UFP Industries Inc (UFPI) 2006 Q3 法說會逐字稿

Good day, ladies and gentlemen and welcome to the third quarter 2006 Universal Forest Products earnings conference call. My name is Carissa and I will be your coordinator for today. At this time all participants are in a listen-only mode. We will be facilitating a question and answer session towards the end of today's conference. [OPERATOR INSTRUCTIONS] I would now like the turn the call over to your host for today, Miss Lynn Afendoulis, Director of Corporate Communications. Please proceed, ma'am.

Thank you. Good morning and welcome to Universal Forest Products the third quarter 2006 conference call. I am Lynn Afendoulis, Director of Corporate Communications. On the call today are William Currie, Executive Chairman, CEO Michael Glenn and CFO Michael Cole. Before we turn the call over to Bill Currie, please be aware 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 21E 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 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 10-K and 10-Q 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 in any form without the written-- express written consent of Universal is strictly prohibited. Universal Forest Products is grateful you took the time to join us on this call for your interest in the Company, at the end of the call Bill Currie will open it up for questions. If you have a question, we ask that you identify yourself by name and by the company you represent or if you're an individual investor to indicate that as well.

At this time I would like to turn the call over to Bill Currie.

Thank you, Lynn. Good morning, everyone and thank you for joining us today. We're doing this conference call at a remote location today in Atlanta, Georgia, where we were just awarded the number one Home Improvement Retailers Partner of the Year award, which comes off the heels of last week's award where Clayton Holmes, America's largest manufactured home builder, awarded us with their National Excellence award, which is tantamount to their supplier of the year, so not bragging, just saying our team is focused on the right things which are our customers. This isn't the type of call we're accustomed to, but this isn't the type of business environment we faced in many years. The lumber market is lower than any time in recent memory. Retail sales are soft, so is the manufactured housing market, and you know the story on the home builders.

Given all of that, Universal had a very solid performance. While we didn't meet our targets, our balance sheet is stronger, our ROI is still better than it was last year, and we're working hard to mitigate the effects of the market and the economy. Times like this give us a breath and give us a chance to show what Universal is all about and to prove our power in long-term opportunities. You'll see us take market share and strengthen our position in all four markets. You'll see us get leaner and more focused. You'll see us strengthen and grow our organization so that we continue solid performance in tough times and unsurpassed performance in good times. So while our earnings and sales results aren't as strong as you might have anticipated, we're strengthening our organization and preparing for strong, steady growth in the years to come.

Before Mike Glenn talks about the results in our four markets and our outlook, I'll turn the call over to our CFO, Mike Cole, to discuss our financial results for the third quarter. 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 for the quarter declined by 7%. This was comprised of a 2% decline in unit sales and a 5% decline in overall selling prices due to the lumber market. Our sales to the DIY market decreased 15% compared to the third quarter last year resulting from a 6% decline in prices combined with a 9% decrease in unit sales. We believe the decline in unit sales is the result of soft market conditions stemming from decreases in consumer spending and housing. The impact of these adverse conditions was partially offset by market share gains we realized with the big box retailers. We picked up many new stores [inaudible] this year, our decline line in unit sales was primarily experienced in our Northeast and Midwest regions.

Our sales in the manufactured housing market decreased by 12% for the quarter primarily due to a decline in lumber prices combined with a modest decrease in unit sales. These markets continue to be soft as the industry reported a quarterly decrease in HUD home production of almost 13% through August, while modular production most recently reported a 7% year-to-date decline. Our sales to the site-built construction market were relatively flat for the quarter but in recent weeks have seen a more severe decline in market activity. We were able to offset these declines as a result of taking additional market share. In particular, we increased market share as a result of greater sales of turn-key framing services and components and increased sales of wall panels. Finally our sales to the industrial market were up 4% for the quarter comprised of an 11% increase in unit sales offset by a 7% decline in selling prices due to the lumber market. Our organic sales increase was primarily driven by plants in our southwest region and our Mexican joint venture. Our acquisition related growth resulted from our investment in United Lumber of July of this year.

Moving down the income statement our third quarter gross profit percentage increased to 14.7% from last year's 13.7% primarily due to the lower level of the lumber market this quarter versus last year. Our gross profit dollars were flat this quarter as a result of the 2% decline in units shipped. We experienced declines in gross profit dollars on sales to our DIY and manufactured housing markets which were offset by an increase in sales to our industrial market. Selling, general and administrative expenses increased by $2.1 million or 3% for the quarter which was driven by new operations recently acquired. Our effective tax rate was 37.1% for the quarter compared to 37.9% last year primarily due to a permanent tax difference as a result of greater income generated from non-wholly-owned joint ventures this quarter.

Moving on to our cash flow statement, our cash flow from operations increased by 27.7 million compared to last year as a result of a 23% increase in year-to-date earnings and non-cash expenses, the lower lumber market which reduced working capital requirements this year, and very strong sales levels and therefore greater working capital requirements last year. Our capital expenditures totaled over $27.6 million for the year to date, and we're now planning for a total spend of approximately 45 million for the year as we cancelled several projects originally planned in the beginning of the year. Business acquisitions for the year include $2.1 million paid to the assets of Classic Trust, 8.4 million paid for the assets of [Dura] Built, 800,000 paid for an additional 5% ownership in Shawnlee Construction, and in this quarter we paid 4.9 million for 50% interest in United Lumber and 11.3 million for the assets of GeoMatrix.

Three points I'd like to make about the balance sheet, first, our total interest-bearing debt at the end of September decreased to 171 million versus 191 million last year as a result of strong operating cash flow used to pay down our revolver. I should also point out that our sales of receivables program was unutilized at the end of September this year due to our low debt level. End of September 2005 we had approximately 25 million sold in outstanding under that program. Included in debt was 15.5 million outstanding in our five-year revolving credit facility which has a total remaining availability of about $200 million after considering amounts reserved for [inaudible] credit. And finally, our leverage ratio decreased 25% from about 31% a year ago.

That completes my comments on the financial statements, Bill.

Thank you, Mike, and now I will turn the call over to our CEO, Mike Glenn, for a business review.

Thanks, Bill. While some might be disappointed in our numbers, I need to say that I am really quite proud of our management team and our people who really delivered during some pretty difficult times. [inaudible] solid performance given the state of the markets and has every reason for optimism. As Bill said, times like these allow companies like ours to prove that they're made of the right stuff. We're asking ourselves and our people just how good are we? These are the times that allow companies to shine.

Let me start with a review of our DIY retail segment. Our DIY sales were slow in the second quarter, due to wet weather in the Northeast and a continuous poor economy in the Midwest, and sales, honestly, just didn't bounce back from that quarter as expected. The Northeast remains soft in the third quarter, and the Midwest was, it was really down. In fact, a few areas in the Great Lakes region were off by as much as 30%. The tough part of that is we'e been really looking forward to 2006 because we had gained good market share but the sales didn't materialize, consumers just weren't buying. But let's just focus on the bright spots.

First, we're confident that our market share gains will hold and that we'll grow even more in 2007. Second, we're very pleased with the growth of our consumer products. Our main ornamental post caps and decorative balisters were up 15 to 20% and the composite business has grown by almost 30%, nearly double the pace of the market growth of 15 to 18%, so we really are taking share. We're also enthusiastic about our acquisition of GeoMatrix and it's plastic lattice which is providing us with significant new business opportunities in 2007. We're looking forward to growing our successful consumers products portfolio which continues to open doors to new distributors and new opportunities. In fact, those of you that are in the Boston area will soon be seeing our latitude product thanks to a significant new program that we put together with a large distributor in the Boston area. We're very excited about this new business.

Site-Built, we really anticipated and planned for the slowdown in the housing market, and again we outperformed the marketplace, but what we didn't expect the market to perform is poorly as it did in some regions of the country in the third quarter. The Midwest and the Northeast remained soft. Southern California and Colorado, the markets just seemed to come to a halt over night. There was some developments that we had that were releasing 20 to 30 homes at a time that cut back to releasing one and two at a time, and many jobs that we had been awarded had been delayed or cancelled. Like everyone else, we're trying to determine when this will end. But we're spending more time on things that will enhance our position today and will make us stronger in the future.

First, we're picking up market share. In Texas we continued to convert builders from stick framing to components. Our wall panel business is up 25%, proof that our engineered components are taking share. In the Northeast our framing business continues to see healthy backlogs as we offer turnkey services to our customers. And even though the Midwest has been a difficult market for us, we picked up some strong business in some markets there that will carry us through the winter months. In fact, our Indiana and Michigan plants have a stronger book of business for the winter business that we've had in many years.

Now let's look at our industrial business. What more can I say except it is all good. The industrial market remains a strong opportunity for Universal. As Mike Cole had noted, our sales increased by 11% which is offset by a 7% decline in selling prices due to the lumber market. We continue to look for ways to increase our capacity and share in this highly fragmented market where we offer capabilities that others really can't. Our opportunities are coming at every turn. We're building crates for airplane wings and crates to ship and display tulip bulbs and everything else in between. A good example is our Parker Pennsylvania plant. This plant primarily services the manufactured housing business, but as we mentioned earlier, it was a little flat out in the Northeast, so they went out and started looking for industrial opportunities, and today they are manufacturing crates to ship the bullet proof glass used for military Hummers. It is their first big industrial account and really a good illustration of the importance of our balanced business model.

Manufactured housing, as Mike said, the decrease in our top line to this market due primarily to the lumber market, but manufactured housing also remained soft. Although the modular homes were down 7% for the first six months of 2006, our modular sales were flat, again we're gaining market share. We increased our modular business significantly with customers like Champion, Paramount and Clayton, and as Bill commented on earlier, we were awarded the 2006 National Excellence Award from Clayton Homes, which marks us as Clayton's top vendor of the year. We were noted for our clear focus on cost reduction, on price stability, and really for high-end service, and we got high marks from all their plants. Coming from Clayton, it is a huge honor, and it is a testimony to the importance and strength of our products, service and people. No one else can do these things in our industry except us because the experience that we have. Our clients place great value on that added service and our knowledge.

In summary, I am proud of our performance, given the market that is we're facing. Again, we continue to gain share and remain positive about our opportunities. We're continuing to drive costs out of our operations to our highly successful innovation programs, and we continue to focus on our continuous improvement strategies to enhance our efficiencies of our company, and we're taking a hard look at our organization to make sure it is strong and efficient as it can be. We look forward to announcing our new growth plan next week, and then we'll get busy with meeting it's goals like we have done with every other growth strategy that we've set.

Thank you, Mike. It was a tough quarter, and it's a tough business environment, and like you, I am very proud of our people and the results we turned in. Like Mike said, times like this prove who the truly strong players are, Universal people like to rise to a challenge, and you will see them prove the strength of this company time and time again. Next week we'll be motivated and challenged by a new growth strategy, and we'll meet its goals just like we have done every other time.

Thanks for being on the call and now I'd like to open it up to questions.

[OPERATOR INSTRUCTIONS] Your first question comes from the line of Jason Rogers of Great Lakes Review. Please proceed.

Good morning, Jason.

Good morning. Can you give some commentary on the DIY market and the modular housing? I was just wondering to your opinion of why those markets, I mean I was under the impression they would act somewhat counter cyclical to the sight-built construction area, and it seemed that those performed worse in the quarter.

Jason, the DIY market, you're right, it's kind of interesting. What we've been able to determine is that the consumers were pushed away because of high gas prices, and they were a little shaken by what was going on in the housing market and weather affected it certainly in some of our strong markets. The manufactured housing industry is really, there has been no new lenders brought into the market that's helped spur that business on.

Is the manufactured housing, is that market, have you seen it increase recently with the decline in the site-built construction? You'd mentioned in recent weeks how that has gotten worse, has the manufactured housing gotten a little better to offset that or no?

HUD Co production was down about 12% it looks like for the quarter.

You know, Jason, in this cycle we really haven't given it enough time to make its move. Usually in these downturns in the housing cycle you will see an uptick in the manufactured housing production and you'll see an uptick in the Do-It-Yourself remodel refurbish market. But we're just, we're one quarter into a housing downturn, or maybe a quarter and a half into it, and I really don't think it has had the time yet to adjust peoples-- consumer spending habits haven't had a time to adjust and I think you've got to give it a little more time to see if it follows the normal curve that it usually does.

Okay. You were kind of fading in and out during the call. Just a question, what was the contribution from acquisitions in the quarter?

The accretive effect of acquisitions?

Just on the top line.

Oh, on the top line. Acquisition growth was 2%.

Okay. 2% to the top line.

Sales out of existing [stabilities] was actually down 4.

Okay. Thank you.

Yes.

Your next question is from the line of Justin Thomas of Citigroup. Please proceed.

Good morning, Justin.

Good morning, guys. A couple of questions for you. Can you help me with some logic here. If I take your guidance for the rest of the year, it kind of implies that fourth quarter is basically down 50% year-over-year. Can I basically think of that as the run rate then as I start to think about next year or effectively where earnings power is down by let's say half?

Well, we're not going to make a forward outlook on [6-7], 2007 year. We'll express our targets for the 2007 year after we go through our proposal season, the DIY business and get a little better picture of developments in the fourth quarter.

Okay. But am I correct in how I am looking at the fourth quarter, that it is basically half?

Fourth quarter -- the estimates for the year imply a 40 to 55% reduction in the fourth quarter.

Okay. Another question on bonus accruals this quarter and next quarter. Have those either been-- have they gone away or been in fact reversed at all? Is that something that's helping you out perhaps on the SG&A line?

That's true.

Can you help us understand maybe what the size of that might be?

I think versus last year we saw a seven-figure decline in the third quarter expense versus the previous year.

Okay. And the new growth strategy next week, can you tell us at all, I guess maybe, timing or any clue as to where you're going with that and give us any hints?

We're still finalizing it. We have a board meeting tomorrow where we're going to present it to the Board, and then we'll be coming public with it early next week.

Okay. Thanks, guys.

Your next question comes from the line of Steve Chercover of Davidson.

Good morning, Steve.

Good morning. A couple questions. I guess I want to follow up a bit more on the last one. If we're discussing a 50% decline for Q4, how does that reconcile with the notion that normally margins go up in a low lumber priced environment, and it seems like the decline is substantially worse than what the home builders are reporting, not that there is anything to brag about, but I thought they were down 20, 30%.

Well, you have a couple things that you're not going to have this year, Steve, that were very favorable to us last year. Number one, we had a very, very warm, mild fourth quarter. Okay? We're not planning on as good a weather as we had last year. Number two, we had the effect of the hurricane, which had significant impact on a lot of our manufactured housing sales for the quarter, and it doesn't look like there's going to be any hurricane activity this year. Those two really exonerate the estimates that we're looking at. Also, if you take a look at the third quarter, it was a decreasingly, decreasingly bad quarter. July looked fine. August was close. Really the big decline came in September, so if you look at that going forward, at least for the balance of this year, it could have those kind of effects on our numbers.

Gotcha. And then the next question, do you want to mental business, I remember earlier in the year it seemed like you couldn't even keep up with that. Has that been rolled across the country or some of that still basically Pacific Northwest centered?

Are you saying main ornamental?

Actually not main ornamental, but you had those lighted caps and what not that I thought you were introducing initially just on the West Coast, and you couldn't keep up with demand. Has production caught up to the ability to sell it yet?

No. We're still seeing great increases on it, but this is the time of year where that business slows down. They will start stocking back up probably in February.

I see. Okay. Last question, since the going has gotten tough, are you going to-- finding the acquisition environment more favorable for yourselves? And can you offset some of the weakness in your traditional markets with some really timely purchases of competitors?

Yes. That's exactly the plan. We've got a bulging balance sheet. We've got a real different look at the people that are interested in selling on what they think their businesses are worth, and you will see some pretty good acquisition activity out of this one.

Thanks and good luck.

Your next question comes from the line of Frank Dunau of Adage Capital. Please proceed.

Hi, Frank.

How you doing? First question, you said CapEx was going to be down versus prior estimates, and you said you would cut back on some projects. Is there any area in particular cutting back projects or is it just across the board?

It was really two. We had a major project in Colorado that we cancelled, and we had some projects at our headquarters that we cancelled.

Okay. And you also said like at one of our manufactured housing facilities when business went down you shifted it over to crates. I think I heard that. So if business picks up, do you shift it back to manufactured housing or keeping it in crates or what do you do? I am just trying to figure out how that goes.

We keep it in crates. That's something that in the old days we would wind up doing, to be honest with you, Frank, we get that business and then we get busy, and I go back to the MH business, but we've learned that once we get the businesses, it's dog gone good business, and all we do is wind up expanding the present facility to accommodate that business.

Okay. One last question sort of along the lines. As the business sorted of slowed down in southern California and Colorado, and you must have crews or something now that I guess aren't working as hard as they used to. Hard is not the right word. Working as busily as they used to. They'd like to work hard, sure had enough business. Can you shift that to the manufacturer or something else or what do you do there when that slows down?

About 85% of our cost in manufacturing is variable. We will -- and already have and are right sizing these operations to have the proper labor numbers going against the size of our business.

Okay. And I guess in today's market at least there wouldn't be too much trouble getting people back to work if you needed to.

That's a good point.

Thanks.

Thanks, Frank.

Your next question is from the line of Keith Johnson of Morgan Keegan. Please proceed.

Good morning.

Good morning.

How is everybody?

Pretty good.

Quick question. I guess just a basic one on the tax rate for the year. What's the latest guidance, I guess for the annual tax rate?

Of the current year-to-date rates in the neighborhood of 37.7% and it ought to finish right around that range, 37.5 to 38.

Okay. Could you give us an update on the [Malhoma] progress, where that is?

We've been working on our due diligence for the last six weeks. It's gone very well. We'll continue to work on our transition plan and pull that one together soon.

There is no set time line?

Right now we're targeting the end of November.

Okay. You had made comments, I guess, on the Do-It-Yourself market with some of the factors I guess being the high energy costs, gasoline prices maybe pushing consumers away from spending. Was that a large enough factor that you would think that that would change over quickly now that we've seen energy prices drop off somewhat, gasoline prices come down?

Keith, the gas was one and the other one was all the ARMs that were changing that really affected the business. One thing that we do know is that when they-- when the retailer goes out and gets aggressive with their pricing, they really get foot steps in their stores. It is our understanding is that they're going to be very aggressive because they need to get foot steps in their stores which is obviously a good thing.

On the items, I guess, you made the comment that the composite business had been doing well over last year I think you said up 30% or so.

Correct.

I guess that product I guess I would look at it as a product that people would back away from when they felt like they didn't have the cash because it is more of a discretionary item. Did you see declining trends in that business through the quarter like your other businesses?

No, and in all honesty on that one, that's an affluent purchase, and that is not affected nearly as much as some of the other ones. The people that are going to put in a composite deck are going to put it in composite deck.

Okay, so demand trends there have been pretty good?

Very strong, and as a matter of fact it looks very strong for next year. We picked up some nice market share.

In the past you talked about the housing markets, and you've kind of-- I know you made comments earlier about Texas that you were able to convert builders there. What about the Southeast housing market? How has that been holding up?

It has been pretty solid. We've noticed a little bit of slowdown up in the northern Virginias, Carolinas, I should say area, but on a whole it's been pretty solid.

Thanks a lot.

You have a question from the line of Frank Bisk of Pilot Advisors. Please proceed.

Good morning, guys. During the last downturn, how long did it take for business to I guess really start to come back, and I guess your business is a little bit different today than it was in the last one. Could you maybe just give me a little color on that?

That's a question we're really trying to figure out ourselves is how long will this downturn last in the building industry. I think we're anticipating it going through 2007.

Okay. And can you just refresh me, on the site-built side, how many facilities now do you have right now and how many of those are actually-- will you actually frame?

It's about 28% of our total volume, Frank, and we're framing out about 6 different markets, but we're also expanding that to some other areas.

Okay. And I guess you mentioned earlier that your-- you started to right size some people. Did you do that in the third quarter or is that something that kind of it happening now or in this fourth quarter.

We've done it constantly.

Yes.

As we saw the need. It'is just a part of our management package, what we do all the time.

We have a fair amount of turnover that happens in the plants, naturally, Frank, and a fair amount of temporary employees, too, so it is fairly easy to right size it.

Right. Okay. Thank you.

Your next question comes from the line of David Leibowitz of Burnham.

I, too, had great difficulty hearing a lot of the comments. There was fading and also the rumbling of paper being moved on desks. In any event, if I ask questions that were responded to in the conference, I do apologize. First, the new plan you're going to be presenting next week, is this going to be a five-year plan as you've had in the past?

Yes.

And are you going to have a conference call so that those of us who care can hear about it first hand rather than just reading a shortened synopsis of it in the press release?

We hadn't planned on that. I think we planned on--

Planned on writing a shareholder letter and filing an 8-K.

Okay. Thirdly, how much did the reduction in the price of lumber cost you in terms of top line sales during the third quarter?

That's a difficult question to answer, David, but it certainly did impact our DIY gross profits, and our manufactured housing gross profits, too, but it does-- on the flip side it does provide some benefits to the sight-built and industrial side.

In terms of top line, did you ask, David?

Yes.

Top line, I thought you asked gross profit.

We have a percentage that they work out, that the finance department works out. Here is the way that practical people like Glenn and I look at. Last year the wafer board was-- the drop in wafer board from last year to this year is more than it's selling for. The drop in studs from last year to this year is more than it is selling for. It has been a drastic-- it is the worst lumber market I can see -- that I can remember in quite a long time. The wafer board is trading at $140. Last year there were times in the year it was trading at over 500. Studs were trading over 500 and now just a little over 200. The lumber market is very much over supplied. You had the Canadians bringing a lot of wood across the border with the scare of this-- the soft wood agreement, and you had wood baskets all over the world jamming lumber into North America. So you've got a very over supplied and now under utilized because of the downturns in the markets.

To give you a specific number, though, David, of the 7% sales decline, 2% was units, 5% was price.

Thank you. And following through on this, given the amount of inventory that is now stored up, how long would it take you to go through that inventory if housing starts and resales remain pretty much at current levels?

We don't-- our inventories are in the best shape they've ever been in.

I am talking about the industry. I apologize. I made it sound as if I was referring to UFPI. I am talking how long will it take the industry to dig out from the inventory gluts so the pricing can once again start moving northward?

Probably a year.

Okay. So we're talking virtually all of 2007?

2007, yes. That's what we think.

Okay. And, again, given the problems, if it's affecting you severely as it has, it must be affecting your competitors, especially secondary and tertiary sites plays even more. Is this going to give you an opportunity to bid for contracts which hereto for you did not have?

We're being very aggressive in all four markets, David. You probably know the answer to that. If there is an order out there, we're going to have the order hounds on it.

The last question. In last years fourth quarter, in the prior conference call, you had indicated something north of $0.10 a share of earnings was related to hurricane Katrina. Is that correct?

That was an estimate, David.

So when we talk about for the full year being up 1 to 5%, we're talking being up 1 to 5% on reported earnings rather than x-ing out the boost from Katrina?

Correct.

Very fine. And the last question, when you put out the five-year program next week, are you going to be addressing a 2007 year-over-year comparison with '06?

What we'll be expressing is our goals for 2010.

You will not have any specifics for '07 at that time.

I guess we feel like we provided them with our targets for the balance of the year end.

Thank you very much.

Your next question comes from the line of Robert [Vermiler] of Axial Capital.

Good morning, Robert.

I had a bit of trouble at the beginning of the call hearing over the noise as well and I wondering if you can go through the unit and price growth numbers for each of the units-- each of the segments?

Sure. Our overall was, as I mentioned earlier, was a 5% price decline and a 2% unit decline. Within each market DIY was price was off 6, units were off 9. Manufactured housing, price was off 8, quantities were off 4. Site-built, prices were off 2, quantities were up 3. For industrial, prices off 7, quantity was up 11.

Okay. So for site-built, the unit volume was up 3%?

Correct.

And how does that look for Q4, what should we expect in that market?

We haven't broken down our targets by market. We continue to expect that the market activities [inaudible] up, and hopefully we're able to regain market share in the third quarter.

Okay. Great. Thank you.

Your next question comes from the line of Cliff Walsh of Sidoti & Co. Please proceed, sir.

Good morning, everyone. Can you guys comment on the acquisition pipeline and what you're expecting? Maybe over the next year or so to acquire?

Cliff, we're looking to make acquisitions in each one of the business segments that we're in. We announced the Aljoma one which was a major play for us. It gives us the entire southern Florida region, gives us complete dominance now in the state of Florida. We look at-- we're looking at some industrial possibilities for us, and-- although we have pretty much a dominant position in manufactured housing, we continue to look at opportunities in that segment also.

Okay. Now have you noticed at all, any change in valuations as the market has softened or do you think it's a little too early for that just yet?

Right now what we're seeing is more opportunities are coming across our desk in the last two months than they have in the previous six. They're still a little proud of their numbers, so they haven't come down quite yet.

Okay. Great. Thank you very much.

Thanks, Cliff.

Your next question comes from the line of Jason Rogers of Great Lakes Review. Please proceed.

Hi again. Question on the industrial. That uses scrap from the other businesses, correct?

Part of it.

Okay. With the other businesses down, is there any-- I guess, is the scrap still available to use or are you paying up for that scrap is or is that not an issue?

No, we're still-- in fact we just signed some large contracts to pick up more low grade consumer mills to feed a couple of our plants. We still have a very large appetite for it, and whether we generate it in our plants or whether we go out and buy it from the primary mills or even buy it from some of our competitors that don't know what to do with it, we've got plenty of source for it.

Understand that our scrap is only 5 to 10% of our industrial needs for low grade wood for our packaging, so, the use of the scrap keeps the plants clean and raises our margins, but we have all kinds of access to low grade wood, like Mike said.

Okay. And what's the status on the new machines that you mentioned before for the composite plant?

Well, we've bought the machines for our new picket line, and we're having those set up here in the next week or so. Based on that, and the business that we talked about that we picked up in the Northeast, most likely we'll be looking to buy some new machines, probably in the third or fourth quarter of next year to get ready for the following year.

Okay. With the share price weak today, what's your feeling on share repurchases?

We're looking at it. When the time is right, we're in there. We've got a 1.5 million shares that's been authorized for us to buy. As you know, in the last eight or ten years we've bought back 11% of the Company. We would like to grow our business. We would like to use our [inaudible] chest to grow our business, but in the event that the acquisitions don't come through at the levels that we anticipate, then we'll be looking very strongly at share repurchase or increased dividends.

Okay. And this finally, I just want to know the status on the 10 acre site in the Gulf Port area, if that's operational?

Yes. We've been operating now for really, probably a month, in terms of the plant being fully operational. We picked up two major builders that were there. I think we talked earlier that we came in conjunction with KB. We picked up the other major builder that announced that they were going to be in the Gulf, but it's, to be honest with you, Jason, it's still slow. It's a mess down there, and what they're building we're getting, but it is going to be a process.

Okay. Thank you.

You have no further questions at this time.

Okay. Well, if there are no further questions, we really appreciate the time you spent with us this morning, the interest you have in the Company, and we'll go back to work to make sure that we gain some market share and continue to move the Company forward. Thank you very much.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.