent and our outlook is very optimistic as we go forward.

We -- we have some pretty cool things to talk about, but Mike Glenn -- Mike Cole's going to get on the phone with you first on the numbers and go through the financials and then we'll talk about some opportunities that we are facing in the future. So, Mike?

Thanks, Bill, and good morning, everyone. I will start by reviewing our income statement for the quarter.

Our total sales increased 15% over last year. We estimate that the higher lumber market increased our sales prices by approximately 6%. Unit sales were up 9% for the quarter, including organic sales growth out of existing plants estimated at 5%.

By market, our sales to the DIY market decreased 1%, which was driven by a 6% decline in unit sales. Unit sales were down as a result of efforts to diversify our customer base and the delayed spring in the Northeast and Midwest. Our sales to the manufactured housing market increased 25%, 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 unit sales to manufactured housing and modular producers. In addition, industry shipments of HUD code homes were up approximately 13% for the quarter, based on preliminary numbers.

Our sales to the site-built construction market increased 32%, which was driven by a combination of acquisitions and new plants and organic growth out of several existing plants, particularly those in our Carolina, Florida and Texas regions. Finally, our sales for the industrial market were up 17%, including unit sales growth estimated at 14%. This represented very profitable organic growth spread over several regions as we continue to take market share.

Due to the strong build-up of our site-built, manufactured housing, and industrial markets, our sales to [inaudible] comprised less than 19% of our total sales in 2005, compared with 23% last year.

Moving down the income statement, our gross profits increased over 19%, exceeding our 9% increase in unit sales. Our improved profitability was due in part to the down-sizing of one of our western framing operations.

Selling, general, and administrative expenses increased almost 14%, which was above our 9% increase in unit sales, primarily due to incentive compensation type to operating profits and return on investment.

In our earnings from operations, we recognized a gain of 1.3 million on the sale of our plant in Stockton, California. That plant was relocated to Thornton, California this quarter.

Moving on to our cash flow statement: our cash flow used in operations improved by almost $14 million compared to last year, primarily due to an increase in our sales receivables program combined with a significant decline in sales to our DIY/ retail market, comparing March of 2005 with March of 2004, which resulted in a decline in our receivables. These positive factors were offset by a substantial increase in inventory, primarily due to opportunity buying by our purchasing offices in anticipation of the spring selling season and a rising lumber market.

Capital expenditures totalled almost $11 million for the quarter and we remain on target to spend approximately 40 million -- $41 million for the year. Proceeds from the sale of property, plant, and equipment came primarily from the sale of our Stockton, California plant.

A few things I'd like to mention about the balance sheet. First, our total debt at the end of March was 274 million versus 292 million last year, primarily due to the increase in our sale of receivables program. Included in that was $96 million outstanding in our revolving credit facility, which included about 75 million related to seasonal working capital requirements. And we continue to manage our capital structure conservatively as evidenced by our leverage ratio which decreased to 43% from 48% a year ago.

That concludes my comments on the financials. Bill?

Thank you, Mike. Now I'll try to give you a business update and then we'll take some questions.

First, on the lumber market, after a volatile 2004, the lumber market remained high through the winter months but it's becoming stable and predictable, as we thought it would. And we expected -- we expect to see the prices on the high side, but nothing that we can't manage and as you saw from our inventory levels going into the end of the first quarter, that we had taken a pretty good position in some areas where we thought there were opportunities in the marketplace.

As we take a look at the markets, first of all, the do-it-yourself market, sales decreased by less than 1%. This was planned.

We saw unit decline for a few reasons. First, because we -- of how we chose to handle our negotiations with the Home Depot. If the markets weren't the numbers we wanted and didn't give us the percentages we needed, we walked some business away. We walked some business.

Second, we had a prolonged winter in the Midwest and the Northeast and any of you that are in those areas understand that that has been a very difficult home improvement early spring.

Our sales to the Home Depot, for percentage of our total sales for the first quarter, was 19%, which was the first time we've been able to get them below 20% in -- which is where we've been trying to get them. So, even though our sales are down a little bit there, we are pretty pleased with the growth in our other markets and how well it's balanced our business.

Our wood alternative products are being very well received. Those products include TechTrim and our composite decking and railing line, called Latitudes, which had a successful relaunch last year. Both of our plants have full order files. We really can't take on any new customers and right now we are looking at some additional investments at both plants that would increase our capacity for both of those product lines.

Last year -- one of the helpful things about our numbers is -- we had a profit struggle last year with the resin increases and some inefficiencies in our plant, and we put our best guy, Bob Coleman, our Executive Vice President of Manufacturing, directly over these plants. He has straightened them out and both plants are producing profitably at a nice level now, so that has worked well for us.

Under the site-built arena, again, great performance. We have good, strong, backlogs. We're -- increased in our market share, especially with the big production builders, we had strong unit sales increases in Florida, Texas, the Carolinas, we had margin enhancements in our wall and truss and floors, because we were able to reprice again at the beginning of the year, and we continue to be pleased with our core framing operations. We have gotten rid of the problem child out in California, at least to [inaudible] and we are pleased with this and you'll be seeing some announcements on some additional opportunities in framing in the near future.

Under the industrial side of our business, that continues to just -- even amaze us sometimes, up 17 -- over 17%. Very powerful business for Universal. We expect continued growth. As I've said in previous calls, we simply have a lot to offer this market that others don't. We've got package engineerings, production engineering, a great sales force. We've got leverage in our purchasing, we've got leverage in just about every area where we enter this business, and we're very bullish on our industrial growth.

It also is -- we have no downfall to any of our plants, we're able to utilize 100% of all the product downfall into our industrial business. So, again, very good business for industrial.

Manufactured housing, here's the one that's sneaking up on us. We -- as you know, we made some pretty good investments in proprietary products for the modular market. The Open Joist 2000 floor system, the double-hinge truss for higher, longer roofs and the SideStep Plate, to give a good connection between the trusses and sidewalls, to handle a lot of the hurricane restrictions.

And more and more builders are getting heated up about these products. As a matter of fact, on of the state representatives in Pennsylvania is recommending the products to anybody out-of-state trying to send products into Pennsylvania.

The modular segment is particularly healthy. This is becoming the product of choice in the Northeast, the Midwest, and the Mid-Atlantic for scattered-lot homes, where the production builders can't come in and put a big community in and they've got to go custom. A lot of customers are going now to the modular unit because it looks so identical to the stick-built. So that's exciting, also.

In summary, this year we are celebrating our 50th year of business and I can happily say that this is my 35th year and all 35 years, we've always -- we've always been profitable, we've never had a bad year and we are starting this one out with a very solid performance. We believe the housing market will level off a bit, but all indications are that it will remain strong for 2005 and really, on a longer range forecast, we still see a strong three to five years out. So, we like where we are positioned there.

We are hitting our aggressive internal targets. We're hitting our KPI targets, we're hitting our sales targets, we're hitting all the financial targets that we've set forth and as you know, if we hit those all by the end of 2007, we'll have a significant -- should have a significant increase in market capital for the Corporation..

We intend to continue to be a good investment for you, to block and tackle, to work in our shareholders' best interests, and we very much appreciate the loyalty that you've shown us. So, thank you very much and we'll open up the floor for questions.

Thank you, Mr. Currie. [OPERATOR INSTRUCTIONS.]

Our first question comes from Frank Duna. Mr. Duna, you may ask your question.

Yes, I just have a question. You report, you know, give sales breakdowns in four -- I think it's four categories -- and I was just wondering if you're ever going to go to a segment reporting, where you're going to break up operating income between more than one -- into more than one area.

No, these are considered one segment for financial reporting purposes. They're just sales markets. So we won't -- we don't plan to ever break out the operating income of the four sales markets.

All right. Could you maybe help me here? Are any one of those four sales markets significantly more or less profitable than the others? So if I see, you know, sales increasing, one relative to the other, I can try to figure out what that impact is on margin and earnings?

It's pretty balanced.

Okay. Thank you.

Yes.

Once again, ladies and gentlemen, [OPERATOR INSTRUCTIONS.] Our next question comes from Steve Schiekofer. Mr. Schiekover, you may ask your question.

Yes, good morning.

Hi, Steve.

How are you? Just a quick question. I'm not a personal believer in the bubble theory of housing, but if it was to fall materially, is there enough growth opportunity through consolidation to offset the impact of slowing housing demand?

You know, we have such a small percentage of that market, Steve. I think we're less than 3% and when we are very aggressive, when the business starts to tighten up a little, we are aggressive. So I think you could look for us to hold and maintain our growth by being more aggressive in the marketplace and by also being a major player in the component area, where more and more of the production builders and the structures that are going up are going with preassembled walls and roofs and floors, and that's sort of our strength. So, we don't look for any problems in that area and we also don't believe in the bubble theory.

Do you have any single home builder that's greater than 10% customer?

No, sir.

Great. Thank you very much.

Once again, [OPERATOR INSTRUCTIONS.] I'm showing no further questions.

Okay then. Once again, we'd like to thank all those that joined us on the call and thank them for being shareholders and rest assured that we'll be working hard for you. Thank you very much.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the conference. You may now disconnect.