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Universal Forest Products (UFPI) Q3 Earnings Beat, Margin Up

Zacks Equity Research

Universal Forest Products, Inc. UFPI reported mixed results in third-quarter 2019, wherein earnings surpassed the Zacks Consensus Estimate but revenues missed the same. This marked the third straight quarter of earnings beat and the second consecutive quarter of revenue miss.

Despite being hurt by rising labor costs and significant fluctuations in the lumber market, the company managed to generate strong earnings on the back of solid new and value-added products growth.

The company’s earnings of 84 cents per share topped the consensus estimate of 78 cents by 7.7%. Also, the reported figure increased 27.3% from 66 cents reported in the year-ago period.

Net sales of $1.16 billion marginally missed the consensus mark of $1.18 billion and declined 4.1% on a year-over-year basis from $1.21 billion.

Lower lumber prices and 11% reduction in selling prices adversely impacted gross sales.In a bid to expand value-added offerings and market presence in Midwest and Northwest, the company acquired Hartford, Wisconsin-based Pallet USA and Bonner, and Montana-based Northwest Painting, Inc. during the third quarter.

 

Universal Forest Products, Inc. Price, Consensus and EPS Surprise

 

Universal Forest Products, Inc. Price, Consensus and EPS Surprise

 

Universal Forest Products, Inc. price-consensus-eps-surprise-chart | Universal Forest Products, Inc. Quote

End-Market Sales Discussion

Universal Forest Products — which shares space with Weyerhaeuser Company WY, Armstrong Flooring, Inc. AFI and Trex Company, Inc. TREX in the Zacks Building Products - Wood industry — classifies top-line results on the basis of end-markets served. Investors should note that its end-market sales sum up to total gross sales.

Gross sales during the reported quarter came in at $1,184 million, down 4% from the year-ago period. Unit sales grew 7% year over year, of which organic sales accounted for 6% and acquisitions contributed 1%.

New product sales were up 7% year over year to $142.9 million. Mix of value-added sales, relative to commodity sales, surged 67.6% from the year-ago period.

Retail (36.9% of gross sales): Retail segment sales fell 1% year over year to $437 million during the quarter. Selling prices also dropped 11% from the prior-year quarter, offsetting the 10% increase in unit sales. The increase in unit sales was mainly attributable to strong organic growth, driven by sales of Deckorators decking and deck accessories.

Industrial (28.1%): The segment’s sales totaled $332.5 million, reflecting a decline of 6% from the year-ago period. During the quarter, unit sales increased 4% from a year ago, partially offset by 10% lower pricing. Moreover, acquisitions and organic growth contributed 2% each to unit sales growth.

Construction (35%): Sales in the segment came in at $414.4 million, down 5% year over year. A 13% decline in selling prices offset the 8% positive impact of unit sales. Unit sales in commercial, residential and manufactured housing markets rose 15%, 6%, and 1%, respectively, from the prior-year quarter.

Operating Highlights

Cost of goods sold, as a percentage of net sales, decreased 300 basis points (bps) to 83.9% from 86.9% in the year-ago quarter. Gross margin of 13.1% improved 300 bps to 16.1%.

Selling, general and administrative expenses, accounting for 10% of net sales, increased 160 bps year over year. Operating profit in the quarter improved 24% from the year-ago quarter to $70.5 million. EBITDA totaled $89.7 million, reflecting an increase of 23% year over year.

Balance Sheet & Cash Flow

At the end of the third quarter, cash and cash equivalents were $64.5 million, up from $26.3 million in the comparable year-ago period. Long-term debt and capital lease obligations totaled $162.9 million, down from $186.5 million in the year-ago period.

In the first nine months of 2019, net cash provided by operating activities totaled $198.1 million versus $60 million in the comparable year-ago period.

Zacks Rank

Universal Forest Products currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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