UFP Industries Inc (UFPI) 2009 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Universal Forest Products Incorporated First Quarter 2009 earnings conference call. My name is Mary, I will be your coordinator for today. At this time all participants are in listen-only mode. We will be facilitating 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 presentation over to your host for today's call, Ms Lynn Afendoulis, Director of Communications. Please proceed.

Good morning and welcome to Universal Forest Product's First Quarter 2009 conference call. On the call today our Executive Chairman, William G. Currie, CEO Michael B. Glenn, and CFO Michael Cole. Please be aware that any statements included in this call that are not historical are forward-looking statements within the meaning of section 21E of the Securities and 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. 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 10K and 10Q 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. At this time I would like to turn the call over to Bill Currie.

Hi, good morning, everyone and thanks for taking the time out of your schedules to join our first quarter conference call. I'm not going to spend a lot of time on the opening before I turn the call over to Mike Cole for the numbers and Mike Glen for what he sees happening, but I'm going to say that Universal Forest Products is sitting in a very enviable position with a very strong balance sheet. Through meticulous right sizing, monumental efficiency gains, calculated cost controls, market share growth and the attention paid to the metrics of inventory control, receivables collection, and bad debt avoidance, our performance has been world class. Universal had a solid first quarter and we have optimism going forward. January was a deplorable month, in February we comped last year, and in March we did very well. We are optimistic and believe your investments in this Company have been wise. I will turn the call over to Mike Cole for the Chief Financial Officer's report, Mike.

Thanks, Bill. I will get things started by reviewing our income statement for the quarter. Our total net sales for the quarter decreased by 26%. We estimate this was comprised of a 23% decrease in unit sales and a 3% decline in overall selling prices due to the lumber market. Reviewing by market, our sales to the DIY market decreased 4% compared to last year, primarily due to a 3% decline in prices as a result of the lumber market. Our unit sales were off only 1% this quarter, primarily due to market share gains with big box customers, which offset the impact of poor housing starts and consumer spending. Our sales to the manufactured housing market decreased 52% for the quarter, primarily due to a 49% decline in unit sales. HUD-code shipments were off a reported 46% in January and February. And modular production was also substantially off.

Our sales for the site-built construction market decreased 43% this quarter, due to a 35% decline in unit sales and a 8% decline in selling prices due to the lumber market. By comparison single family housing starts were off approximately 53% for January and February and multifamily starts were off about 50% for the same period. Finally, our sales to the industrial market decreased by 26% for the quarter, due to a decline in unit sales as a demand -- as demand decreased sharply due to general economic conditions. We gained market share as we continue to add new customers, expand our product offering and increase our penetration into the concrete forming market. Moving down the income statement, we are pleased to report our first quarter gross margin increased to 12.9% from 11.2% last year. And our gross profit dollars decreased by only 15% in spite of a 23% decline in unit sales.

Our improved margin was primarily due to a decrease in our labor cost as a percentage of sales due to plant consolidations and closures and efforts to right size our business based on demand. And a decrease in our material costs as a percent of sales as a result of better inventory management to protect margins. Selling, general and administrative expenses decreased by $9.5 million or 16% for the quarter, which was comprised of a $3.6 million reduction in SG&A for operations we previously closed, a decrease in the SG&A of existing locations totaling $6.5 million. This was primarily achieved through a decrease in compensation related expenses tied to a decline in headcount, offset by an increase in bad debt expense and amortization of intangible assets we acquired in 2008. The decreases I just mentioned were offset by a $600,000 increase in SG&A of operations we just acquired.

We recognize the net gain of $1.1 million related to the sale of certain assets and other impairment and exit costs during the quarter. This net amount was comprised of a $2.4 million gain on the sale of certain real estate, an $800,000 charge to impair the value of certain machinery and equipment and $500,000 of severance costs. Our interest expense decreased by about $2.5 million due to our reduction in debt and sales receivables program and a decline in LIBOR. Moving on to our cash flow statement, our cash flow used in operations was $18.1 million this year, compared to $5.4 million last year. To offer a fair comparison though, I think it's important to note that our operating cash flow number in 2008 included $23 million of positive cash flow related to our sale of receivables program that you might recall that we terminated in September of 2008.

Our operating cash flow amount in 2009 includes a net loss of $1.2 million, $10.3 million in non-cash expenses, and $27.2 million -- and a $27.2 million increase in working capital. The increase in working capital is primarily due to a $42.8 million increase, seasonal increase in accounts receivable, offset by a $11.2 million seasonal increase in accounts payable since year-end. Capital expenditures totaled $3.2 million in the first quarter as a result of our efforts to curtail this spend. And we sold real estate and other fixed assets for $5.6 million this quarter and recognized the $2.4 million gain I mentioned earlier. A few points I would like to make about the balance sheet. First, at the end of March of 2008 we had sold an outstanding approximately $50 million of receivables under our sale of receivables agreement.

Excluding the impact of this program, our sales -- our receivables last year would have totaled almost $212 million compared to $180 million this year. Second, our interest bearing debt in amounts outstanding under our sales of receivables agreement decreased to $113 million at the end of March of 2009 from $245 million at the end of March of 2008. And included in long-term debt there was approximately $41 million outstanding in our five year credit facility, which has a remaining availability of $229 million after considering the amount outstanding and amounts reserved for letters of credit. Additionally our leverage ratio was 17.2% at the end of March and our month end debt to EBITDA was 1.5 times. That completes my comments on the financials, Bill.

Thank you, Mike. And now Mike Glen will give you a look at the quarter and the future.

Thanks, Bill. While we are happy that we are well into a new year and finally able to say good-bye to 2008, we are not saying that 2009 is going to be easy. In fact we think it's going to be very tough. But we are ready and we are ready to take it on and we are strongly positioned for success. Our internal theme this year says it all, tough times, tougher people. I wish you could visit one of our plants today. And if you did you would see energized, motivated employees who are focused on growth and opportunity and making our Company better and stronger. Their engagement in the success of our Company is having a real impact. It is driving efficiencies and enhancing our productivity in measurable ways. It is also helping us create rewarding work environments that are among the safest in the industry. You can't put a dollar value on safety. Our employees' well being is more important than any cost savings, but those savings are real and they are a source of great pride.

More importantly, our safety record helps us create a great work environment that our people are proud of and that others want to join. Thanks to the hard work of our people, for the diverse business model and to a strong balance sheet we are in a great position today. While so many companies are focused on surviving, we are focused on growing, thriving and emerging from this tough economy as a strong leader in each of these markets. Let's take a look, a closer look at our markets and performance. We won't have anything new to say about site-built until the housing market starts to rebound. We still wrestle with sales that are hurt by the decline in home building, so we are focused on areas where there is opportunity, military housing, commercial and multifamily construction. And we are maintaining a very proactive approach on our credit.

We realize that of all the blood, sweat and tears that we poor into every dollar of profitability could be erased by a credit surprise. We don't intend to be surprised, so we are very diligent about staying on top of our accounts. We are also very selective about the business we take. In addition to working with customers who pay, we want business to provide decent margins. We will not give away business. It just doesn't make long-term economic or organizational sense. We will build on real demand and real need and we will grow with expectation of reasonable profitability. Now let's take a look at DIY. I'm really pleased with our position in this market. We've had some strong successes in DIY this year. We picked up business with the big box retailers, with new stores, new markets, and new products, like our Capricorn decking and our new line of lawn and garden products. Now what we are hoping for is a long warm building season.

And we have confidence in the experts who are calling for this market to remain strong in 2010 and beyond as consumer spending increases and lumber prices normalize. Manufactured housing is a major disappointment and remains a troubled market. And quite frankly, we didn't anticipate that we would continue to see it decline to this rate. As Mike noted, both the HUD-code and modular homes posted significant declines for the quarter. We believe this market will return to healthier levels once the oversupply of site-built homes improves. It's a nice business and we remain committed to it and to maintaining our leadership position in this market. Our industrial business is a stronger story. It is an exciting market that continues to allow us to capitalize on our manufacture, engineering, purchasing and distribution strengths.

We are adding customers as we expand our packaging and creating capabilities and options and grow our capacity as a total packaging solutions Company. We are also growing our concrete forming business for the exact reasons we have been able to grow industrial. It's a fragmented market that is in great need of a solid supplier with a national footprint. And it takes advantage of our existing capabilities in engineering, manufacturing, logistics and purchasing, among other areas. It is an ideal market for growth for us and already has provided us for opportunities for exciting projects and growth. The bottom line is this, we are not out of the woods yet. We know the markets are fragile and it's impossible to forecast where they're heading with any strong degree of certainty. We know 2009 is going to be a tough year, but we are ready.

We are sized right to our opera -- to our business opportunities. We are capitalizing on our strengths in each of our markets. We remain on the alert to potential credit issues in site-built and manufactured housing and we are seeing tangible and positive results for our improvement efficiencies. And we are focused on new and sustainable growth that we are confident will begin as the economy begins to rebound. While others may have to focus on survival, we are strongly positioned to focus on growth and on new and exciting businesses in years to come.

Thank you, Mike. We will open the floor now to questions and try to give you honest candid answers.

(Operator Instructions) Your first question comes from the line of Trey Grooms of Stephens Incorporated.

Good morning, gentlemen.

Good morning, Trey.

Couple of questions. Bill, you mentioned March did very well, even better than February. Can you give us more color here on exactly what divisions or products you're seeing the relative strength in and is that strength relative to the very weak January or are you actually seeing some improvement year-over-year in the March, in March, rather.

Well, what we are saying is our revenues were down 30 some percent in March, I mean in January. And they moved to the mid-20s in February. And they moved to around 20% in March. And what we saw was with the downsizing and the efficiencies of our continuous improvement and the downsizing, right sizing of our businesses is that immediately it jumped to the bottom-line. And that's what was exciting for us. We could have every month like March, we would have a very nice year. We are getting the feeling that -- we need warm weather. So much of our business, whether it's housing or DIY or anything else, needs a little break in the weather and January was putrid and March was a little better but still not great. And the weather is our answer on the DIY business and also a lot on the housing business. So that's why the enthusiasm was there.

Got you. On SG&A, you guys did a great job there. Do you expect to continue to see opportunities on the SG&A line to further reduce cost there?

In the fourth quarter our SG&A, if I set aside the unusual things like impairments, we ran at about $50 million, we ran at about $49 million now for first quarter, that seems to be a pretty good run rate. The thing that's going make that move now more than anything else is bonus dollars. As we are profitable in Q2 and Q3 you are going to see that line item move up for that.

Okay. Then, just lastly, on the gross margins, again, very impressive, especially given the very depressed volume environment out there, do you see that as sustainable with where we are looking at for the kind of remainder of the year over the next several quarters. I know there is not a whole lot of optimism as far as volume over the next several months, but do you see those level of margins sustainable and could we expect even more year-over-year margin expansion going forward?

The part that we've seen for two consecutive quarters now, from the fourth quarter I think I mentioned that almost all of the margin improvement was a result of our labor cost as a percent of sales. And that was a big part of our margin improvement again this quarter over last year. We are doing well and if we continue to execute that piece well, that hopefully will continue to be sustainable.

Okay. Thanks a lot.

Your next question comes from the line of Robert Kelly of Sidoti.

Morning, Bob.

Morning, guys. Thanks for take my questions.

Morning, Bob.

Just to follow up on the last question as far as the labor efficiencies, how big a piece of the overall cost of goods sold is labor?

Labor is in the small teens.

Thanks.

As a percentage of sales, though. I think you said percent of your cost. I quoted as a percent of sales.

Percent of sales is mid-teens, okay, thanks. The question I had was, I think you explained it away a little bit, on the A&R drop, or I'm sorry the drain from accounts receivable in the quarter, still if you add back the lack of receivable sales, it's kind of a strange number given how the sales trended (multiple speakers) in the back half of March or are you extending terms. Just maybe some help on why that (multiple speakers).

No, no. Quite the opposite on expending terms. I think it probably has more to do with timing than anything else. Our receivables -- you are right, when I look at our receivables as a percent of the current month sales, right, our receivable's cycles right about 30 days. It's up a little bit. It is about 125% versus about 120% last year. That is a reflection, I think, of our receivables cycle being up a day or two. Our percent current, though, is right about 80%, where it was previously. It is just -- it's a daily grind on collections, but we have been very active in it and to this point we have been hanging in there.

I mean it -- is it -- sort of explained away, but it looks like you had depressed seasonality in this first quarter versus a year ago. Does that explain some of it, too?

Excuse me, can you repeat that, Bob?

It seems that 1Q '09 had unusually depressed seasonality relative to a year ago. It sounds like January was just very, very bad, is that part of the uptick in your A&R as a percent of sales?

Yes. I think -- but our receivable cycles pretty quick though. Again, it is a month. I don't know that January plays into it too much. But I do think that timing probably, timing of the sales within March probably has something to do with that ratio being up a little bit.

Understood, thanks. And then as far as manufactured housing with the $35 million run rate for 1Q, how do you think about that market and your capacity serving that market going forward. It seems like the issues there don't really get better until site-built improves, in my opinion. What's the strategy to deal with the weak trends coming out of manufactured housing.

Bob, we've got to -- we've got to -- we've got to clear out some of these site-built houses that are sitting out there in foreclosures. I tell you what we are seeing and what we think is going to happen is really a shift in that business from the traditional 16 by 80 single wides to a shift into modulars. And we think that industry is moving more that way probably for financing reasons, but nothing is going to happen until we clean up the overhang from site-built. We are also -- we are also moving more product into that industry also to help our sales.

As far as the right sizing actions you've done thus far, do you think you are pretty set here as far as capacity for the interim?

We always -- we always look at our business, even in good times, and if plants aren't performing to our expectations we will close them. We closed three plants in the first quarter. They just didn't meet our expectations. And we have plants that we are looking at right now that if we don't think they are going to turn around in the short-term, we will close them. But I want to emphasize, that's something we've always done.

Right. And then just finally -- .

One other question, one other answer on that is when we are closing these plants, all we are doing is mothballing them. I mean it wouldn't take -- business returns in these markets, the equipment's there, the power is there, probably a lot of the people are still there and we can crank them back up pretty fast as the demand is there. The only ones that we are selling are ones that we don't see any need for in the next five to ten years.

So, if there is a decision to take cost out it would be an un-idling decision rather than a closure?

Yes, correct.

Sounds great. And then just as far as a bad debt expense, what you guys saw in 1Q versus a year ago.

It was about $600,000 higher than a year ago. So this year we were at about $1.8 million and last year we were at about $1.2 million.

How does that compare to 4Q?

How does that compare to Q4? We ran about, I want to say about $1.5 million in Q4. So it's running fairly comparable.

Okay, great.

We have been, I should mention too, we've been fairly aggressive on write-offs too. When something -- when something -- if we have a bankruptcy but we have good lien rights and those types of things, we take the write-off right away, even though there is a potential for a recovery down the road.

So the bad debt expense may even, in fact, be conservative?

I'm not going to say that, but I hope so.

Thanks, guys, keep it up.

Thanks.

You have a question from Keith Johnson, Morgan Keegan. Good morning. Morning, Keith.

Just had a couple quick questions. I guess first off and I know you guys have been continually evaluating plants and facilities, but could you give us an idea of kind of where you stand on total number of plants or facilities now that are operating?

Somewhere around 80.

Okay. About where you were at the end of -- end of last year.

Yes, like I said we closed three plants in the first quarter.

Okay. I guess of -- you were at one point around 110 plants or so, maybe at the peak. I was trying to get an idea of how many of the plants that you've closed, or as you guys just mentioned mothballing, can be restarted fairly quickly as markets return versus ones you've potentially closed permanently.

Yes. Well, I -- we've -- right now we've closed two permanently and the rest we're in hopes of opening back up. But you are right, we closed somewhere -- somewhere around 25 plants.

Okay. I believe in the earlier comments when you talked about gross margin you mentioned the right sizing and labor cost reductions as positives. You also mentioned, if I heard it correctly, something about material costs, raw material cost savings that are inventory, maybe management of those costs. I was trying to get an idea of how much that may have been a positive factor in the first quarter say against what you saw in the fourth quarter of 08 on a sequential basis.

I can't tell you -- it's really hard to do comparisons in sequential quarters, Keith, because of the change in product mix. But year-over-year quarter is about 50 basis points.

Okay. And that's just -- that's back to the question -- I think there was a question earlier about what is sustainable going forward in margins. That's the change in the way you manage the inventory, so we could look for that 50 basis points to hang around or -- ?.

It is certainly our intention to try to keep that one going. And it all depends on how well we execute in future quarters, just like the labor.

It's -- I guess a couple final questions. I guess lumber is still down year-over-year down 19%, which I guess is worse than where we were in the fourth quarter of '08 and to still see a lot of cutbacks in the lumber mills being announced. But your -- I guess your average selling price, and this may have to do with mix somewhat, was only down, I think you said, 3% or so. Has there been any mitigation in price competition? Are you seeing any stabilization in that? That's been a factor through all of '08, but have you seen any type of change on the competitive front.

Yes. From the lumber market standpoint, if you look at the overall lumber market it is off 15% for the quarter. But if you look at the southern yellow pine intacts that we publish in our Qs for you, because at least 50% of what we do, maybe even more than that now, is selling yellow pine. That was only off 3%.

Okay.

You got -- you got to kind of blend those two together when you are looking at the price declines and hopefully that helps you understand the number. With respect to competition and pricing pressure, yes, it's not, it is certainly not what it was a year ago. That isn't hitting us like it was before.

Okay.

The other thing that's helping us in that area is, let's be honest about it even though it is sad, we have lost a tremendous amount of competition.

Okay.

A tremendous amount. And there is more to come. I mean if you are reading the news at all, if you are looking at the companies that are in this space, there is more big ones to come. We are -- we are enjoying, in a lot of the markets we are enjoying some very nice business because of a lack of additional supply that people have had to exit.

Okay. You made comments on the March trends, is there any color you could give us on kind of the first half of April, maybe what you've been seeing kind of on the daily sales runs?

I'll tell you what we are seeing is that it is like we mentioned earlier, it's a fragile market and if we get rained in an area or we get the weather go bad, it really shuts business down. And when the sun comes out, business is good. I would say that we are probably tracking fairly close to March numbers.

Okay. And I guess final question. You're watching the credit exposure and those type of things, I guess there was a bankruptcy filing in the manufactured housing world in March.

Right.

Any exposure or can you give us an idea of how that -- ?

Zero.

Okay, great.

We have been very, very active in the credit world, Keith. I think we've moved about -- over 800 accounts to COD since last September. We've made over 2400 credit decisions just in the first three months of this year. We've got a lot of people on it. We are paying a lot of attention to it. So hopefully that helps us as we continue to move through the cycle.

That sounds good. All right, appreciate it and good luck.

Thanks, Keith.

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

Good morning, Steve.

I guess like everyone else I was interested in the secret sauce to get the margins up to where they are. Sounds like you will be able to maintain them due to both the work force and there was nothing on the purchasing side that -- .

Sure, sure, sure there was. A part of it was -- a part of it was our strategy of how we bought. We, without getting too windy, we really went back to how we did business 15 years ago. And we really put a focus back on our plant managers to get more engaged to get into buying much heavier, to gather more information, and not be afraid if they saw an opportunity if product was out there that was substantially on the market to go out and buy it. We sent a message a year ago of our inventories to get them in-line and they stopped taking -- stopped taking some chances. And in the fourth quarter and early this year they went out and they made some very good buys that helped us in the first quarter. And the other part was the continuous improvement initiative that we have been talking about for the last couple of years has really been, is really starting to pay some dividends for us in our factories.

I think your efficiencies were up 15%. We had a 15% efficiency gain in our manufacturing plants. And that lends itself nicely to sustainable margins.

And we know that a lot of the mills were tacking $20, $50 bills to basically every 1000 feet of lumber they shipped, did you put a lot of that on the ground? I thought you sells also you are kind of a consignment deal with larger mills.

I'm not sure we do $20.

We do -- we do continue to have consignment agreements with mills, yes. And we -- it's about 10%, 12% of our total inventory.

11%, 11%.

So use those to try to protect our margins on treated product.

Yes, on certain products.

I'm not familiar with the $20 that you mentioned earlier, but we still have consignment agreements.

I'm just saying that they have been producing well below or selling well below cash costs.

They are sure struggling, yes.

And I guess Mike inadvertently gave us a stealth forecast when he said you will be profitable in Q2 and Q3. (Laughter)

Yes, I did.

That's encouraging. I guess my last question, since many have been asked, the merger of Centex and Pulte and presumably or potentially there is more behind them, how will that impact you guys going forward?

Steve, I don't know. I think you're right, there will be more. I think there will be more even in our side of the business, whether be people that consolidate. And I think it's a good thing, but from a -- will we get more business as a result of it? I don't know if that's the case.

It would seem to me that when two majors consolidate like that, that are competing in the same marketplace that you would have better business but not more business.

I was kind of concerned that the consolidation might be somehow detrimental, because it is like one bigger company still looking to have multiple suppliers. But -- .

No. We have good relationships with both of them and that shouldn't be an issue.

Okay. And then last question. Given -- actually I will just turn it over, thanks very much.

Thanks, Steve.

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

Good morning.

Morning, David.

A few questions if I may, all totally unrelated, as usual. First, could you share with us what your breakeven point on sales is in each of your four operations, DIY, industrial, site-built and manufactured.

I'm sorry David. We are really not able to do that because we run multiple markets at every plant and we don't consolidate and buildup our data by market that way.

Okay.

I just don't have access to that information.

Second question. While you talk about opportunities in the M&A front, have you gone beyond just looking for potential acquisitions, are you actually negotiating anything right now or bidding on anything right now?

We are not. We have visited a few places, but we are not in any active negotiations at this time.

Is that a function of price or just waiting to see how much more shakeout there is to come?

Probably -- probably a little bit of shakeout. We like to keep a little bit of that, as Mike Cole calls it, dry powder for future use.

Okay.

David, if you look at it realistically, even though there is good opportunities out there now, this is going to be a contracted downturn and again, if you are watching, if you are reading the news and watching what is going on, the opportunities are going to get better. They are going to expand over the, at least the next six months of the year.

And turning to DIY, have you either bid on or received contracts for regions from the two or three major players that you have not been serving or that a few years ago you even turned back the mountain states as I recall.

Yes. Yes. We picked up -- we picked markets this past year that we were not in a year ago. We picked up SKUs that we didn't have a year ago with the big box. I would say that we made very good inroads with the DIY business last year. We were actually very pleased, very excited about what happened.

We have also started to open up the co-ops in a lot of areas, which is new business for us that we never -- we never pushed on before and we are getting expanded sales from that market segment also.

I think that's evident in the numbers, too, David, when you look at the DIY sales, because they are off only because of really lumber prices. To be able to have pretty much flat unit sales when the markets are off that much was for us very pleasing.

And the last question, an awful lot of the foreclosures that one reads about evidently the house must have been owned by or rented to Godzilla or one of his near relatives, are you getting any retrofit business when these units have flipped.

We think that's what's one --is going to be one of the areas that holds up the big boxes and holds up the DIY business is going to be the tremendous destruction that's been done to these foreclosed homes, where the investors are coming in and buying tracks of foreclosed homes that they absolute -- they are going to re-neat and new decks and new refrigerators and new carpet and new fences, and -- . Yes, so we think that's going to have a big play in the DIY business this

Thank you very much.

Thank you. Your next question comes from the line of Jay McCanless of FTN Equity.

Say hi, Jay.

Good morning, everyone.

Morning.

Two quick questions for you. The first I had is on you were talking about southern yellow pine and some of the increases we've seen in lumber starting in February moving up through March, are you still seeing some increases in the lumber that you are buying at this point?

No. Actually those prices have been bouncing along the bottom here for a couple of months.

Okay.

Most of the lumber mills, Jay, are running at or below cash flow. It isn't going to stay there forever. There is going to be a contraction in supply. They have to be able to produce at an operating profit. They have to make a return. And so a lot of them short-term try to hang in there, but there is going to be some capacity reduction if there is not some demand escalation.

I think what may have been confusing is that the overall lumber market was off 15% versus a year ago. Southern yellow pine prices aren't off as much as the overall lumber market from a year ago.

Okay, okay.

Southern yellow pine producers have taken about 40% of their production off the market so far compared to a year ago.

Okay. All right, thank you, that helps. The other question I had was about the DIY business and I was going to see, you said in SKUs you've gained markets over the past year, but has there been a pronounced shift in the mix of what you are selling them. Is it more bulk treated lumber or composite versus ornamentals, et cetera. Could you give a little more color on that.

It's not any one thing we are picking up. I will give an example, like on the West Coast we've picked up a product called Cut-to-Size plywood. That is something we had never done on the West Coast before. We are picking up in some markets where we didn't have some specialty products, we are picking up that. But it's not bulk -- it is not bulk lumber. We are picking up some higher margin products and we picked up some extra treated in some markets. It's just a blend of everything.

Okay. Great. Thank you, guys.

Thanks.

Your next question comes from the line of [Russell Morrison, RJM Investments].

Morning Russell.

Morning, Russell.

Long time no talk to.

(Laughter) Yes, your fault.

I know. I have an opportunity. DIY is a big -- is hanging in there. Is that -- it's partly been covered by an answer to an earlier question, is that for their refurbishment of beaten up houses. I think that's been covered. Is it related to unemployment, too? In other words, you don't have a job, so you might as well work on something else. It that -- ?

I'm sure that's a good thought. I'm sure that's a good thought, Russell. We can't -- there is no way we can calculate that, but that's what I would do if I was going to be out, off for a month and I had the time I would probably fix up my deck and change some things around the house. Also a lot of people lost their second homes. And when people lose their second homes they want to make their first homes more enjoyable, more livable. So that has a little play in to it. But those are all psychological things that are hard for us to put a number on.

I think the market itself is off. The same store -- the boxes have reported same store sales being off fairly substantially. I think the reason our sales are hanging in there, again, is because of what Mike mentioned on picking up some markets we had not had before and picking up new SKUs.

Is that mainly big box business?

Yes, it is. That's correct.

Thank you.

Your next question comes from the line of (Inaudible), Giovine Capital.

Good morning.

Morning. I had a question on CapEx. It is currently, at least based on Q1, running at about 40% of depreciation. I'm curious how long you can continue to run CapEx as such low levels. What your plans are for 2009. What we should expect maybe over the next couple of years in terms of CapEx.

For 2009 I think we said we had to be in the $10 million to $12 million in CapEx range. I don't see anything to cause us to want to change that at this point. We should still be able to do that and not have an issue this year. As far as 2010, 2011, we haven't made any forward projections on that. But one thing I would say is that I think our continuous improvement effort would probably -- will probably lower our CapEx requirements versus what we used to do in the past. Not to be able to give you a number right now, but I think that's going to help us in the future.

And the preventative maintenance programs that we have now in place through Mike's efforts on continuous improvement are not showing up in CapEx and so when stuff is maintained on a normal basis and things are taken care of on a as -- on a structured method, your ability to have to replace goes way down.

We used to set aside 80%, 90% of our depreciation as kind of maintenance CapEx requirement. I don't think it's going to be that high in the future as we get better and better continuous improvement.

And the other thing we are doing as we need equipment, there is two things we are doing. We are moving it from plants that we have mothballed into plants that are open and when we do need to buy some new equipment, we have been able to go to auction and buy some equipment at about $0.25, $0.20, $0.25 on the dollar. So there is some opportunities out there for us.

Thank you. There are no other questions at this time and I would like to send the call over to Bill Currie for closing remarks.

Thank you all very much for the excellent questions and for the time you spent with us and for the time and efforts you have always given towards our Company. We are working our butts off. The guys are doing a great job, I think you will be pleased -- I think you will be pleased with your investments in the Company. And if this thing turns, Katy, bar the door, because we are -- we are definitely in the best position in our space in the country. So have a great day and thanks again for joining the call.

Thank you for your participation in today's conference. This concludes the presentation and you may now disconnect. Have a great day.