Universal Forest Products, Inc. Reports EPS of $0.61; Posts Net Earnings of $11.7 Million
Results Impacted by High Fuel Cost and Weak Economy
GRAND RAPIDS, Mich.--(BUSINESS WIRE)--July 16, 2008--Universal Forest Products, Inc. (Nasdaq: UFPI) today announced its results for the second quarter of 2008. Net earnings in the quarter were $11.7 million, which compared to net earnings of $16.8 million for the same period last year. Diluted earnings per share for the second quarter were $0.61, down from $0.86 for the same period last year. Second-quarter net sales were $708.5 million, down from $773.1 million for the second quarter of 2007, and were impacted by a weak economy and a soft lumber market. Margins were impacted by higher fuel and other transportation costs and ongoing price pressure, particularly in the site-built construction market.
"Despite the current market environment, we're profitable, we're gaining share in some key markets, and we're concentrating on making sure we're well-positioned for growth when the economy regains strength," said President and CEO Michael B. Glenn. "The fundamentals of our company remain solid and we're pleased with our achievements in the face of extraordinary challenges."
Glenn added that the Company remains focused on increasing diversification, containing costs through continuous improvement, growing market share and ensuring the organization is sized appropriately to its business opportunities. The Company is working to mitigate the impact of rising fuel costs by passing them along.
In addition to rising fuel costs, weak consumer spending and ongoing price pressure, the quarter saw depressed lumber prices, which impact the Company's selling prices. The year-to-date composite lumber price was 8.5% lower for the second quarter than the same period last year.
By market, Universal posted the following gross sales results for the second quarter:
Do-It-Yourself/retail: $334.7 million, a decrease of 7.1% from the same period of 2007. The Company picked up market share by leveraging its competitive advantages and adding to its vast portfolio of lumber and outdoor living products. Sales, however, were impacted by weak consumer spending, reflected in a Consumer Confidence Index that plunged to near-record lows in the quarter and lower same-store sales at two big box retailers. Most experts call for continued decline in home improvement spending through 2008, and for moderate growth in 2009 and beyond.
Industrial packaging/components: $174.0 million, an increase of 6.4% over 2007. The industrial market remains a strong opportunity, even though in the short term it is being affected by a challenged economy. Universal continues to add customers and to be encouraged by opportunities for market share gains in this arena. The concrete forming business is having a positive impact. Most of the markets served by concrete forming saw solid year-to-date growth through May 2008. These markets include nonresidential construction in health care, public safety, lodging, power, office buildings and other areas.
Site-built construction: $132.8 million, a decrease of 17.7% from the same period of 2007. These results are in spite of declines in single-family housing starts of 43.9% and 41.8%, respectively, in April 2008 and May 2008 over the same months in 2007. The Company believes the housing market won't begin a recovery until 2010, and believes tighter credit conditions will have a negative impact on multi-family and light construction, which performed well in 2007. However, the Company believes it can continue to take share and is focused on diversification by growing its custom builder, light-commercial and multifamily business, on cutting costs and on enhancing efficiency through continuous improvement.
Manufactured housing: $84.2 million, a decrease of 20.2% from 2007. The 1.4% uptick in shipments of HUD-code homes in April 2008 over April 2007 didn't hold for the balance of the quarter. Shipments in May 2008 were approximately 15% lower than May 2007. May 2008 year-to-date shipments declined 5.1% from May 2007. The Manufactured Housing Institute recently revised its forecast downward by 3%, calling for annual shipments of 96,000 homes. Shipments of modular homes were down 27% in the first quarter of 2008 from the same period of 2007, the most recent statistics available. With its commanding market share, Universal's performance will essentially track with the market. The Company expects conditions to remain soft until the oversupply of site-built homes is absorbed and credit conditions improve, and believes passage of a lending reform package is critical to any near-term pickup in this market.
OUTLOOK
In February, the Company announced 2008 targets based on assumptions about markets, economic conditions and other relevant factors; however, some of those assumptions have not held: Diminished consumer spending impacted DIY/retail more than anticipated; the over-supply of affordable site-built homes and the lack of conventional financing options have both hampered manufactured housing; and the industrial market slowed with the weakening economy and will be negatively impacted by any ongoing economic downturn. In addition, rising fuel prices are significantly impacting transportation costs in all of its markets.
Based on these factors, the Company has adjusted its annual targets for 2008 as follows: net sales of between $2.3 billion and $2.35 billion (from the previous target of $2.45 billion to $2.55 billion), and net earnings of between $12 million and $15 million (from $22 million to $27 million). These targets are based on the following additional key assumptions:
- The Company will maintain strong market share in each of its markets, and will grow market share in DIY/retail, industrial and site-built construction.
- Margins will continue to be negatively impacted by price pressure and by rising fuel costs.
- Lumber mill closures may better align supply and demand, but weak demand overall will keep the lumber market depressed for the balance of the year, affecting the Company's selling prices.
- Any asset impairment, severance or other charges incurred as the result of plant closures, consolidations or the downsizing of a Company operation are not reflected in the Company's sales or earnings targets. If the Company takes such actions, its ability to meet the stated targets will be diminished.
CONFERENCE CALL
Universal Forest Products will conduct a conference call to discuss information included in this news release and related matters at 8:30 a.m. EDT on Thursday, July 17, 2008. The call will be hosted by Executive Chairman William G. Currie, President and CEO Michael B. Glenn, and Chief Financial Officer Michael Cole, and will be available for analysts and institutional investors domestically at (866) 271-6130 or internationally at (617) 213-8894. Use conference pass code number 74868685. 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 Monday, August 18, 2008, domestically at (888) 286-8010 and internationally at (617) 801-6888. Use replay pass code number 74131382.
UNIVERSAL FOREST PRODUCTS
Headquartered in Grand Rapids, MI, with approximately 100 facilities throughout North America, Universal Forest Products engineers, manufactures and markets 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 and components for various industries. The Company also provides framing services for the site-built market, and forms for concrete construction. For 2007, the Company reported sales of more than $2.5 billion. For information about Universal Forest Products, visit www.ufpi.com.
Please be aware that: Any statements included in this press release that are not historical facts 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 from forward-looking statements are the following: Adverse lumber market trends, competitive activity, negative economic trends, government regulations and weather. Certain of these 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.
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
FOR THE SIX MONTHS ENDED
JUNE 2008/2007
Quarter Period
-------------------------------
(In thousands, except per share
data) 2008 2007
--------------- ---------------
NET SALES $708,485 100% $773,105 100%
COST OF GOODS SOLD 623,607 88.0 671,400 86.8
--------- ---------
GROSS PROFIT 84,878 12.0 101,705 13.2
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 62,120 8.8 70,049 9.1
--------- ---------
EARNINGS FROM OPERATIONS 22,758 3.2 31,656 4.1
Interest expense 3,290 0.5 4,766 0.6
Interest income (179) - (558) (0.1)
--------- ---------
3,111 0.4 4,208 0.5
--------- ---------
EARNINGS BEFORE INCOME TAXES AND
MINORITY INTEREST 19,647 2.8 27,448 3.6
INCOME TAXES 7,470 1.1 10,182 1.3
--------- ---------
EARNINGS BEFORE MINORITY INTEREST 12,177 1.7 17,266 2.2
MINORITY INTEREST (514) (0.1) (466) (0.1)
--------- ---------
NET EARNINGS $ 11,663 1.6 $ 16,800 2.2
========= =========
EARNINGS PER SHARE - BASIC $ 0.61 $ 0.88
EARNINGS PER SHARE - DILUTED $ 0.61 $ 0.86
WEIGHTED AVERAGE SHARES OUTSTANDING 19,048 19,127
WEIGHTED AVERAGE SHARES OUTSTANDING
WITH COMMON STOCK EQUIVALENTS 19,267 19,487
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
FOR THE SIX MONTHS ENDED
JUNE 2008/2007
Year to Date
------------------------------------
(In thousands, except per share
data) 2008 2007
------------------ -----------------
NET SALES $1,197,997 100% $1,322,143 100%
COST OF GOODS SOLD 1,058,299 88.3 1,146,918 86.7
------------ -----------
GROSS PROFIT 139,698 11.7 175,225 13.3
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 121,471 10.1 133,507 10.1
------------ -----------
EARNINGS FROM OPERATIONS 18,227 1.5 41,718 3.2
Interest expense 6,884 0.6 9,090 0.7
Interest income (552) - (1,140) (0.1)
------------ -----------
6,332 0.5 7,950 0.6
------------ -----------
EARNINGS BEFORE INCOME TAXES AND
MINORITY INTEREST 11,895 1.0 33,768 2.6
INCOME TAXES 4,120 0.3 12,250 0.9
------------ -----------
EARNINGS BEFORE MINORITY INTEREST 7,775 0.6 21,518 1.6
MINORITY INTEREST (688) (0.1) (832) (0.1)
------------ -----------
NET EARNINGS $ 7,087 0.6 $ 20,686 1.6
============ ===========
EARNINGS PER SHARE - BASIC $ 0.37 $ 1.09
EARNINGS PER SHARE - DILUTED $ 0.37 $ 1.06
WEIGHTED AVERAGE SHARES
OUTSTANDING 19,022 19,056
WEIGHTED AVERAGE SHARES
OUTSTANDING WITH COMMON STOCK
EQUIVALENTS 19,224 19,448
SUPPLEMENTAL SALES DATA
-------------------------------------------------
Quarter Period
-----------------------------
Market Classification 2008 % 2007 %
--------------------------------------- --------- ---- --------- ----
Do-It-Yourself/Retail $334,694 46% $360,281 46%
Site-Built Construction 132,758 18% 161,209 20%
Industrial 173,962 24% 163,503 21%
Manufactured Housing 84,184 12% 105,522 13%
--------- ---------
Total Gross Sales 725,598 100% 790,515 100%
Sales Allowances (17,113) (17,410)
--------- ---------
Total Net Sales $708,485 $773,105
========= =========
SUPPLEMENTAL SALES DATA
-----------------------------------------------
Year to Date
----------------------------------
Market Classification 2008 % 2007 %
----------------------------------- ------------ ---- ----------- ----
Do-It-Yourself/Retail $ 507,339 41% $ 555,883 41%
Site-Built Construction 241,657 20% 299,628 23%
Industrial 314,620 26% 297,293 22%
Manufactured Housing 160,499 13% 194,419 14%
------------ -----------
Total Gross Sales 1,224,115 100% 1,347,223 100%
Sales Allowances (26,118) (25,080)
------------ -----------
Total Net Sales $1,197,997 $1,322,143
============ ===========
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
JUNE 2008/2007
LIABILITIES
AND
(In thousands) SHAREHOLDERS'
ASSETS 2008 2007 EQUITY 2008 2007
----------------------------------------------------------------------
CURRENT
CURRENT ASSETS LIABILITIES
Cash and cash Accounts
equivalents $32,483 $42,697 payable $122,345 $147,614
Accounts Accrued
receivable 227,963 233,067 liabilities 89,093 82,432
Inventories 222,937 274,395
Assets held
for sale 10,334 17,115
Current
portion
of long-term
debt and
Other current capital
assets 34,828 22,339 leases 945 3,611
-------- ---------- -------- ----------
TOTAL CURRENT TOTAL CURRENT
ASSETS 528,545 589,613 LIABILITIES 212,383 233,657
OTHER ASSETS 7,657 7,691 LONG-TERM DEBT
INTANGIBLE AND CAPITAL
ASSETS, NET 186,664 185,302 LEASE
OBLIGATIONS,
less current
PROPERTY, PLANT portion 177,063 243,833
AND EQUIPMENT, OTHER
NET 263,635 286,438 LIABILITIES 52,761 50,209
SHAREHOLDERS'
EQUITY 544,294 541,345
-------- ---------- -------- ----------
TOTAL
LIABILITIES
AND
SHAREHOLDERS'
TOTAL ASSETS $986,501 $1,069,044 EQUITY $986,501 $1,069,044
======== ========== ======== ==========
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED
JUNE 2008/2007
----------------------------------------------------------------------
(In thousands) 2008 2007
----------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 7,087 $ 20,686
Adjustments to reconcile net earnings to net cash
from operating activities:
Depreciation 19,331 19,013
Amortization of intangibles 4,778 4,633
Expense associated with share-based
compensation arrangements 564 258
Expense associated with stock grant plans 85 146
Deferred income taxes (212) (89)
Minority interest 687 832
Gain on sale of interest in subsidiary - (140)
Net loss (gain) on sale or impairment of
property, plant and equipment 573 (131)
Changes in:
Accounts receivable (83,169) (72,549)
Inventories 16,043 (11,354)
Accounts payable 37,659 54,581
Accrued liabilities and other 22,171 (158)
Excess tax benefits from share-based
compensation arrangements (42) (679)
--------- ---------
NET CASH FROM OPERATING ACTIVITIES 25,555 15,049
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant, and equipment (10,469) (18,653)
Acquisitions, net of cash received (23,338) (56,209)
Proceeds from sale of interest in subsidiary - 400
Proceeds from sale of property, plant and equipment 26,827 2,686
Advances on notes receivable (997) -
Collection of notes receivable 448 137
Other, net (97) (16)
--------- ---------
NET CASH FROM INVESTING ACTIVITIES (7,626) (71,655)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings under revolving credit
facilities (28,295) 74,318
Repayment of long-term debt (492) (25,417)
Proceeds from issuance of common stock 805 2,862
Distributions to minority shareholder (378) (825)
Investment received from minority shareholder 419 -
Dividends paid to shareholders (1,139) (1,047)
Repurchase of common stock - (2,106)
Excess tax benefits from share-based compensation
arrangements 42 679
Other, net (13) (269)
--------- ---------
NET CASH FROM FINANCING ACTIVITIES (29,051) 48,195
NET CHANGE IN CASH AND CASH EQUIVALENTS (11,122) (8,411)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 43,605 51,108
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 32,483 $ 42,697
========= =========
CONTACT: Universal Forest Products, Inc.
Lynn Afendoulis, Director, Corporate Communications
616-365-1502
SOURCE: Universal Forest Products