Universal Forest Posts Upbeat 2Q Earnings

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Universal Forest Products Inc. (UFPI) reported quite decent second quarter 2013 financial results on Jul 17, 2013. The company rode high on the back of double-digits revenue growth in its five market segments.

Adjusted net income in the quarter surged 19.1% over the year-ago earnings. On a per share basis, earnings came in at 79 cents, reflecting an increase of 17.9% over 67 cents reported in the year-ago quarter and above the Zacks Consensus Estimate of 72 cents.

Revenue

Net sales in the second quarter were $738.4 million, up 24.4% year over year as Universal Forest benefited from healthy growth in all five end-markets. Lumber prices were also up roughly 15% on a year-over-year basis.

End-market revenue of Universal Forest has been briefed below:

Retail Building Materials revenues (41% of second quarter total gross sales) were up 12.9% year over year to $315.1 million. Residential Construction sales (13%) improved 57.3% to $94.3 million. Commercial Construction and Concrete Forming sales (5%) were $37.5 million, up 56.2% year over year. Industrial packaging/components sales (26%) were $193.4 million, up 20.6% year over year. Manufactured Housing sales (15%) were up 35.7% year over year to $109.5 million.

Margins

In the second quarter 2013, Universal Forest’s cost of goods sold represented 89.1% of total revenue, up 120 basis points year over year while gross margin decreased by the same magnitude to settle at 10.9%. Selling, general and administrative expenses were roughly $53.1 million and accounted for 7.2% of total revenue.
 
Balance Sheet

During the first quarter 2013, Universal Forest’s cash position was weak and after finally exiting the quarter, the company reported a cash overdraft balance of $3.4 million. This, however, represents an improvement of over $7.7 million overdraft reported at the end of the previous quarter.
 
As far as the debt position was concerned, the Universal Forest's long-term debt balance decreased 8.2% sequentially to $142.5 million.

Cash Flow

Net cash position from operating activities in the second quarter 2013 improved to $35.7 million as compared with $25.1 million in the year-ago comparable quarter.

Capital spending, on the other hand, reflected a slight year-over-year improvement of 69.6% and came in at $13.4 million.
 
Going forward, management of Universal Forest anticipates improving its top-line growth through additions of new customers and products to its portfolio. Also, operating margin enhancement remains a prime area of focus for the company.

Universal Forest Products Inc. manufactures, treats, distributes, and installs lumber, composite wood, plastic and other building products.

The stock currently has a Zacks Rank #3 (Hold). Other stocks to watch out for in the industry are Louisiana-Pacific Corp. (LPX), Weyerhaeuser Co. (WY) and Rayonier Inc. (RYN).

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