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| UFPI > SEC Filings for UFPI > Form 10-Q on 21-Oct-2009 | All Recent SEC Filings |
21-Oct-2009
Quarterly Report
• National housing starts decreased approximately 36% in June through August of 2009, compared to the same periods of 2008, as a result of an excess supply of homes, tight credit conditions, and an increase in foreclosures.
• Consumer spending for large repair/remodel projects has decreased due to general economic conditions, among other factors, including weak home prices and decreased cost recovery for most types of upper-end home improvement projects. Consequently, the same store sales of "big box" home improvement retailers have declined by approximately 10%.
• Shipments of HUD code manufactured homes were down 37% in July of 2009, compared to the same period of 2008. Industry sales of modular homes have also continued to decline. Weak market conditions are due, in part, to an excess supply of site-built homes and foreclosures and tight credit conditions.
• The industrial market has declined due to the general weakening of the U.S. economy. We gained additional share of this market due, in part, to adding new concrete forming business.
• Our gross margin increased to 15.1% from 10.6% in 2008 due to the implementation of various cost reduction initiatives and the lower level of the Lumber Market.
• Our net interest costs decreased by $1.7 million, or 67%, as our interest-bearing debt declined from $167 million at the end of September of 2008 to $56 million at the end of September of 2009.
• We are pleased to report operating and investing cash flows totaling almost $114 million for the first nine months of 2009 due to improved profitability, effective working capital management, and reduced working capital requirements due to weak demand.
Route 2012
Since we discussed our Growth & Opportunity 2010 ("GO 2010") goals in our annual
report on form 10-K for the period ended December 30, 2006, industry and general
economic conditions have significantly deteriorated. In addition, the Lumber
Market has declined from an average of $388/MBF in 2005 to an average of
$215/MBF in 2009; a 45% decline from when we first set our goals, which has
adversely impacted our sales.
In place of our GO 2010 goals, we have a new four-year growth plan entitled
"Route 2012," which includes goals to be achieved by the end of our fiscal year
2012 including:
• Increase sales to $3 billion.
• Improve productivity by 15% through our Continuous Improvement initiative.
• Improve profitability by three hundred basis points through productivity improvements, cost reductions, and growth.
• Improve receivables cycles in our industrial, site-built and manufactured housing markets by 10% by reducing the amount of our receivables that are paid past the agreed upon due date.
• Improve inventory turnover by 10%.
HISTORICAL LUMBER PRICES
The following table presents the Random Lengths framing lumber composite price
is presented below:
Random Lengths Composite
Average $/MBF
2009 2008
January $ 198 $ 249
February 199 244
March 195 240
April 208 255
May 198 281
June 222 268
July 238 267
August 239 282
September 236 272
Third quarter average $ 238 $ 274
Year-to-date average $ 215 $ 262
Third quarter percentage change from 2008 (13.1 %)
Year-to-date percentage change from 2008 (17.9 %)
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UNIVERSAL FOREST PRODUCTS, INC.
In addition, a Southern Yellow Pine ("SYP") composite price, which we prepare
and use, is presented below. Sales of products produced using this species,
which primarily consists of our preservative-treated products, may comprise up
to 50% of our sales volume.
Random Lengths SYP
Average $/MBF
2009 2008
January $ 241 $ 269
February 233 264
March 232 264
April 241 272
May 231 324
June 236 318
July 253 303
August 241 304
September 244 309
Third quarter average $ 246 $ 305
Year-to-date average $ 239 $ 292
Third quarter percentage change from 2008 (19.3 %)
Year-to-date percentage change from 2008 (18.2 %)
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• Products with selling prices indexed to the reported Lumber Market with a fixed dollar "adder" to cover conversion costs and profits. These products primarily include treated lumber, remanufactured lumber, and trusses sold to the manufactured housing industry. For these products, we estimate the customers' needs and carry anticipated levels of inventory. Because lumber costs are incurred in advance of final sale prices, subsequent increases or decreases in the market price of lumber impact our gross margins. For these products, our margins are exposed to changes in the trend of lumber prices.
Changes in the trend of lumber prices have their greatest impact on the
following products:
• Products with significant inventory levels with low turnover rates, whose
selling prices are indexed to the Lumber Market. In other words, the longer
the period of time these products remain in inventory, the greater the
exposure to changes in the price of lumber. This would include treated
lumber, which comprises approximately 12% of our total sales. This exposure
is less significant with remanufactured lumber, trusses sold to the
manufactured housing market, and other similar products, due to the higher
rate of inventory turnover. We attempt to mitigate the risk associated with
treated lumber through vendor consignment inventory programs. (Please refer
to the "Risk Factors" section of our annual report on form 10-K, filed with
the United States Securities and Exchange Commission.)
• Products with fixed selling prices sold under long-term supply arrangements, particularly those involving multi-family construction projects. We attempt to mitigate this risk through our purchasing practices by locking in costs.
UNIVERSAL FOREST PRODUCTS, INC.
In addition to the impact of the Lumber Market trends on gross margins, changes
in the level of the market cause fluctuations in gross margins when comparing
operating results from period to period. This is explained in the following
example, which assumes the price of lumber has increased from period one to
period two, with no changes in the trend within each period.
Period 1 Period 2
Lumber cost $ 300 $ 400
Conversion cost 50 50
= Product cost 350 450
Adder 50 50
= Sell price $ 400 $ 500
Gross margin 12.5 % 10.0 %
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As is apparent from the preceding example, the level of lumber prices does not impact our overall profits, but does impact our margins. Gross margins are negatively impacted during periods of high lumber prices; conversely, we experience margin improvement when lumber prices are relatively low.
BUSINESS COMBINATIONS
See Notes to Consolidated Condensed Financial Statements, Note H, "Business
Combinations."
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, the components of our
Consolidated Condensed Statements of Earnings as a percentage of net sales.
For the Three Months Ended For the Nine Months Ended
September 26, September 27, September 26, September 27,
2009 2008 2009 2008
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of goods sold 84.9 89.4 85.1 88.7
Gross profit 15.1 10.6 14.9 11.3
Selling, general, and
administrative expenses 11.2 9.5 11.7 9.9
Net (gain) loss on disposition of
assets and other impairment and
exit charges 0.1 0.9 (0.1 ) 0.4
Earnings from operations 3.8 0.2 3.3 1.0
Interest, net 0.2 0.4 0.2 0.4
Earnings (loss) before income taxes 3.6 (0.2 ) 3.1 0.6
Income taxes 1.4 0.1 1.2 0.3
Net earnings (loss) 2.2 (0.3 ) 1.9 0.3
Less net earnings attributable to
noncontrolling interest (0.0 ) (0.0 ) (0.0 ) (0.0 )
Net earnings (loss) attributable to
controlling interest 2.2 % (0.3 %) 1.9 % 0.3 %
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• Expanding geographically in our core businesses.
• Increasing sales of "value-added" products and framing services. Value-added product sales primarily consist of fencing, decking, lattice, and other specialty products sold to the DIY/retail market, specialty wood packaging, engineered wood components, and "wood alternative" products. Engineered wood components include roof trusses, wall panels, and floor systems. Wood alternative products consist primarily of composite wood and plastics. Although we consider the treatment of dimensional lumber with certain chemical preservatives a value-added process, treated lumber is not presently included in the value-added sales totals.
• Maximizing unit sales growth while achieving return on investment goals.
The following table presents, for the periods indicated, our gross sales (in thousands) and percentage change in gross sales by market classification.
For the Three Months Ended For the Nine Months Ended
Sept. 26, Sept. 27, % Sept. 26, Sept. 27, %
Market Classification 2009 2008 Change 2009 2008 Change
DIY/Retail $ 214,719 $ 253,348 (15.2 ) $ 674,394 $ 765,868 (11.9 )
Site-Built Construction 68,288 119,472 (42.8 ) 189,882 358,566 (47.0 )
Industrial 132,718 164,982 (19.6 ) 367,657 476,875 (22.9 )
Manufactured Housing 53,766 85,071 (36.8 ) 134,985 245,679 (45.1 )
Total Gross Sales 469,491 622,873 (24.6 ) 1,366,918 1,846,988 (26.0 )
Sales Allowances (11,723 ) (12,129 ) (32,483 ) (38,247 )
Total Net Sales $ 457,768 $ 610,744 (25.0 ) $ 1,334,435 $ 1,808,741 (26.2 )
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Note: In the first
quarter of 2009,
we reviewed the
classification of
our customers and
made certain
reclassifications.
Prior year
information has
been restated to
reflect these
reclassifications.
Three Months Ended Nine Months Ended
Sept. 26, Sept. 27, Sept. 26, Sept. 27,
2009 2008 2009 2008
Value-Added 58.4 % 59.6 % 60.1 % 60.7 %
Commodity-Based 41.6 % 40.4 % 39.9 % 39.3 %
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• An improvement in labor and plant overhead as a percentage of net sales due to plant consolidation and right-sizing efforts previously taken.
• Lower freight costs due to fuel prices.
In addition, the lower level of the Lumber Market caused our gross margin to
increase. See "Impact of the Lumber Market on Our Operating Results".
Our gross profit percentage increased to 14.9% from 11.3% comparing the first
nine months of 2009 with the same period of 2008. Our gross profit dollars
decreased by approximately 3% comparing the first nine months of 2009 with the
same period of 2008, which compares favorably with our 20% decrease in unit
sales. Our improved gross margin comparing these two periods was primarily due
to the factors mentioned in the paragraph above.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative ("SG&A") expenses decreased by approximately
$6.8 million, or 11.8%, in the third quarter of 2009 compared to the same period
of 2008, while we reported an 18% decrease in unit sales. New operations added
$0.2 million of expenses, operations we closed decreased expenses by
$4.3 million, and existing operations reduced expenses by $2.7 million. The
decrease in SG&A expenses at our existing operations was primarily due to a
decline in wages and related costs due to a reduction in headcount and a decline
in many other account categories as a result of efforts to control costs. These
decreases were partially offset by an increase in accrued bonus. Our SG&A
expenses increased as a percentage of sales primarily due to the lower level of
the Lumber Market and an increase in accrued bonus expense.
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