Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
UFPI > SEC Filings for UFPI > Form 10-Q on 30-Oct-2013All Recent SEC Filings

Show all filings for UNIVERSAL FOREST PRODUCTS INC | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for UNIVERSAL FOREST PRODUCTS INC


30-Oct-2013

Quarterly Report


MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Universal Forest Products, Inc. is a holding company that provides capital, management and administrative resources to subsidiaries that design, manufacture and market wood and wood-alternative products for building materials retailers and wholesalers, structural lumber and other products for the manufactured housing and residential construction markets, and specialty wood packaging and components and packing materials for various industries. It has subsidiaries that provide framing services for the residential construction market in some parts of the country; that manufacture and market products used for concrete construction; and that offer lawn and garden products, such as trellises and arches, to retailers nationwide. Its consumer products operations offer a large portfolio of outdoor living products, including wood composite decking, decorative balusters, post caps and plastic lattice. Founded in 1955, Universal Forest Products is headquartered in Grand Rapids, Mich. Its subsidiaries operate facilities throughout North America. For more about Universal, go to www.ufpi.com.

This report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act, as amended, that are based on management's beliefs, assumptions, current expectations, estimates and projections about the markets we serve, the economy and the Company itself. Words like "anticipates," "believes," "confident," "estimates," "expects," "forecasts," "likely," "plans," "projects," "should," variations of such words, and similar expressions identify 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, events, or assumptions 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 economic 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 other 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. We are pleased to present this overview of the first three quarters of 2013.

OVERVIEW

Our results for the third quarter of 2013 were impacted by the following:

Our sales increased 22% due to a 9% increase in prices due to the lumber market and a 13% increase in unit sales. See "Historical Lumber Prices". Our unit sales increased in all five market classifications, with our strongest growth occurring in our construction and home building markets - commercial construction and concrete forming, residential construction, and manufactured housing. Our unit sales to the retail building materials market reported an increase of approximately 12% as we continue to gain market share with retail customers during 2013 and our industrial market increased by 12%, in part, due to recent acquisitions.


Table of Contents
UNIVERSAL FOREST PRODUCTS, INC.

National housing starts increased approximately 15% in the period of June 2013 through August 2013 (our sales trail housing starts by about a month), compared to the same period of 2012, while our unit sales increased 12% in the residential construction market. Since the downturn in housing began, suppliers servicing this market have been challenged with significant excess capacity. Consequently, pricing pressure has been intense resulting in several years of operating losses for many industry participants. We have maintained our focus on profitability and cash flow by being selective in the business we take. Consequently, our sales may trail the market from time to time.

Production of HUD code manufactured homes was up 9% during the third quarter of 2013, compared to the same period of 2012, which helped drive our 9% increase in unit sales to this market. We also believe modular market activity has improved. We believe we've maintained our share of the manufactured housing market in the core manufactured product lines we offer.

In the third quarter of 2013, we accrued $0.9 million related to anti-dumping duty assessments estimated on plywood and steel nails imported from China. In the third quarter of 2012, we recorded a $2.0 million loss contingency for a Canadian anti-dumping duty. The Canadian government has imposed retroactive assessments for antidumping and countervailing duties tied to certain extruded aluminum products imported from China. We continue to work with the applicable government agencies to clarify the applicability of these rules to our products.

Our profitability has improved primarily due to a combination of higher unit sales and operating leverage we have in the cost structure of our business.

Higher unit sales and lumber prices have resulted in a substantial year over year increase in our working capital and debt levels.


Table of Contents
                        UNIVERSAL FOREST PRODUCTS, INC.

                            HISTORICAL LUMBER PRICES

We experience significant fluctuations in the cost of commodity lumber products
from primary producers ("Lumber Market"). The following table presents the
Random Lengths framing lumber composite price:

                                               Random Lengths Composite
                                                     Average $/MBF
                                                 2013               2012

           January                           $         393         $   281
           February                                    409             286
           March                                       436             300
           April                                       429             308
           May                                         367             342
           June                                        329             330
           July                                        343             323
           August                                      353             340
           September                                   368             332

           Third quarter average             $         355         $   332
           Year-to-date average                        381             316

           Third quarter percentage change             6.9 %
           Year-to-date percentage change             20.6 %

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
                                                   2013           2012

              January                           $      397       $  269
              February                                 426          278
              March                                    445          300
              April                                    436          314
              May                                      383          341
              June                                     355          314
              July                                     366          300
              August                                   364          315
              September                                360          319

              Third quarter average             $      363       $  311
              Year-to-date average              $      392       $  306

              Third quarter percentage change         16.7 %
              Year-to-date percentage change          28.1 %


Table of Contents
UNIVERSAL FOREST PRODUCTS, INC.

IMPACT OF THE LUMBER MARKET ON OUR OPERATING RESULTS

We experience significant fluctuations in the cost of commodity lumber products from primary producers ("Lumber Market"). We generally price our products to pass lumber costs through to our customers so that our profitability is based on the value-added manufacturing, distribution, engineering, and other services we provide. As a result, our sales levels (and working capital requirements) are impacted by the lumber costs of our products. Lumber costs are a significant percentage of our cost of goods sold.

Our gross margins are impacted by (1) the relative level of the Lumber Market (i.e. whether prices are higher or lower from comparative periods), and (2) the trend in the market price of lumber (i.e. whether the price of lumber is increasing or decreasing within a period or from period to period). Moreover, as explained below, our products are priced differently. Some of our products have fixed selling prices, while the selling prices of other products are indexed to the reported Lumber Market with a fixed dollar adder to cover conversion costs and profits. Consequently, the level and trend of the Lumber Market impact our products differently.

Below is a general description of the primary ways in which our products are priced.

Products with fixed selling prices. These products include value-added products such as decking and fencing sold to retail building materials customers, as well as trusses, wall panels and other components sold to the residential construction market, and most industrial packaging products.
Prices for these products are generally fixed at the time of the sales quotation for a specified period of time or are based upon a specific quantity.
In order to maintain margins and reduce any exposure to adverse trends in the price of component lumber products, we attempt to lock in costs with our suppliers for these sales commitments. Also, the time period and quantity limitations generally allow us to re-price our products for changes in lumber costs from our suppliers.

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 we 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. As a result of the decline in the housing market and our sales to residential and commercial builders, a greater percentage of our sales fall into this general pricing category. Consequently, we believe our profitability may be impacted to a much greater extent to changes in the trend of lumber prices.


Table of Contents
UNIVERSAL FOREST PRODUCTS, INC.

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 20% 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 and commercial construction projects.
We attempt to mitigate this risk through our purchasing practices by locking in costs.

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 %

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 Unaudited Consolidated Condensed Financial Statements, Note G, "Business Combinations."


Table of Contents
                        UNIVERSAL FOREST PRODUCTS, INC.

                             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.

                                                 Three Months Ended                  Nine months Ended
                                           September 28,       September       September 28,      September
                                               2013             29, 2012           2013            29, 2012

Net sales                                          100.0 %           100.0 %           100.0 %          100.0 %
Cost of goods sold                                  88.0              89.6              88.9             88.6
Gross profit                                        12.0              10.4              11.1             11.4
Selling, general, and administrative
expenses                                             8.1               8.5               7.9              8.8
Anti-dumping duty assessment                         0.1               0.4               0.1              0.2
Net gain on disposition of assets,early
retirement, and other impairment and
exit charges                                           -                 -                 -             (0.5 )
Earnings from operations                             3.8               1.6               3.1              2.9
Other expense, net                                   0.1               0.1               0.1              0.2
Earnings before income taxes                         3.6               1.4               3.0              2.7
Income taxes                                         1.3               0.5               1.1              1.0
Net earnings                                         2.3               0.9               1.9              1.7
Less net earnings attributable to
noncontrolling interest                             (0.1 )            (0.1 )            (0.1 )           (0.1 )
Net earnings attributable to controlling
interest                                             2.2 %             0.8 %             1.8 %            1.6 %

Note: Actual percentages are calculated and may not sum to total due to rounding.

GROSS SALES

We design, manufacture and market wood and wood-alternative products for national home centers and other retailers, structural lumber and other products for the manufactured housing industry, engineered wood components for residential and commercial construction, and specialty wood packaging, components and packing materials for various industries. Our strategic long-term sales objectives include:

Diversifying our end market sales mix by increasing sales of specialty wood packaging to industrial users, increasing our penetration of the concrete forming market, increasing our sales of engineered wood components for custom home, multi-family, military and light commercial construction, and increasing our market share with independent retailers.

Expanding geographically in our core businesses, domestically and internationally.

Increasing sales of "value-added" products, which primarily consist of fencing, decking, lattice, and other specialty products sold to the retail building materials 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.


Table of Contents
UNIVERSAL FOREST PRODUCTS, INC.

Developing new products and expanding our product offering for existing customers.

Maximizing unit sales growth while achieving return on investment goals.

Value-Added and Commodity-Based Sales:

The following table presents, for the periods indicated, our percentage of
value-added and commodity-based sales to total sales.  Value-added products
generally carry higher gross margins than our commodity-based products.

                                               Three Months Ended                        Nine Months Ended
                                    September 28,        September 29, 2012      September 28,        September 29,
                                         2013                                         2013                2012

Value-Added                                   59.1 %                    58.4 %             58.1 %              58.9 %
Commodity-Based                               40.9 %                    41.6 %             41.9 %              41.1 %

The processes used to produce preservative treated lumber and its applications in the marketplace would suggest that it is a "value-added" product, but we have classified this product category as "commodity-based" as a result of its lower margin.

The following table presents, for the periods indicated, our gross sales and percentage change in gross sales by market classification.

(in thousands)                      Three Months Ended                              Nine Months Ended
                         September       September                      September        September
Market Classification    28, 2013        29, 2012        % Change        28, 2013         29, 2012        % Change
Retail Building
Materials               $   247,002     $   203,126           21.6     $    767,810     $    678,408           13.2
Industrial                  187,253         155,048           20.8          541,079          449,017           20.5

Residential
Construction                 89,692          69,378           29.3          258,328          181,148           42.6
Commercial
Construction and
Concrete Forming             36,737          24,217           51.7          104,627           67,954           54.0
Manufactured Housing         99,976          89,026           12.3          299,338          232,729           28.6
Housing and
Construction                226,405         182,621           24.0          662,293          481,831           37.5
Total Gross Sales           660,660         540,795           22.2        1,971,182        1,609,256           22.5
Sales Allowances             (8,880 )        (7,429 )                       (26,471 )        (25,086 )
Total Net Sales         $   651,780     $   533,366           22.2     $  1,944,711     $  1,584,170           22.8

Gross sales in the third quarter of 2013 increased 22% compared to the same period of 2012, due to a 9% increase in overall prices primarily resulting from the higher level of the Lumber Market, which impacts our selling prices to customers in each of our markets, and a 13% increase in overall unit sales.


Table of Contents
UNIVERSAL FOREST PRODUCTS, INC.

Gross sales in the first nine months of 2013 increased 22% compared to the same period of 2012, due to higher lumber prices and an 8% increase in unit sales.

Changes in our gross sales by market are discussed below.

Retail Building Materials:

Gross sales to the retail building materials market increased 22% in the third quarter of 2013 compared to the same period of 2012, due to a 10% increase in selling prices and a 12% increase in our overall unit sales. Within this market, sales to our big box customers increased 28% while our sales to other retailers increased 15%. Our increase in unit sales is due to a combination of an increase in market share and improved consumer spending as evidenced by higher same store sales growth reported by our big box customers.

Gross sales to the retail building materials market increased 13% in the first nine months of 2013 compared to the same period of 2012. Within this market, sales to our big box customers increased 12% while our sales to other retailers increased 14%. Our unit sales increased 1% for the first nine months of 2013.
Sequentially, our sales growth has improved since May of 2013 as weather in many regions of the country improved.

Industrial:

Gross sales to the industrial market increased 21% in the third quarter of 2013 compared to the same period of 2013, resulting from a 9% increase in selling prices and a 12% increase in unit sales. We acquired two new operations which contributed to our growth in unit sales.

Gross sales to the industrial market increased 21% in the first nine months of 2013 compared to the same period of 2012, primarily due to the same factors discussed above. Our unit sales increased 8% in the first nine months of 2013.

Residential Construction:

Gross sales to the residential construction market increased 29% in the third quarter of 2013 compared to the same period of 2012 due to an increase in lumber prices and a 12% increase in our unit sales. By comparison, national housing starts increased approximately 15% in the period of June 2013 through August 2013 (our sales typically trail housing starts by about a month), compared to the same period of 2012. Our sales growth may trail the market from time to time due to our focus on profitability and cash flow as this market is still challenged with excess capacity resulting in pricing pressure from customers.


Table of Contents
UNIVERSAL FOREST PRODUCTS, INC.

Gross sales to the residential construction market increased 43% in the first nine months of 2013 compared to the same period of 2012, primarily due to the same factors discussed above. Our unit sales increased 20% for the first nine months of 2013. By comparison, national housing starts increased approximately 23% in the first nine months of 2013.

Commercial Construction and Concrete Forming:

Gross sales to the commercial construction and concrete forming market increased 52% in the third quarter of 2013 compared to the same period of 2012 due to a 42% increase in unit sales and a 10% increase in selling prices. Within this market, sales to commercial builders increased 71%, primarily due to new product sales in our Gulf region, and sales of products used to make concrete forms increased 40%.

Gross sales to the commercial construction and concrete forming market increased 54% in the first nine months of 2013 compared to the same period of 2012 due to a 40% increase in unit sales and a 14% increase in selling prices. Within this market, sales to commercial builders increased 90%, and sales of products used to make concrete forms increased 33% due to our continued focus on growing our share of this market.

Industrial:

Gross sales to the industrial market increased 21% in the third quarter of 2013 compared to the same period of 2013, resulting from a 9% increase in selling prices and a 12% increase in unit sales. We acquired two new operations which contributed to our growth in unit sales.

Gross sales to the industrial market increased 21% in the first nine months of 2013 compared to the same period of 2012, primarily due to the same factors discussed above. Our unit sales increased 8% in the first nine months of 2013.

Manufactured Housing:

Gross sales to the manufactured housing market increased 12% in the third quarter of 2013 compared to 2012, primarily due to an increase in unit sales and a slight increase in selling prices due to the lumber market. Production of HUD-code homes in the third quarter of 2013 increased 9% compared to 2012, and we believe modular market activity also increased.

Gross sales to the manufactured housing market increased 29% in the first nine months of 2013 compared to 2012, primarily due to the same factors discussed above. Our selling price increased 18% and our unit sales increased 11% for the first nine months of 2013. By comparison, year to date production of HUD-code homes increased 6%.


Table of Contents
UNIVERSAL FOREST PRODUCTS, INC.

COST OF GOODS SOLD AND GROSS PROFIT

Our gross profit percentage increased to 12.0% from 10.4% comparing the third quarter of 2013 to the same period of 2012. In addition, our gross profit dollars increased by 41.8%, exceeding our 13% increase in unit sales.

The improvement in our gross profit per unit and profitability this quarter resulted from our increase in unit sales combined with the operating leverage we . . .

  Add UFPI to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for UFPI - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.