Softening Markets Impact Universal's 3rd Quarter, Decreases Partially Off-set by Continued Gains in Market Share, Company Lowers Targets
GRAND RAPIDS, Mich.--(BUSINESS WIRE)--Oct. 16, 2006--Universal Forest Products (NASDAQ:UFPI) today announced third-quarter results that included a 7.6% decrease in net earnings from the third quarter of 2005, to $17.7 million. Year-to-date net earnings were $60.9 million, up 18.9% over year-to-date net earnings of $51.2 million in 2005.
Diluted earnings per share for the third quarter were $0.91, down 9.0% from the same period last year. Year-to-date diluted earnings per share were $3.14, up 16.7% over the first nine months of 2005. Net sales for the quarter were $672.9 million, down 6.7% from net sales of $721.5 million for the third quarter of 2005. Net sales for the first nine months of 2006 were $2.17 billion, up 6.2% over net sales of $2.04 billion for the same period in 2005. Unit sales were up 8% for the first nine months of 2006.
The lumber market was down 21% from the previous year, and a sluggish economy in the Midwest adversely impacted the Company's results.
Given the factors the Company faced during the quarter, President and CEO Mike Glenn said he was pleased with the performance. "We've seen a decline in our markets, but it's been partially offset by the market share we continue to take in each industry."
"While we anticipated and prepared for a lull in the housing market, we didn't believe it would perform as poorly as it did," Glenn said. "Fortunately, we were able to gain share through increased sales of turn-key framing services and components, and of wall panels."
"We were disappointed that Do-It-Yourself/retail didn't bounce back after a lackluster second quarter," he added. "We picked up DIY market share for 2006, but store sales remained soft during the third quarter. Fortunately, our market share gains position us well for the future, when consumer spending picks up."
In addition, the Company's consumer products division continues its energetic growth "as we increase the breadth and depth of our offerings for outdoor living environments," Glenn added.
"We also remain very positive about our industrial business, which saw an 11% increase in unit sales and which continues to provide us with opportunities for profitable growth," he added.
By market, Universal posted third-quarter sales of:
- $236.8 million in D-I-Y/retail, down 14.9% compared to the same quarter last year;
- $205.4 million in site-built construction, an increase of 0.5% over last year;
- $139.5 million in industrial, up 3.6% over the third quarter of 2005; and
- $91.2 million in manufactured housing, a 12.4% decrease from last year.
Residential construction continued its decline with new housing starts in August trailing the previous year by nearly 20%, and 22% fewer building permits issued for new homes in August than the previous year. Additionally, in August, HUD code manufactured housing fell by 11.4% from August 2005. Modular home shipments were down 7.0% for the first six months of 2006 (the most recent period for which statistics are available) from the same period for 2005.
OUTLOOK
Based on its year-to-date performance and anticipated market conditions for the balance of the year, the Company lowered its annual targets for increases in net earnings and in unit sales growth to 1% to 5% each in 2006. Factors that influenced the revised targets included:
- The rate of the drop in the housing market and its impact on markets like Colorado and Southern California;
- A soft DIY market and lackluster consumer spending;
- A continued soft manufactured housing market; and
- The impact of FEMA orders in 2005 in the wake of the hurricanes.
Universal Forest Products will conduct a conference call to discuss information included in this news release and related matters at 11:00 a.m. EDT on Tuesday, October 17, 2006. 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 (866) 356-4123 or internationally at (617) 597-5393. Please use conference call ID number 58643692.
The conference call will be available simultaneously, and in its entirety, to all interested investors and news media through a web cast at http://www.ufpi.com . A replay of the call will be available through Friday, November 17, 2006 domestically at (888) 286-8010 or internationally at (617) 801-6888. Please use replay ID number 45661958.
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 $2.7 billion in 2005. Universal has approximately 10,000 employees who work out of more than 100 locations. For information about Universal Forest Products, please visit the Company's Web site at http://www.ufpi.com , or call 888-Buy-UFPI.
Included in this report are certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and 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. 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 NINE MONTHS ENDED
SEPTEMBER 2006/2005
Quarter Period
---------------------------------
(In thousands, except per share
data) 2006 2005
---------------------------------- ---------------- ----------------
NET SALES $672,873 100% $721,497 100%
COST OF GOODS SOLD 574,048 85.31 622,435 86.27
--------- ---------
GROSS PROFIT 98,825 14.69 99,062 13.73
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 65,970 9.80 63,877 8.85
--------- ---------
EARNINGS FROM OPERATIONS 32,855 4.88 35,185 4.88
OTHER EXPENSE (INCOME)
Interest expense 3,214 0.48 3,714 0.51
Interest income (875) -0.13 (227) -0.03
Net (gain) loss on sale of real
estate - 0.00 - 0.00
--------- ---------
2,339 0.35 3,487 0.48
--------- ---------
EARNINGS BEFORE INCOME TAXES AND
MINORITY INTEREST 30,516 4.54 31,698 4.39
INCOME TAXES 11,322 1.68 12,009 1.66
--------- ---------
EARNINGS BEFORE MINORITY INTEREST 19,194 2.85 19,689 2.73
MINORITY INTEREST (1,489) -0.22 (518) -0.07
--------- ---------
NET EARNINGS $17,705 2.63 $19,171 2.66
========= =========
EARNINGS PER SHARE - BASIC $0.94 $1.04
EARNINGS PER SHARE - DILUTED $0.91 $1.00
WEIGHTED AVERAGE SHARES
OUTSTANDING 18,906 18,465
WEIGHTED AVERAGE SHARES
OUTSTANDING WITH COMMON STOCK
EQUIVALENTS 19,394 19,193
SUPPLEMENTAL SALES DATA
-----------------------------------
Quarter Period
---------------------------------
Market Classification 2006 % 2005 %
---------------------------------- --------- ------ --------- ------
Do-It-Yourself/Retail $236,825 34% $278,416 39%
Site-Built Construction 205,363 31% 204,344 28%
Manufactured Housing 91,157 14% 104,089 14%
Industrial 139,528 21% 134,648 19%
--------- ------ --------- ------
Total $672,873 100% $721,497 100%
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
FOR THE NINE MONTHS ENDED
SEPTEMBER 2006/2005
Year to Date
--------------------------------------
(In thousands, except per share
data) 2006 2005
--------------------------------------------------- ------------------
NET SALES $2,165,329 100% $2,038,209 100%
COST OF GOODS SOLD 1,851,775 85.52 1,770,676 86.87
----------- -----------
GROSS PROFIT 313,554 14.48 267,533 13.13
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 201,272 9.30 173,233 8.50
----------- -----------
EARNINGS FROM OPERATIONS 112,282 5.19 94,300 4.63
OTHER EXPENSE (INCOME)
Interest expense 10,757 0.50 11,755 0.58
Interest income (1,656) -0.08 (646) -0.03
Net (gain) loss on sale of
real estate (63) 0.00 (1,240) -0.06
----------- -----------
9,038 0.42 9,869 0.48
----------- -----------
EARNINGS BEFORE INCOME TAXES AND
MINORITY INTEREST 103,244 4.77 84,431 4.14
INCOME TAXES 38,963 1.80 32,005 1.57
----------- -----------
EARNINGS BEFORE MINORITY
INTEREST 64,281 2.97 52,426 2.57
MINORITY INTEREST (3,396) -0.16 (1,236) -0.06
----------- -----------
NET EARNINGS $60,885 2.81 $51,190 2.51
============ ===========
EARNINGS PER SHARE - BASIC $3.24 $2.79
EARNINGS PER SHARE - DILUTED $3.14 $2.69
WEIGHTED AVERAGE SHARES
OUTSTANDING 18,788 18,325
WEIGHTED AVERAGE SHARES
OUTSTANDING WITH COMMON STOCK
EQUIVALENTS 19,368 19,050
SUPPLEMENTAL SALES DATA
--------------------------------
Year to Date
--------------------------------------
Market Classification 2006 % 2005 %
-------------------------------------------- ------ ----------- ------
Do-It-Yourself/Retail $799,310 36% $801,155 39%
Site-Built Construction 642,964 30% 541,878 27%
Manufactured Housing 296,409 14% 307,466 15%
Industrial 426,646 20% 387,710 19%
------------ ------ ----------- ------
Total $2,165,329 100% $2,038,209 100%
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
SEPTEMBER 2006/2005
(In thousands)
======================================================================
LIABILITIES AND
SHAREHOLDERS'
ASSETS 2006 2005 EQUITY 2006 2005
======================================================================
CURRENT
CURRENT ASSETS LIABILITIES
Cash and cash Accounts
equivalents $46,184 $30,767 payable $109,581 $131,621
Accounts Accrued
receivable 227,428 230,762 liabilities 106,360 96,671
Inventories 232,884 226,737 Current portion
of long-term
Other current debt and
assets 24,752 13,191 capital leases 697 22,091
--------- --------- --------- ---------
TOTAL CURRENT TOTAL CURRENT
ASSETS 531,248 501,457 LIABILITIES 216,638 250,383
LONG-TERM DEBT
OTHER ASSETS 7,762 8,414 AND CAPITAL
LEASES, less
INTANGIBLE current
ASSETS, NET 158,549 137,348 portion 171,009 168,602
OTHER
LIABILITIES 35,937 35,427
PROPERTY,
PLANT AND
EQUIPMENT, SHAREHOLDERS'
NET 232,428 223,107 EQUITY 506,403 415,914
--------- --------- --------- ---------
TOTAL
LIABILITIES
AND
SHAREHOLDERS'
TOTAL ASSETS $929,987 $870,326 EQUITY $929,987 $870,326
========= ========= ========= =========
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED
SEPTEMBER 2006/2005
(In thousands) 2006 2005
----------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $60,885 $51,190
Adjustments to reconcile net earnings to net cash
from operating activities:
Depreciation 25,558 23,391
Amortization of intangibles 3,953 1,809
Expense associated with share-based
compensation arrangements 691 -
Expense associated with stock grant plans 191 149
Deferred income taxes (871) (886)
Minority interest 3,396 1,236
Loss (gain) on sale or impairment of property,
plant and equipment 206 (561)
Changes in:
Accounts receivable (37,947) (75,061)
Inventories 23,693 (10,712)
Accounts payable 771 43,103
Accrued liabilities and other 11,326 26,502
Excess tax benefits from share-based
compensation arrangements (3,959) -
-------- --------
NET CASH FROM OPERATING ACTIVITIES 87,893 60,160
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant, and equipment (27,600) (31,768)
Acquisitions, net of cash received (27,137) (13,883)
Proceeds from sale of property, plant and equipment 506 2,373
Collection of notes receivable 1,612 457
Advances on notes receivable (2,473) (887)
Insurance proceeds 38 3,013
Other, net 6 752
-------- --------
NET CASH FROM INVESTING ACTIVITIES (55,048) (39,943)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings under revolving credit
facilities (38,725) (16,201)
Repayment of long-term debt (1,201) (1,674)
Proceeds from issuance of common stock 5,711 4,074
Distributions to minority shareholder (1,569) (749)
Investment received from minority shareholder - 500
Dividends paid to shareholders (1,035) (910)
Excess tax benefits from share-based compensation
arrangements 3,959 -
Other, net (16) 236
-------- --------
NET CASH FROM FINANCING ACTIVITIES (32,876) (14,724)
-------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS (31) 5,493
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 46,215 25,274
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $46,184 $30,767
======== ========
CONTACT: Universal Forest Products
Lynn Afendoulis, 616-365-1502
Director, Corporate Communications
SOURCE: Universal Forest Products