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Universal Forest Products (UFPI) Q4 Earnings Lag, Up Y/Y

Zacks Equity Research

Universal Forest Products, Inc. UFPI reported fourth-quarter 2018 results, wherein both the top and bottom lines missed the respective Zacks Consensus Estimate, given tepid performance of its Retail division.

Universal Forest Products reported adjusted earnings of 55 cents per share in the fourth quarter, missing the consensus mark by 7.3%. Net sales of $988.2 million lagged analysts’ expectation by 2.5%.

Nonetheless, Universal Forest Products’ earnings grew 34.1% from the year-ago figure of 41 cents per share. Net sales also grew 2% on a year-over-year basis. Quarterly earnings and revenue improvement were propelled by improved product mix, solid operating margins and operating efficiencies. Notably, the company came up with record sales for the 14th time in a row.

Investors should note that Universal Forest Products’ segmental sales sum up to total gross sales. Fourth-quarter gross sales totaled $1,000 million, rising 1% from the year-ago period. Roughly 4% of the year-over-year growth was led by unit sales improvement, including 1% from organic sales and 3% from acquisitions. Lower lumber prices reduced gross sales by 3%.

A brief snapshot of end-market gross sales has been provided below:

Retail (30.3% of fourth-quarter gross sales): The segment’s sales dropped 8% year over year to $303.4 million. Lower unit sales and pricing accounted for 4% of the decline.

Industrial (39%): The segment’s sales totaled $390.5 million, reflecting growth of 11% from the year-ago period. Unit sales accounted for 12% of gross sales. However, lower pricing reduced sales by 1% from the prior-year quarter.

Construction (30.6%): The segment’s sales of $306.1 million were up 1% year over year. This marginal improvement mainly reflects a 5% increase in unit sales and 4% decrease in selling prices.

Business remained strong in commercial and residential construction markets, with year-over-year sales growth of 18% and 7%, respectively. Meanwhile, unit sales to manufactured housing customers declined 3% from a year ago during the quarter.

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

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

Operating Highlights

During the quarter, Universal Forest Products’ cost of goods sold increased 1.6% to $850.5 million, representing 86.1% of net sales versus 86.6% in the year-ago quarter. Gross profit grew 6.6% year over year and improved 50 basis points (bps), as a percentage of net sales, to 13.9%.

Selling, general and administrative expenses of $92.4 million increased 5.5% year over year, representing 9.3% of net sales (up 20 bps year over year). Operating margin expanded 30 bps to 4.6%.

EBITDA came in at $63.6 million, reflecting an increase of 11% year over year.

Balance Sheet & Cash Flow

As of the quarter end, cash and cash equivalents were $27.3 million, down from $28.3 million a year ago. Long-term debt increased 39.7% year over year to $202.1 million.

In 2018, cash flow provided by operating activities totaled $116.7 million, lower than $136.6 million recorded a year ago. The company used roughly $24.6 million for repurchasing common shares.

2018 Highlights

The company’s net sales came in at $4.49 billion, reflecting an increase of 14% year over year. Reported earnings were $2.40 per share, increasing from $1.94 a year ago. EBITDA increased 12% from the 2017 level to $267 million.

Zacks Rank & Stocks to Consider

Universal Forest Products currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Zacks Construction sector are Comfort Systems USA, Inc. FIX, EMCOR Group, Inc. EME and Great Lakes Dredge & Dock Corporation GLDD. While Comfort Systems sports a Zacks Rank #1 (Strong Buy), both EMCOR and Great Lakes carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Comfort Systems has a solid earnings surprise history, having surpassed the Zacks Consensus Estimate in three of the last four quarters, with the average positive surprise being 16.5%.

EMCOR has a strong record of earnings surprises, having surpassed the Zacks Consensus Estimate in all the trailing four quarters, with the average being 19.1%.

Great Lakes’ earnings are expected to grow 1,400% in 2019.

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