Universal Forest Products, Inc.
Grand Rapids, Michigan, USA, 16 July 2007 -- Universal Forest Products, Inc. (Nasdaq: UFPI) today announced second quarter results that included net sales of USD 773.1 million and net earnings of USD 16.8 million, down from USD 826.8 million and USD 27.3 million, respectively, for the same period in 2006.
Diluted earnings per share for the quarter were USD 0.86, down from USD 1.41 in the second quarter of 2006. The numbers reflect the continued effects 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 Michael B. Glenn, president and CEO. “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:
* USD 360.9 million in Do-It-Yourself(DIY)/retail, an increase of 1.7% over 2006
* USD 162.0 million in site-built construction, a decrease of 30.0% from 2006
* USD 162.4 million in industrial, an increase of 7.1% over 2006; and
* USD 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 effect 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 USD 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.
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 USD 2.375 billion to USD 2.425 billion and annual net earnings of USD 40.0 million to USD 42.0 million in 2007. This implies the following six-month targets for the remainder of 2007: net sales of USD 1.053 billion to USD 1.103 billion and net earnings of USD 19.3 million to USD 21.3 million. By comparison, net sales and net earnings (excluding certain nonrecurring tax adjustments) were USD 1.172 billion and USD 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.
* 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 these and related matters at 11:00 a.m. Eastern Time on 17 July 2007. The call will be hosted by William G. Currie, executive chairman, Michael B. Glenn, president and CEO, and Michael Cole, CFO, 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 http://www.ufpi.com. A replay of the call will be available through 16 August 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 DIY/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 USD 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, visit the company's Web site at http://www.ufpi.com, or call 888-Buy-UFPI.