UFP Industries Inc (UFPI) 2010 Q1 法說會逐字稿

Great day, ladies and gentlemen and welcome to the first quarter 2010 Universal Forest Products Incorporated earnings conference call. My name is Katina and I will be your coordinator for today. At this time all participants are in a listen-only mode. We will facilitate a question-and-answer session towards the end of this presentation. (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 Corporate Communications. Please proceed.

Good morning and welcome to Universal Forest Products first quarter 2010 conference call. On the call today are Chief Executive Officer, Michael Glenn and Chief Financial Officer, Michael Cole.

Please be aware that statements included in this call that are not historical are forward-looking statements within the meaning of section 21E of the Securities Exchange Act as amended and are based on managements beliefs, assumptions, current expectations, estimates and projections about the markets we serve, the economy, and the Company itself. Words like anticipate, believe, confident, estimate, expect, forecast, likely, plans, project, should, durations of such words and similar expressions identified such forward-looking statements. These statements do not guarantee future performance and involve certain risks, uncertainties and assumptions that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. 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 from forward-looking statements are the following. Fluctuations in the price of lumber, adverse or unusual weather conditions, adverse conditions in the markets we serve, government regulations, particularly involving environmental and safety regulations, and our ability to make successful business acquisitions. Certain of these risk factors as well as others 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 expressed written consent of Universal is strictly prohibited.

At this time I would like to turn the call over to Mike Glenn.

Good morning, everyone. Thanks for joining us today. That disclosure took so long I forgot what I was going to say.

As we noted in our press release we are really proud of our results that we were able to turn in. It feels great to say that we posted our highest first quarter profit in three years and our first year-over-year increase in quarterly sales in two years. It has been a rough road and we know there's more ahead. We believe 2010 is going be challenging but we also believe we are well positioned for success. Our early and conservative decisions are paying off and our efforts to find new areas of opportunity are proving to be solid strategies.

Before I get into some more detailed remarks I would like to turn it over to Mike Cole for a review of our financials.

Thanks, Mike. I will start by reviewing our income statement for the quarter.

Our sales for the quarter increased by 9% primarily driven by an increase in our overall selling prices due to the lumber market. Unit sales were up slightly for the quarter. Reviewing by market, our sales for the DIY market decreased 2% compared to last year, primarily due to a 6% decline in unit sales offset by a 4% increase in selling prices as a result of the lumber markets. Our unit sales for this market were off a little more than we expected likely due to weather. We also think some of our customers delayed stocking orders this spring due to poor weather and uncertainty about consumer spending. More recently we've seen an increase in sales for these customers.

Our sales for the manufactured housing market increased 32% for the quarter, due to the lumber market and an increase in unit sales. Unit sales increased because of improved market activity in March and because we picked up some additional product lines we had not previously sold with certain customers. Our sales for the site-built construction market increased 1% this quarter due to a 3% increase in selling prices offset by a 2% decrease in unit sales. By comparison, national housing starts were up approximately 9% for January and February. I think it is important to note that we may trail the market somewhat over the course of the year due to plant closure actions we took later in 2009. Closed plants caused a 7% decline in sales for the quarter. Finally our sales for the industrial market increased by 20% for the quarter due to a 17% increase in unit sales and a 3% increase in selling prices. We gained share this quarter as we continue to add new customers and expand our product offering.

Moving down the income statement, we are pleased to report our first quarter gross margin increased to 13.1% from 12.9% last year and our gross profit dollars increased by 10% comparing favorably with our slight increase in unit sales. Our improved margin was primarily due to a decrease in labor and overhead costs due to plant closure actions and continued efficiency gains. Selling, general and administrative expenses decreased $600,000 or 1.2% for the quarter, in spite an increase in accrued bonus expense due to improved profitability in 2010. When evaluating our profitability this year compared to last year, I think it is also important to note we had a $2.4 million gain on the sale of certain real estate last year, and had no similar gain this year. Overall we are very pleased to report a profitable first quarter for the first time in three years and are optimistic going into our seasonally strong second and third quarters. Moving on to our cash flow statement, our cash flow used in operations was $78 million this year compared to $18 million last year. Our operating cash flow in 2010 includes net earnings of $1 million, $11 million in non-cash expenses, and that's offset by a $90 million increase in working capital since December. The increase in working capital is due to the seasonality of our business. We are very pleased with our working capital management this quarter, reporting an eight day decline in our cash cycle due to an improved receivable cycle expel quick inventory turns. Today our receivables are 95% current which is a big improvement over last year. Capital expenditures total only $4.6 million this quarter but we still expect to spent approximately $32 million for the year. Finally our seasonal working capital requirements were funded through our cash reserves and about $15.7 million in borrowings under our revolving credit facility.

That's all I have, Mike.

Thanks, Mike. I sound a little bit like a broken record but that's the good news. We are doing what we said we are going to do and we are not really creating any surprises.

Last quarter we told you we were going to grow sales. We said we were going to grow our business with existing customers by adding new customers and by adding new products. We are doing it all and it is working. And in the first quarter, we grew share in all our markets and sales in three because of these efforts. Did we grow sales to the extent of which we had hoped? Not really. And while we don't like to point to weather as a factor and we very, very seldom even talk about weather, it did have an impact on our sales in the first quarter. We had snow in Florida, we had snow in the Carolinas, we had snow in Texas, we had torrential rain and hurricane winds in California. And, it hurt the building season, our sales to DIY and site-build customers. It scared some of our larger customers who held back stocking their stores. So our growth was a little more modest than we hoped for. But we started seeing signs of better times in March as the weather improved.

I like our strategy. I like our products, our movement to packaging and container solutions and our growth in concrete construction forms and material. I like where we stand. Our biggest challenge for the year will be the lumber market. It is volatile, and it is a supply-driven market. About 50% of the North American mill capacity has been removed or idled over the past four years. So a spike in demand is going to have a significant impact on prices. And, with the building season here it will be even more challenging. We can't control the market. But we can manage a volatile market better than anyone else. We have the assets and the volume and the knowledge that allow us to create innovative solutions to the lumber needs and issues. That's critical because we have to make sure that our customers are taken care of no matter what the market looks like.

That's it in a nutshell. We are doing what we said we are going to do and going after new opportunities. We are facing challenges and managing them well and we are continually strengthening our Company and our opportunity for 2010 and the years ahead. Now I'd like to focus on your questions and give you an opportunity -- information that you need. So let's get started with any questions and comments.

(Operator Instructions). Your first question comes from the line of Trey Grooms, representing Stevens Incorporated. Please proceed.

Good morning, guys.

Morning, Trey.

Just a couple of questions, more on the big picture, I guess. If you look across your different end markets, are you guys seeing any improvement or signs of improvement in real demand coming from the different end markets. And if you could just point to where you are seeing pockets of strength or where you see additional weakness going forward?

Trey, we discount the first two and a half months of the year because of weather, but what we have seen since the middle of March into today is all four of the business segments that we are in have shown very good strength in sales. There hasn't been really any disappointment in any one of those categories.

Yes our March sales were up quite significantly over last year. Across all four markets.

Okay. That's great. And do you think that -- looking at the -- where we are with lumber prices and then you also have apparently the improving trends in demand, can you help us understand that relationship of improving utilization rates while taking into account the higher lumber prices and what that could mean for margins going forward?

Long-term, the margin situation is -- I will be honest with you, we have a couple of headwinds in there, we have some fixed adders that is we have with The Home Depot. If the market moves up, that certainly makes your margin a little bit smaller. And we had some -- this whole situation with freight again is rearing its head -- where there's just not enough trucks out there. So we have had to pay a little bit of extra for freight.

But long-term, because of the way we are set up in our plants we are able to bring in -- I think I talked about this before -- we are able to bring in different widths and different lengths and cut it up to get what we need and get the margin we need. So we are not stuck with just having to buy 2" x 10" x 12', we can buy 18' which is at a huge discount and get our 12' and then use the 6-foot for stair streamers and different things. So we are not held totally captive to the market and we feel really good of where we are at. It, it feeds into our strengths. Our general managers are very good and very creative, and I think you will be pleased with our results.

And you -- just, correct me if I am wrong -- but you would think with the improved utilization rates, that you would be able to get some leverage off of that as well.

Oh yes, that's our intention. We have been able to accomplish that even through the downturn, as we grow sales and we grow our unit sales we certainly expect to get even more productivity gains.

Okay. Looking at SG&A, I know you guys don't necessarily guide, but just looking at where we are today with SG&A and improvements you have made with headcount, et cetera -- looking is this a run rate that we can expect with a modest improvement in demand, and in sales or do you think your -- should we expect SG&A to need to ratchet up to some degree.

I think we have talked about this on previous calls, too. We -- it is our goal to be able to increase our unit sales 5% to 10% and try to keep that SG&A line fixed. But the one exception to that is that as business improves and our profits continue to rise, you've got bonus expense that can go up that's in the SG&A line, and then you have sales incentives that can go up in the SG&A line. So those will flow.

Right. Okay. Thanks, guys, and good quarter.

Thanks, Trey.

Your next question comes from the line of Steve Chercover representing D. A. Davidson. Please proceed.

Morning, Steve.

Thank you. First question, could you just discuss the trends in late March versus January and February? What I am really getting at is, the sales that were lost due to weather, were they lost permanently or will they will shifted into the current and future quarters?

I don't know the answer to that. I don't think we have lost sales, it is just -- I think certainly in the DIY it just got pushed back and clearly, in some of the construction business, I don't think we lost that -- they couldn't get out there and build. The enthusiasm once the weather broke is very, very encouraging.

Good. I like the double very. With rising wood prices, will we see any inventory gains or were there any inventory gains in Q1?

No, I don't think we had. I think what you are saying is did we get some margin enhancement because of the inventory or because of rising lumber prices and I don't think we did, no.

Great. The general relationship is your margins actually go down a little bit as lumber prices rise.

Exactly. In periods of higher -- the higher level of prices -- because we price so many of our products to have a fixed profit per unit, the margin does go down.

But there have been times where I guess you have been opportunistic in laying in some inventories, that wasn't really a factor in Q1?

Very, very small, Steve because we just didn't sale much. A lot of what we sold in the first quarter was -- were products that were not effected by this surge in pricing. And by that I mean we did a lot of vinyl fence and a lot of plastic lattice and even a lot of wood fence in the first quarter -- stocking up stores that the market increase didn't affect those products. Now what we shipped later -- at the end of the quarter and into this -- into the first part of the quarter -- we did have some material that was bought and the market move that we did get a little bit of a pick up on it. But that was slightly offset by a program that we had with Home Depot where we had some pricing adjustments in the second quarter.

Okay. And final question, can you just give us a little color on the acquisition landscape? If I am not mistaken, it is still your projection to grow fairly aggressively as things get better.

We are working on that.

Nothing you can elaborate on in the pipeline? Have you -- .

I don't look good in stripes.

Okay. Thank you.

We believe that the pipeline we try to have full Steve and we have got things we are looking at across several of our markets and when we have something to announce we will let you know.

We look forward to that. Thanks, Mike.

Thanks, Steve.

The next question comes from the line of Robert Kelly representing Sidoti. Please proceed.

Gentlemen, good morning.

Morning, Robert.

Morning, Bob.

Just one question -- in the release you call out the big increase in lumber prices and yet selling prices are only up a couple of percent up 1Q year on year. Does that gradually step up as we progress throughout the year for 2010?

Yes, that is a good question, by the way. That probably looks a little bit odd, but in Q1, when you think about it there's so much we do that's non-wood and so much we do that's value added where the prices are a bit mixed or not even related to wood. It just didn't have that much of an impact. I think that changes in Q2 when the treated lumber starts to go out of the plants.

Okay.

In big volumes.

Now with the dollars increasing -- it sounds like your units are going up and your pricing is moving higher -- is it more important to have more dollars running through the plant or should we still think about units driving better utilization?

Units.

It's all units.

And now as far as the working capital burn you saw in 1Q, does that reverse -- obviously it reverses throughout the year -- do you think you're positive free cash flow in 2010.

Oh, absolutely.

Great, thanks guys.

Yes.

Thanks, Robert.

With no further questions in the queue I would like to turn the call back to Mr. Mike Glenn for closing remarks.

Thanks again for taking the time to listen to us. We are going to go back to work, we're going to grow sales like we told you we would, we're going to grow our bottom line like we told you we would, and we are going to go off and work our tail off to do all of that. So thanks again for your support.

Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes today's presentation. You may now disconnect. And have a good day.