UFPI missed avg, but hit low estimate
Sales missed
Guidance cut
Universal Forest Products, Inc. Reports 2nd Quarter Earnings of $16.8 Million
Monday July 16, 4:35 pm ET
Company Adjusts Annual Targets
GRAND RAPIDS, Mich.--(BUSINESS WIRE)--Universal Forest Products, Inc. (NASDAQ:UFPI - News) today announced second quarter results that included net sales of $773.1 million and net earnings of $16.8 million, down from $826.8 million and $27.3 million, respectively, for the same period in 2006. Diluted earnings per share for the quarter were $0.86, down from $1.41 in the second quarter of 2006. The numbers reflect the continued impact of the weak housing market and soft lumber prices.
"We're disappointed with any decrease in performance, but these results also underscore the strength of our balanced business model," said President and CEO Michael B. Glenn. "Our site-built construction sales are off nearly 30% from the second quarter of last year and lumber prices - which affect our selling prices - are down 15%, but our gross sales for the quarter are down just 5.8%. That gives us confidence in a strategy that's built on four markets and allows us to weather a decline in any one of them."
"We saw market share gains in each of our markets and sales increases in three of them," he added. "The efforts of our people in hard times like these give us optimism for the future and every reason to believe we'll come out better for the challenges."
By market, Universal posted the following gross sales results for the second quarter:
* $360.9 million in Do-It-Yourself/retail, an increase of 1.7% over 2006;
* $162.0 million in site-built construction, a decrease of 30.0% from 2006;
* $162.4 million in industrial, an increase of 7.1% over 2006; and
* $105.2 million in manufactured/modular housing, an increase of 3.5% over 2006.
Declines in the housing market were broader and deeper than anticipated, Glenn said, making projections for recovery difficult. Even as the market returns, price pressure exerted by builders has resulted in lower margins that could impact results until market conditions improve, he noted. "We have reason to believe that recovery will begin in mid- to late 2008," he said. "We have significant order files, but the current inventory of unsold homes makes it unlikely that those will translate to sales any time soon."
The housing market's impact on DIY/retail sales was more significant than anticipated. "In previous housing downturns, our DIY business picked up as people chose to improve their homes instead of building new," Glenn said. "That hasn't been the case this time. We believe that homeowners who took significant equity out of their homes, or whose home values declined due to market conditions, are putting off the larger projects - like room additions and new decks -- that would positively impact our business."
"We've been able to mitigate the impact of the retail market by growing market share with our big box customers," he added, noting that sales to those customers increased 10% in the second quarter of 2007 despite a decline in lumber prices.
In manufactured housing, the Company maintains significant market share and its business should grow in relation to the return of the market. Despite a sequential improvement in orders in the latter part of the second quarter, that recovery remains uncertain. Current estimates call for 98,500 HUD-code homes to be shipped in 2007, down 16% from 2006, which was down nearly 20% from 2005 (although 2005 production was inflated by demand created in the wake of Hurricanes Katrina and Rita).
Universal continues to see opportunity for growth in the industrial market, in which the Company supplies specialty crates and packaging, and makes wood and wood-alternative components for a variety of products. The Company continues to add manufacturing and sales capacity to take advantage of the opportunities for growth in this highly fragmented market.
The Company also works persistently to identify new business opportunities and is encouraged by its recent foray into the concrete form business to supply wood forms, or molds, for the construction of structures made of concrete, such as bridges, highways, parking garages, and office buildings. "This business uses our existing equipment, facilities and expertise and is a great fit for Universal," Glenn said. "There are no other truly national players in this approximately $1 billion market. It's an exciting opportunity."
In addition, the Company is focused on continuous improvement and lean manufacturing efforts to ensure customer satisfaction and efficient operations, and continues its practice of evaluating plants and business for possible consolidation and closure.
The Company is authorized to repurchase up to 1.4 million shares under its stock repurchase program and balances repurchase opportunities with its intent to remain well-positioned to take advantage of strategic acquisition opportunities that might arise.
OUTLOOK
The Company's initial targets for 2007 were based, in part, on assumptions that haven't materialized. Therefore, the Company is revising its targets to annual net sales of $2.375 billion to $2.425 billion and annual net earnings of $40.0 million to $42.0 million in 2007. This implies the following six-month targets for the remainder of 2007: net sales of $1.053 billion to $1.103 billion and net earnings of $19.3 million to $21.3 million. By comparison, net sales and net earnings (excluding certain non-recurring tax adjustments) were $1.172 billion and $23.5 million, respectively, for the last six months of 2006.
The revised targets are based on the following assumptions:
* Continued challenging conditions in the DIY, site-built construction, and manufactured housing markets. Housing starts will show little, if any, improvement for the remainder of 2007 and won't begin a recovery until mid to late 2008; DIY/retail sales will continue to be adversely impacted by the reluctance of homeowners to undertake large home improvement projects.
* The Company will continue to achieve market share gains in the DIY/retail, industrial, and site-built markets;
* Plant consolidations or closures will be temporary in nature, resulting in no asset impairment charges;
* The lumber market will continue to be depressed for the balance of the year; and
* The Company will incur incentive compensation expense as a percentage of operating profits consistent with historical experience.
Universal Forest Products will conduct a conference call to discuss information included in this news release and related matters at 11:00 a.m. EST on Tuesday, July 17, 2007. The call will be hosted by Executive Chairman William G. Currie, President and CEO Michael B. Glenn, and CFO Michael Cole and will be available for analysts and institutional investors domestically at (800) 659-2056 or internationally at (617) 614-2714. Use conference pass code # 39337765. The conference call will be available simultaneously and in its entirety to all interested investors and news media through a webcast at ufpi.com . A replay of the call will be available through Thursday, August 16, 2007 domestically at (888) 286-8010 or internationally at (617) 801-6888. Use replay pass code # 23924933.
Universal Forest Products markets, manufactures and engineers wood and wood-alternative products for D-I-Y/retail home centers, structural lumber products for the manufactured housing industry, engineered wood components for the site-built construction market, and specialty wood packaging for various industries. The Company also provides framing services for the site-built sector. The Company reported sales of nearly $2.66 billion in 2006. Universal has approximately 10,000 employees who work out of approximately 100 locations in North America. For information about Universal Forest Products, please visit the Company's Web site at ufpi.com, or call 888-Buy-UFPI.
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 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.
HIGHLIGHTS TO FOLLOW
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
FOR THE SIX MONTHS ENDED
JUNE 2007/2006
(In thousands, except per share
data) Quarter Period
2007 2006
---------------- ----------------
NET SALES $773,105 100% $826,847 100%
COST OF GOODS SOLD 671,400 86.84 706,429 85.44
--------- ---------
GROSS PROFIT 101,705 13.16 120,418 14.56
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 70,382 9.10 70,773 8.56
--------- ---------
EARNINGS FROM OPERATIONS 31,323 4.05 49,645 6.00
OTHER EXPENSE (INCOME)
Interest expense 4,766 0.62 3,744 0.45
Interest income (558) -0.07 (352) -0.04
Net (gain) loss on sale of real
estate (333) -0.04 (63) -0.01
--------- ---------
3,875 0.50 3,329 0.40
--------- ---------
EARNINGS BEFORE INCOME TAXES AND
MINORITY INTEREST 27,448 3.55 46,316 5.60
INCOME TAXES 10,182 1.32 17,885 2.16
--------- ---------
EARNINGS BEFORE MINORITY INTEREST 17,266 2.23 28,431 3.44
MINORITY INTEREST (466) -0.06 (1,117) -0.14
--------- ---------
NET EARNINGS $ 16,800 2.17 $ 27,314 3.30
========= =========
EARNINGS PER SHARE - BASIC $ 0.88 $ 1.45
EARNINGS PER SHARE - DILUTED $ 0.86 $ 1.41
WEIGHTED AVERAGE SHARES
OUTSTANDING 19,127 18,851
WEIGHTED AVERAGE SHARES
OUTSTANDING WITH COMMON STOCK
EQUIVALENTS 19,487 19,432
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
FOR THE SIX MONTHS ENDED
JUNE 2007/2006
(In thousands, except per share
data) Year to Date
2007 2006
------------------- ------------------
NET SALES $1,322,143 100% $1,492,456 100%
COST OF GOODS SOLD 1,146,918 86.75 1,277,727 85.61
----------- -----------
GROSS PROFIT 175,225 13.25 214,729 14.39
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 133,840 10.12 135,302 9.07
----------- -----------
EARNINGS FROM OPERATIONS 41,385 3.13 79,427 5.32
OTHER EXPENSE (INCOME)
Interest expense 9,090 0.69 7,543 0.51
Interest income (1,140) -0.09 (781) -0.05
Net (gain) loss on sale of
real estate (333) -0.03 (63) 0.00
----------- -----------
7,617 0.58 6,699 0.45
----------- -----------
EARNINGS BEFORE INCOME TAXES AND
MINORITY INTEREST 33,768 2.55 72,728 4.87
INCOME TAXES 12,250 0.93 27,641 1.85
----------- -----------
EARNINGS BEFORE MINORITY
INTEREST 21,518 1.63 45,087 3.02
MINORITY INTEREST (832) -0.06 (1,907) -0.13
----------- -----------
NET EARNINGS $ 20,686 1.56 $ 43,180 2.89
============ ===========
EARNINGS PER SHARE - BASIC $ 1.09 $ 2.31
EARNINGS PER SHARE - DILUTED $ 1.06 $ 2.23
WEIGHTED AVERAGE SHARES
OUTSTANDING 19,056 18,729
WEIGHTED AVERAGE SHARES
OUTSTANDING WITH COMMON STOCK
EQUIVALENTS 19,448 19,355
SUPPLEMENTAL SALES DATA
-------------------------------------------------
Quarter Period
-----------------------------
Market Classification 2007 % 2006 %
------------------------------------------------- ---- --------- ----
Do-It-Yourself/Retail $360,881 46% $354,838 42%
Site-Built Construction 161,969 20% 231,298 28%
Industrial 162,442 21% 151,638 18%
Manufactured Housing 105,223 13% 101,659 12%
--------- ---- --------- ----
Total Gross Sales 790,515 100% 839,433 100%
Sales Allowances (17,410) (12,586)
--------- ---------
Total Net Sales $773,105 $826,847
========= =========
SUPPLEMENTAL SALES DATA
-----------------------------------------------
Year to Date
----------------------------------
Market Classification 2007 % 2006 %
------------------------------------------------ ---- ----------- ----
Do-It-Yourself/Retail $ 557,017 42% $ 571,304 38%
Site-Built Construction 300,811 22% 444,430 29%
Industrial 295,894 22% 291,592 19%
Manufactured Housing 193,501 14% 208,463 14%
------------ ---- ----------- ----
Total Gross Sales 1,347,223 100% 1,515,789 100%
Sales Allowances (25,080) (23,333)
------------ -----------
Total Net Sales $1,322,143 $1,492,456
============ ===========
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
JUNE 2007/2006
(In thousands)
LIABILITIES
AND
SHAREHOLDERS'
ASSETS 2007 2006 EQUITY 2007 2006
-------------- ---------- -------- -------------- ---------- --------
CURRENT
CURRENT ASSETS LIABILITIES
Cash and
cash Accounts
equivalents $42,697 $43,309 payable $147,614 $146,409
Accounts Accrued
receivable 233,067 242,829 liabilities 82,432 101,115
Inventories 274,395 246,810
Current
portion of
long-term
Other debt and
current capital
assets 22,339 22,495 leases 3,611 902
---------- -------- ---------- --------
TOTAL CURRENT TOTAL CURRENT
ASSETS 572,498 555,443 LIABILITIES 233,657 248,426
OTHER ASSETS 7,691 8,003 LONG-TERM DEBT
AND CAPITAL
LEASES, less
INTANGIBLE current
ASSETS, NET 189,694 147,901 portion 243,833 170,191
OTHER
LIABILITIES 54,601 33,051
PROPERTY,
PLANT AND
EQUIPMENT, SHAREHOLDERS'
NET 303,553 227,995 EQUITY 541,345 487,674
---------- -------- ---------- --------
TOTAL
LIABILITIES
AND
SHAREHOLDERS'
TOTAL ASSETS $1,073,436 $939,342 EQUITY $1,073,436 $939,342
========== ======== ========== ========
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED
JUNE 2007/2006
(In thousands) 2007 2006
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 20,686 $ 43,180
Adjustments to reconcile net earnings to net cash
from operating activities:
Depreciation 19,013 16,730
Amortization of intangibles 4,633 2,151
Expense associated with share-based
compensation arrangements 258 522
Expense associated with stock grant plans 146 177
Deferred income taxes (89) (867)
Minority interest 832 1,907
Gain on sale of interest in subsidiary (140) -
Loss (gain) on sale or impairment of property,
plant and equipment (131) (183)
Changes in:
Accounts receivable (72,549) (57,246)
Inventories (11,354) 7,768
Accounts payable 54,581 39,426
Accrued liabilities and other (159) 8,237
Excess tax benefits from share-based
compensation arrangements (678) (3,866)
--------- ---------
NET CASH FROM OPERATING ACTIVITIES 15,049 57,936
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant, and equipment (18,653) (16,234)
Acquisitions, net of cash received (56,209) (11,298)
Proceeds from sale of interest in subsidiary 400 -
Proceeds from sale of property, plant and
equipment 2,686 565
Advances on notes receivable - (2,473)
Collection of notes receivable 137 1,600
Other, net (16) 38
--------- ---------
NET CASH FROM INVESTING ACTIVITIES (71,655) (27,802)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings under revolving credit
facilities 74,318 (40,000)
Repayment of long-term debt (25,417) (325)
Proceeds from issuance of common stock 2,862 5,389
Distributions to minority shareholder (825) (930)
Dividends paid to shareholders (1,047) (1,035)
Repurchase of common stock (2,106) -
Excess tax benefits from share-based compensation
arrangements 679 3,866
Other, net (269) (5)
--------- ---------
NET CASH FROM FINANCING ACTIVITIES 48,195 (33,040)
--------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS (8,411) (2,906)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 51,108 46,215
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 42,697 $ 43,309
========= =========
Contact:
Universal Forest Products, Inc.
Lynn Afendoulis, Director, Corporate Communications
616-365-1502
Source: Universal Forest Products |
