UFP Industries Inc (UFPI) 2007 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first-quarter 2007 Universal Forest Products Inc. earnings conference call. My name is Carol and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Lynn Afendoulis, Director of Corporate Communications. Please proceed, ma'am.

Good morning and welcome to Universal Forest Products' first quarter 2007 conference call. On the call today are William G. Currie, Executive Chairman, CEO and President Michael D. Glen, and CFO Michael Cole. Please be aware that any statements included in this call are not historical -- that are not historical are forward-looking statements within the meaning of section 21E 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 assumptions made by and information currently available to the Company at such time the statements were made. The Company does not undertake to update forward-looking statements to reflect facts, circumstances, assumptions, or events that occur after the date the forward-looking statements are 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. Among the factors that could cause actual results to differ materially are the following -- adverse lumber market trends, competitive activity, negative economic trends, government regulations, and weather. These risk factors and additional information are included in the Company's reports on Form 10-K and Form 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 expressed written consent of Universal is strictly prohibited.

We thank you for joining us on the call today. 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 are an individual investor to indicate that as well. At this time, I will turn the call over to Bill.

Thank you, Lynn. Good morning and thank you for joining us on our first-quarter 2007 conference call. You have seen the numbers and they speak for themselves. In the January conference call we told you that the first quarter was going to be rough and the quarter was even rougher than we expected. While it started improving significantly as the weather changed, it was a challenging quarter. We never talk about weather unless it is unusually good or bad and that was the case this quarter.

Bad weather around the country had an impact on the quarter. A significant impact on the quarter. January and February saw snow, ice, rain, tornadoes and other significant weather problems around the country. But once the weather turned around in March, our sales improved dramatically and we were able to start to see some of the clear results from our earlier efforts to gain market share and to grow our business. Mike Glenn will give you a closer look at our markets and what we are doing in his outlook after Mike Cole reviews the financials. So now I will turn it over to Mike.

Thanks, Bill, and good morning, everyone. I will start by reviewing our income statement for the quarter. As you noticed in the press release, our total sales for the quarter declined by 18%. We estimate that this was comprised of an 8% decline in unit sales and a 10% decline in overall selling prices due to a soft lumber market. Our sales to the DIY market decreased 9% compared to the first or last year, resulting from a decline in lumber prices combined with a 2% decrease in overall unit sales.

Acquisitions since the first-quarter of 2006 contributed unit sales growth of 8%, while sales out of existing plants decreased by 10% for the quarter. Our sales to the manufactured housing market decreased by 17% for the quarter due to a decline in lumber prices combined with a 5% decrease in unit sales. Our acquisition of Banks Lumber contributed unit sales growth of 25% for the quarter, while unit sales out of existing plants decreased 30%. This market continues to be soft, as the industry reported a decrease in HUD code production of approximately 39% through February.

Our sales to the site built construction market decreased 35% this quarter due to a decline in lumber prices combined with a 22% decrease in unit sales. Part of this unit's sales decline was due to a decision we made last year to exit the Las Vegas framing market. Excluding the impact of Vegas, unit sales decreased 18%. Single-family housing starts for the first quarter are off a reported 34% through February. Finally, our sales to the industrial market decreased 5% for the quarter primarily due to the lumber market.

Moving down the income statement, our first-quarter gross margin decreased to 13.4% from 14.2% last year. And our gross profit dollars decreased almost 22%. These declines were primarily due to a combination of lower unit sales out of existing plants, fixed manufacturing costs, and greater pricing pressure in the site built market.

Selling, general, and administrative expenses decreased by $1.1 million, or 2%, for the quarter. Our decrease in SG&A was driven by a $5.7 million decrease in the SG&A of existing operations in operations we closed this year, while newly acquired operations added $4.6 million in SG&A.

Moving onto our cash flow statement, our cash flow from operations decreased by over $30 million compared to last year primarily due to a decrease in earnings and the effect of our sales receivables program on our cash flows. Specifically, in the first quarter of 2006 a new program was completed and we sold receivables totaling $50 million. This year we had amounts outstanding on the program at the beginning of the year and sold an additional $22 million in the first quarter.

Our year-to-date capital expenditures totaled over $8.6 million for the year to date and we are still planning on total capital expenditures for the year of $40 million. Business acquisitions for the year include Aljoma Lumber for $53.5 million and Perfection Truss for $1.3 million.

A few points I would like to make about the balance sheet. First, our total interest-bearing debt at the end of March increased to $279 million versus $205 million last year as a result of acquisitions, particularly the Banks and Aljoma transactions and included in long-term debt was $124 million outstanding in our five-year revolving credit facility, which has a total remaining availability of $139 million after considering amounts reserved for letters of credit. And our leverage ratio increased to 34.8% from 31% a year ago. That completes my comments on the financials. Bill?

Thanks, Mike. Now I will turn the call over to our CEO, Mike Glenn, for a business review and an overall outlook. Mike?

Thanks, Bill. You know, I have a strip that was lined out for me yesterday that I was supposed to read, but I think it is -- maybe I think it is more important that I talk to you about what we have been doing the last four months to drive our business for 2007 and the years beyond because there is some very powerful things that I want you to know. But first of all, we are really, we really don't like to give weather forecasts, but the first two months of the year really severely impacted our numbers. We had blizzards in Colorado and heavy snow storms in the Northeast. We had cold and we had rain. We had over 100 days of lost production time as a result of these storms and we had almost as many days as limited production. Yesterday, we had two more plants that were shut down because of the storms in the Northeast. That is the bad news.

Let me review our four markets for you and tell you where we are going. In the DIY market, we announced earlier that we had picked up Boston Cedar, which is the largest supplier for composite decking in the Northeast. This company sells over 500 trucks a year of composite decking. They are a very strong and very well-established company and our sales to them in the first two and 3.5 months have been as anticipated.

We announced early in the year the acquisition of Aljoma Lumber. Aljoma is the only manufacturer of pressure-treated lumber in South Florida. It gives us a huge presence in South Florida. It also opens up the Caribbean market for us and it also gives us strong sales for the balance of this year, but as we look forward, we are also starting out to integrate our consumers' products in there. We are bringing our plastic lattice, our post caps, our decorative railings, and those products are moving in South Florida and into the Caribbean.

We have also shipped product this year into Ireland, to New England, and to the Ukraine. It is kind of a small market, but kind of an exciting market. It gives us a little bit of a reach in our product lines. We picked up with the big box retailers this year. We picked up significant business in markets that we had never been before. In fact, the pick up is, on an annualized basis, is the sales is probably greater than most of our competitors. It was a very strong and very effective move by our Company.

We are bringing in -- we have gone to Poland and we have brought in some unique fencing products to show to the big box that also gives us an advantage on our competitors. And, lastly, this year we introduced a new chemical. In the years past, you heard about CCA and then ACQ. This year we came out with a product called MicroPro. You know, those of you that go into the retail stores and you see the treated wood and it is that dark green. Well, if you now go into any of our customers, or most of our customers, you will see this new product called MicroPro and it is a very clean and bright product that has gained tremendous acceptance in the marketplace.

Let me talk a little bit about industrial. A lot of you have asked in the last few calls, you know, what are we doing, how are we expanding this business that continues to be very powerful for us. In the last four months, we have opened up nine new factories to handle our industrial business. In the last six months, we have picked up over 500 new customers. And kind of give you an example of the way it is going, we picked up a company called Otis Elevator and we did their packaging, and we did some value stream mapping for them, and we took a lot of cost out of their packaging. And they were so impressed with what we did that they brought in three of their other suppliers and asked them to hook up with us to take cost out. So from that one customer, we have picked up three more.

Manufactured housing. Again, earlier in the year we announced the acquisition of Banks Lumber. It was the only national player that was left that was a competitor of ours. We now on approximately 80% to 90% of the market and to be honest with you, if the market goes up 80%, you are going to see an 80% pickup in our sales. And if it drops down, you are going to see a decrease in our sales, but we have a very strong and powerful presence in that marketplace and we continue to add new SKUs to some of these existing customers.

Site built, you all know it is tough. But what I can tell you is that we are taking market share. We have backlogs in a lot of our plants right now and the issue really is is when will these -- when will the customer release the homes. The reason we know that we are picking up of market share is, I will give you an example, in Denver we have been tracking the permits that are issued on a weekly basis. And typically in the January, February, and March time of year, they have about 200 to 250 permits a week that are issued.

We have been tracking it and there has been about 70 to 80 permits a week that have been issued. It spiked one time to 110, but we know what percent of those we got and we know we are picking up market share. The encouraging point of that is is last week the permits issued in Denver were back up to a normalized 235 permits for the week. So we have got a substantial amount of business that we are just waiting to yet released.

We have closed our framing operation in Las Vegas. It wasn't performing to our expectations. And we did the same thing to one of our residential trust plants in the Midwest. We have closed it down. And the other thing we are doing in our site built is typically we don't get into multifamily and small commercial, but because the business was so tough, our guys went out and they have hooked up with some multifamily companies. And we have picked up some multifamily business and we have picked up some small commercial business. Those take a little longer to develop, so you won't see the results of those until probably later in the second quarter or maybe even into the third. But we have made a dent in that segment also.

And, lastly, we have engaged in a continuous improvement initiative throughout the Corporation. In the first three months of the year, I visited over one third of our plants and I can tell you that our employees are energized. We are taking out waste in every one of our plants. We are creating space for new opportunities for us within the plants and our people are extremely energized and focused on the continuous improvement and lean initiatives.

There is a lot of positive and a lot of good things that we are doing that you are going to see in fruition in the second and third and fourth quarters, but not only that, we have positioned ourselves for years to come. In some of these acquisitions that we have made and some of these other strategic moves we have made, we have positioned ourselves to be the supplier to those four business segments for years to come. Bill?

Thanks, Mike. A few weeks ago Mike and I visited a number of our plants to see the changes that we are making to drive out waste and become better, more inefficient operations. You know, I wish you could have been there. It's terribly impressive. The people are all energized by the challenge. Every single day we are doing things better and better. And people still want to prove that we can and will drive our success through these difficult times. People who know that there are valued and rewarded well for what they do and are even awarded greater when we have success.

This is a great Company. It might have been a bad quarter, but we look forward to proving it again and again. I thank all of you for your interest and we will open this up for any questions.

Thank you, sir. (OPERATOR INSTRUCTIONS). Cliff Walsh, Sidoti & Co.

Good morning, everyone.

Hello, Cliff.

Good morning, Cliff.

Good morning, Cliff.

Mike, you had talked about multifamily and commercial work. Can you give us a sense as to kind of what your longer-term plans are? Are we looking that as more fill-in type work while residential is weak, or is that something you are going to pursue, you know, over the long-term?

You know, Cliff, that is a good question. We didn't get into it before because it really messes up your production lines when you are servicing the production builders. Because what typically happens with some of these multifamily guys is they give you a job and they tell you they are going to start it June 1 and then they pushed it back to June 15 and then they push it back to July 15. So you are really trying to juggle your production with your production builders.

I think you will see us in especially in the Midwest focusing a little more on that where we have some excess capacity and the ability to be able to do that. I also think with our lean initiative that we are going on, we are going to be able to much more reactive and efficient to service that business.

Okay. Is there ever going to be capacity that is earmarked for multifamily or commercial work? That way you don't have to worry about the production builders?

I think you will see that in the Midwest, yes.

Okay. Maybe you could just give us a sense as to kind of what is going on with the integration of the acquisitions and maybe performance, you know, of those businesses so far?

Sure. The Aljoma acquisition is, we put one of our best guys down there. I visited -- we made the acquisition in December. I have been down there three or four times since. I can tell you that it is a night and day difference between what the operation looked like before we bought it and what it looks like today. It has becoming Universalized to use the word. A lot of the ship is being taken out of the yard. It is organized. The people understand their responsibilities now.

We are producing a high-quality product and that acquisition is going to do nothing but get better for us as we figure out ways to bring our consumer products down there and figure out how we are going to ship into the Caribbean. But we have hired more, some more salespeople. We have brought in some Universal production people and those numbers are increasing.

In the case of Banks Lumber, again, the integration has gone very, very well. The plants that we targeted to close and move industrial in, we have done that. We have taken some plants and moved their production into Universal plants, which has helped increase the -- lower the cost per truss built. The people that we have moved over have been fantastic. You know all we need there is just a little bit of a bump in business and you will see some fantastic numbers.

The other thing I forgot to mention at Aljoma, they have never dealt in industrial sales down there. And that is a, as you're well aware, Miami is a huge market and there is endless opportunities. And so we are starting to hire some industrial sales guys. We have got them in training in other parts of the country to get them ready to go down there and push that segment also.

Okay. And with respect to future acquisitions, where do you stand over the next couple of quarters? Do you have your hands full with what you have got going, or there, you know, other opportunities?

You know, we are talking to people every day. We have got a small one that we are looking at right now that will really kind of fit into our multifamily and commercial play and with our Shawnlee framer. So we have got a couple of small ones to look at. I don't think you should look at anything large for the balance of the year.

Okay. And with respect to, you know, valuations, have you seen things start to come down with kind of the weakness in the end markets?

A little bit, Cliff, but the multiples still look kind of surprisingly high for what you would expect.

Great. Thanks very much, guys.

Thanks, Cliff.

John Emrich, Ironworks Capital.

Thanks. A couple of unrelated questions if I could ask them separately. First of all, the tax rate looked lower this quarter. I'm sure it is a seasonal thing, but just on average, what should we be looking for on an annual basis order of magnitude?

37% or so is a pretty good average to use. It is low this quarter because we had a permanent tax difference we were able to recognize as a result of closing down that Vegas operation that I mentioned earlier.

Got you. And second, I don't know about the seasonality in inventory, but I guess I have just started building a model and it looks like your days in inventory the last couple of quarters have been as high or higher than they have ever been. Is that a drag on gross margin going forward or for a couple of quarters or anything like that?

No, it's -- you are seeing a seasonal build. Depending on which periods you are looking at, you are seeing a seasonal build sequentially, like from third to fourth into the first quarter. So that is certainly part of it. And if you are looking at first quarter of last year to this year, certainly the weather and then the softer markets had something to do with our inventory levels being, on average, higher.

Got you. And then with all the numbers you throw out, I am a generalist. I am new to this story. Do you give anything that helps us understand what the organic sales decline might be in the quarter?

Oh, yes, sorry. I gave that by market, but I didn't give it in total.

Okay.

The sales -- unit sales were off 8% in total. And then, but our existing plants were off 16. So acquisitions contributed 8% units growth.

Got you. That's it. Thanks a lot.

Yes.

Jason Loeb, Lord Abbett.

Hi Jason.

Hi, everyone. Can you just talk a little bit about the MicroPro product from a just marketing perspective? How you are getting that into the big boxes, and how that is positioned against your core treated lumber, and maybe some pricing differences and margin impact?

The MicroPro product is -- we started out with it in slowly in Colorado last year. And what we found was customers that had left us because of a conflict, a channel conflict that we had with them with our site built side, some of the contractor yards went elsewhere. Once they saw the product all of a sudden they couldn't get anywhere else, we started seeing customers come back to us because there is two benefits to it. One is it is a lighter, cleaner, brighter product, but also from a fastener standpoint, you can go back to the old fasteners that we used in the days of CCA and not the expense fasteners. So it is a big benefit for the contractor yards.

And then as we grew the success in Colorado, the Home Depot made a decision late in the year that they wanted to take this product across the country. And so I think you will see in all the Home Depot stores this MicroPro. And I was walking a store the other day and one of the managers walk up to me and asked me whether they had to get any of that green wood anymore, because they sure like this new clean bright Micro product that is in the marketplace. The impact of -- the cost of the chemical is about the same as the ACQ we were using. The impact on the margins is same as it was.

So, well, for example, at Home Depot now market that as a -- as another product under a different name, where you will have traditional treated lumber, you will have your composites, now you will have this MicroPro?

No. All their treated lumber will be MicroPro and then they will have their composites.

Okay. You mentioned about 100 days of loss of production due to the storms. Can you just talk about, assuming there is a pent-up demand, how quickly you are envisioning that to run through the system?

That is a tough one to -- for us to give you an answer on. It is hard to tell whether someone who is going to build a deck in February decides to hold off now until April because they have got something else to do and they have spent the money. But typically, we have seen when we have had these bad weather days that it manifests itself back in the second and third quarters.

Finally, obviously your cash flow is, cash flow numbers in, from operations are quite solid. Can you just address share buybacks? You know, just looking at performance over the last number of years. We have been in a depressed market for about 12 months now. Your stock price has pretty much averaged at these levels for the last 12 months. Last time you bought stock was approximately 2 years ago at a little bit below where we are now. Can you just give me some thoughts there?

Hey, Jason, this is Bill.

Yes.

If we didn't have an intercompany policy that stated there would be no insider trading within 48 hours of our release, we would have been buying shares back this morning. Our focus is -- it looks to us like our best return on investment over the near term. We will switch our focus from acquisitions to stock buybacks, number one; capital expenditures for our industrial operations, number two; and acquisitions, number three.

Is there currently an authorization by the Board for stock buybacks?

Yes.

Yes. 1.5 million shares.

1.5 million.

So we have plenty of approved.

Okay. All right. Thanks, guys.

Steve Chercover, D.A. Davidson.

Thanks, good morning.

Good morning, Steve.

Good morning.

Good morning, Steve.

First question, the decision to exit Las Vegas, was that simply because the plant was underperforming or did you guys have some sort of insights on how the actual market --

Mostly because it was underperforming, but the market was also heading down too. But it was underperforming operation for several months.

But presumably longer term, and I don't know if that means in 2008 or when, that is a market that is still going to grow. Will you kind of redeploy at some stage?

Well, the other issue that we had there too, Steve, is that we didn't have component capacity there. So we had labor, we didn't have components, and for us, it makes sense to bundle the two together.

I see. Okay. Switching gears a little bit, clearly as stick-built construction has diminished there are presumably a lot of laborers who were gainfully employed two years ago and are probably looking for jobs now. Are they undercutting you in the marketplace, or is it kind of a different market because you are catering to the production builders as opposed to the one-offs?

You know, the labor surge or retraction hasn't seemed to affect us. What it does give us the opportunity to do is it is getting us some better quality people in our plants. You know, really any of those individual labor organizations really can't play on a big project, especially if it has got to be bonded or you are talking about millions of dollars. And now, they are also be available for remodels, so we see them shifting into the remodel. We are seeing a higher quality of employee coming into our plant, a little more skilled, and we also think it will be an advantage. You know, there is a new sheriff in town in the Home Depot and they have made a commitment to get rid of a lot of their temporary labor and go back to professional people that understand the trades. So we think that also will give them an opportunity to hit some of the goals that they are after.

Does this slump in any way accelerate the shift towards component construction?

Well, in terms of market share, yes, it probably does. But in terms of total -- in terms of total units sold, it doesn't because they are down so far. But definitely the stick builders have been converting to components.

Okay. And my last question, again, another shift of gears, on the industrial did you say that you had added nine factories and 500 customers?

We added nine new factories all across the country and 500 new customers in the last six months.

And are these factories completely dedicated towards industrial, because I thought you normally had the flexibility within a plant to move from business to business?

Yes, that is correct. I will give you a couple of examples. Our treating plant up in, just north of Minneapolis was strictly a treating plant. We broke and moved some ground around and put a new industrial plant in there. In the case of Texas, when we made the Banks acquisition we took one of our plants that was servicing the manufactured housing industry and we took all that production and moved into the Banks plant. And then we took that building, or that plant, and converted it to industrial. And we did the same thing in Indiana, where we had a plan that was servicing the manufactured housing industry, as was Banks. We took our production, put it into the Banks plant, and then took our plant, which was already doing industrial, and now just expanded it.

We opened up a brand-new one in Tecate, Mexico. That is just about complete and we have already picked up two very large customers, one being, one you are probably very familiar with, that is Tecate Beer. We picked up all the palettes for them and I think it is California --

Clay and Tile.

California Clay and Tile. So, we picked up a couple big ones right out of the chute. So, we have added plants where we already do maybe treated and we have consolidated with the Banks acquisition, expanded it that way.

Great, okay. Thanks very much.

Thank you.

Jason Rogers, Great Lakes Review.

Hello, this is actually Greg Halter on for Jason.

Hi Greg.

Hi Greg.

Hi Greg.

Good morning. Question for you. You touched on it briefly, but within your own operations and given the sales that have been less than expected, I guess, have you had any of your own layoffs of your own staff?

Well, I can tell you just looking at our own census report on headcount, you know, our plant, as we talked about in other quarters, kind of can right size the staffing to current demand. And our headcount in the plant is off about 14% without including acquisitions from last year first quarter to this year first quarter.

Okay. And are those people that if you needed them to come back are still available, or something you would have to go out and rehire, retrain, and so forth and so on?

We certainly could fix them up, but to be honest with you, Greg, I think this continuous improvement initiative that we have put into our plants is -- we are able to produce more with less. And that is really the kind of the benefit of this whole initiative is that when things kick back up, we are going to be able to put out a whole lot of products without a whole lot more people.

Okay. On the last call you had mentioned that senior officers had their salaries frozen and so forth and so on. Is that still the case as well?

Yes.

Okay. And looking at the ProWood Micro, I see that the main raw material component there is copper-based and there has been another recent surge in copper prices. I just wonder what kind of impact that has on you, whether or not there is contracts there, or how that process works?

Our price for our chemical is fixed for the year.

For 2007?

Yes.

Okay. And is the ProWood Micro made in the same plants, manufactured in the same plants that you were using previously?

Yes.

And was there or is there any conversion costs related to switching over?

Yes, we spent -- on a CapEx side, we spend somewhere around 70 to $80,000 a plant to convert to MicroPro. In some cases, we added some work tanks that would allow us to do MicroPro and ACQ because there was some customers that we had that wanted ACQ also.

A lot of that comes through as capital expenditure dollars, Greg.

Okay. And are all the plants converted at this point in time and how many do you have that can make the ProWood Micro product?

They are not all converted yet. We probably have -- it's a good question, probably maybe five of them that we haven't got to yet that are on the schedule.

Okay. And how many of your plants, I think you have approximately 100, how many can do the ProWood Micro product?

Well, we have 25 treating plants.

All right. And I didn't hear a percentage for Home Depot of what that is of your business for the quarter.

Yes, it was 21% total sales.

And industrial --

(technical difficulty)

21% of the sales in the quarter from Home Depot.

Of this year, and it was about 18% last year.

Okay. Thank you. And on the industrial side, you had noted that the revenue was down about 5%, but I didn't hear a units up or down figure.

Units were up slightly.

All right. That's all I have at this point. Thank you very much.

Thanks, Greg.

Keith Johnson, Morgan Keegan.

Good morning.

Good morning.

A couple of quick questions. I think you've covered a lot of the other ones. Can you talk a little bit about inventory trends at the customer level as you come through December and into the March quarter? I guess there was some -- read some articles, heard some discussion that a lot of customers, lumber dealers, had pulled inventories down just because of the uncertainty in the market, and didn't know kind of what you guys were hearing on where those inventories stood today.

Well, I can tell you that from the big-box perspective, they have taken a different approach this year. And they are going to make sure that they are in stock and that we saw a major surge in March -- when the weather broke, we saw a major surge in our business to make sure those stores were filled up.

I know from the case of -- from the Home Depot that Frank Blake has gone back to the old way that Home Depot did business, and that was focusing on the customer and making sure we had the product in the store and on the shelves and merchandised properly. And we are seeing -- we are definitely seeing a follow-through on that.

Okay. What about any kind of a broader beyond the Home Depot, I guess, this is the lumber dealers?

Well, our sales with the dealers is really kind of small. It's insignificant with the Carter Lumbers and the 84 Lumbers of the world. It's not --.

I'm sorry?

It's not large sales with those folks.

A lot of those products are engineered wood components too, that are going right into a home, so it is really kind of tied into the home inventory as well.

Okay. So I guess, you know, are you seeing any trends at that -- or any anecdotal comments that the inventory is starting to move beyond the big boxes into the customers' hands yet, or is it mostly just kind of a restocking and trying to pull inventory levels back up?

Oh no, we saw when we had that little fake spring there, we saw definite follow-through on an initial stocking orders and reorders. It was very strong.

I guess within the first quarter you made a comment, or maybe was in the release, about FEMA demand last year in the first quarter of '06 in the manufactured housing side. Is there a way you can quantify what kind of effect from year-to-year that was?

I don't have a specific number on that, but I have seen information from the Manufactured Housing Institute that does suggest that there was a fair amount of FEMA demand, especially in January. So, you might check with them to try to get a more exact number, but I don't have one.

And, I guess, on the hundred days of downtime, is there any way to quantify that from a margin or, kind of, cost effect that rolled through your quarter?

Besides the weather, you know, market conditions impact us too, but we use standard cautioning at a lot of our plants. And we build up our costing rates based on a reasonable utilization of capacity.

Right.

Then when you compare actual costs with, kind of, your absorption costs, we had an unfavorable cost experience about $10 million. Some of that is certainly weather, from not having the production, and from producing less officially, and some of it is market conditions.

Okay. All right. Thanks a lot.

Mukul Kochhar, CIBC World Markets.

Hi guys. Good morning.

Good morning.

Good morning.

Good morning.

Hi. Just a couple of few quick questions. First thing is you based your guidance at the beginning of the year on a few assumptions and now there is some uncertainty you mentioned it on those -- could you actually sort of pinpoint some of those assumptions that is uncertainty?

Yes, I mean, some of the assumptions we had made at the beginning of the year were about market conditions and we had assumed that housing would stabilize, and manufactured housing would stabilize, and we would start to see a pickup in the second half of the year. There is still certainly uncertainty about that.

Some of the other assumptions we had were we were going to pick up a lot of share. And we have picked up a lot of share. Mike alluded to that in the DIY comments with the big box, and also in the industrial area. And we don't feel like we have really seen the impact of that yet and believe we will in the second and third quarters.

Okay. The second question on the pricing pressure in site built. How much of that -- or the dollar per unit decline. How much of that was due to lumber prices just coming down and how much was that due to genuine pricing pressure in the market?

That's a good question and it is really difficult for us to be able to say. I mean, all you can see through in the invoicing in our system is the price. And so I don't have anything that tells me that the price went down because of lumber by this amount and because of pricing pressure with competition because of, you know, another percentage. Can't really break that down for you. We do know that we have experienced pricing pressure from first quarter last year to this year.

I see. So you think competitive pressure is also increased, and not from first quarter last year, from fourth quarter of last year to first quarter of this year? Just competitive pricing, competitive pressure in the market.

Competitive pressure from fourth quarter last year to first quarter this year? Yes, I think it probably has even gotten tighter.

The last question is on the Vegas market. When did you actually exit the market?

Well, in that market we have multifamily projects, large projects, so you don't exit on a dime. We made a decision middle of last year and those sales had slowly started to wind down to the point where it is very little in the first quarter this year and quite a bit in the first quarter last year.

We have one project left, I think.

Yes.

All right, then. Thank you very much. I appreciate your help.

Thank you.

Yes.

Dave Leibowitz, Burnham Asset Management.

Good morning.

Hi David.

Hi David.

Very briefly, a couple of unrelated items. First, how much -- what debt-to-equity ratio are you willing to work with going forward in terms of acquisitions?

Well, the targeted average debt-to-capital use is about 45%. And earlier I mentioned right about 38% right now. And this is more of a seasonal high point for us.

Okay. And the terrible weather that hit the Midwest and Northeast this last five days, how much do you expect that is going to hurt the second quarter?

It's going to hurt.

Yes, it's a little too early to tell too, David. We have got a couple of days here a week where we had our sales suffered a little bit, but if March was any indication when this weather stabilizes and we keep this sunshine that we now have in the Midwest, you know, we should be okay.

Okay. Following up on that response, if we do have spring weather going into summer weather between now and the end of the quarter, would that be able -- would that be enough to enable you to break even on the half versus a year ago, or would you still be trailing?

Well, David, I am not to make a target or an estimate on the first six months and then the second six months. You know, good weather will certainly help the second quarter.

Okay. And the increase you are seeing with Home Depot as a percentage of your business, some of that, of course, is coming against lower sales overall, but right now on a dollar count, are you up more than 5% year-over-year with Home Depot?

Are we up over 5% in sales so far for the year?

Correct. And are you playing a zero-sum game that every dollar you gain with Home Depot is one dollar less you can gain with Lowe's?

I don't know if you can say that, David. There are certain -- no, that wouldn't be fair to say. It is kind of spread out over product lines and there are certain lines that we just aren't going to be able to service both companies with at this time.

Is that because your lack of productive capability or because they just don't want to have the same product?

They are two very fierce competitors and I just don't think they want to see a Universal truck show up at Lowe's and show up at Depot. I don't think either one of them like that.

You can always rebrand the truck. I mean that is not --

No, we tag all our products with Universal.

Well, that is something else. The last question, if I may, is there any reason to believe that because of the hundred lost days or downtime in the first quarter that the margin objectives you set for this year internally can no longer be met?

David, you know, there is nine months left to the year and I don't want to speculate on the targets.

Good enough.

The effect of the first quarter on our targets. What we have said is we will look at our targets after the second quarter.

Fine. Thank you so much.

Thanks David.

Ted Crawford, Maple Leaf Partners.

Good morning. Thanks for taking my question.

Good morning, Ted.

Good morning.

I am curious if you have, regarding the lost 100 days of production in the quarter, I am curious if you have a comparison number in the first quarter of '06?

I don't know if we lost any production days in '06.

Okay. And just looking at lumber prices, it doesn't look like, unless I am looking at the wrong index, but it doesn't look like they rebounded in March. And I would have thought that they may have, given improved production levels due to the better weather. Can you comment on that?

There is an overabundance of supply in the marketplace with housing being down as much as it is, with manufactured housing being flat, with the weather that was happening in January and February -- December, January, and February. The mills kept producing and there just wasn't people buying, so there is a glut of product in the marketplace.

Okay. So there -- so it still could be a case where you have a lot of pent-up demand, but there is just, in terms of the supply of lumber, that is a different issue?

Correct.

Okay. Thank you.

Michael Gasner, Buckingham Research.

Hi, good morning. Thank you.

Good morning.

I just wanted to get some more color on your strategy for buybacks. If I heard you correctly you had said that notwithstanding restrictions, you would have been back in the market this morning buying back stock. Was that -- did I hear you correctly on that?

That's what I said.

Okay. I --

That is our number -- that would have been our number one return on investment as we view the business going forward and we view where we are today.

Okay. I guess why I wanted to get a little more color on that is the stock seems to have been at lower levels early on in the quarter and from -- it looks like from the filings, you didn't seem to be buy any buyback -- buy any stock back during the first quarter, so I was just wondering if anything had changed since earlier in the quarter in terms of why you are now viewing your stock as your best investment at this point?

We were working through two major acquisitions, first Banks Lumber and then Aljoma, and we were keeping dry powder. We also had a couple of other acquisitions that we were looking at. And so consequently, we decided we would use our cash to grow our strategic business alliances that we really wanted to get in the bank. And now that those are through and they are almost integrated, we feel that we are in a much better position now to take a look at stock buybacks. Also, when there is acquisitions going on or information that we know that you don't know, we don't and we aren't allowed to buy back our stock.

Okay. So you were frozen, so that is helpful. Thanks very much.

John Emrich, Ironworks Capital.

Thanks. Sorry for getting off the call before I understood the answer to my last question. The numbers you gave me for organic declines were units down 8%, and existing factories would have been down 16%

Correct. So it is a net 8% loss.

Right. And so if I look at the total company reported revenue number of 17 or something percent decline in revenue, that means --

10% is prices due to lumber.

10% is price. Got it. That's what I was trying to back into. Then my new question is could you clarify your comments on the receivable sales and you said you sold $22 million in the quarter. Does that show up as --

Let me try to connect the dots for you on that. We had a new program that we put in place last year and it is a $50 million program. And we sold -- we completed the program and sold $50 million in receivables first quarter of 2006. We had run that program for the year and we had about $27 million of receivables that were sold and outstanding at the end of '06. So, again, it's a $50 million program. We sold about $22 million of receivables in the first quarter and then hit our limit. You had positive cash flow of $50 million in the first quarter last year. You had positive cash flow of $22 million first quarter this year.

And that is positive meaning from the sale of the AR?

Correct.

So the -$27.6 million includes the benefit of the $22 million sale?

Yes, so really the $50 million versus the $22 million or $28 million, I guess, is the cash flow difference between the sale of receivables program.

Got you. Thank you very much.

Justin Thomas, Citigroup.

Good morning, guys.

Good morning.

Hi Justin.

I had a follow up on one of your comments on site builts. You said it was kind of a tough market, but you had a backlog and I guess my question is is that backlog, is it firm, are these still things that can be canceled? I believe you were referring to customers and I don't know if that is the final customer you are talking about or the homebuilder.

We were referring to the homebuilder. You know, we will bid, for example, on a project that may be in a subdivision in Lafayette, Colorado and if the builder decides not to go forward, then that is business that we had engineered and were ready to go on, but they just didn't do it. So it is business that could go away.

Okay. Thank you. And, separately, another question on the guidance, it's unclear to me in that section of the release what it is exactly you are saying. Are you pulling the guidance or you just kind of unsure and wanted to mention that you are not as sure about the assumptions that you had made earlier?

No, what we are saying is that we will -- it's too early in the year to take a look at the targets we made and to make any change to them. So, we were certainly impacted by the weather and the seasonality in Q1 and it is too early to make any changes to guidance.

Okay. Thank you. And lastly on the lumber that you had recently mentioned, is that -- how long might it take for something like that to correct the supply demand imbalance, where, obviously, people have made too much lumber?

The assumptions are for this year that the opportunities for large price runs is not there, so we are looking for a lower, stabler market this year. There might be some $10, $15 runs up or down based on some spot demands, but we look for the market with the supply and the usages that we are looking at, we are looking for a stable low market with small opportunities for gains or losses.

Okay. Thank you.

There are no at additional questions at this time. I would now like to turn the call back over to management for closing remarks.

Well, thank all of you very much for the intriguing questions and the interest and support of our Company. We are trying to do the right things. We are doing the right things. We are not despondent all. We are looking forward to each and every quarter being better and better, and each and every year being better and better, and management is focused on that. So, we will try to give you your money's worth. Thank you very much.

Thank you for joining in today's conference. You may now disconnect. Good day.