Q1 2021 Ufp Industries Inc Earnings Call

The size of the overall company our commitment to have new product sales be 10% of total sales has grown significantly to our investment in new products must keep Pace Thursday. We believe improving our position in the value chain is highly dependent on continued ability to innovate and meet the unmet consumer needs.

Personnel and training remains an area of intense Focus. We like most other companies struggle to find highly motivated hard-working employees. We have added to our recruiting staff and bought a new solutions to drive more applicants to our company. We have a welcoming environment and have a long track record of providing great career opportunities for those willing to make the effort.

Our training programs have expanded also to give existing employees the necessary job skills to advance their careers with us without having to pay college tuition.

The future outlook looks very positive and our team is excited about breaking records creating opportunities and making our company better.

Now I'd like to turn it over to Mike Cole for more detailed financial information.

Thanks, Matt. And hello, everyone a results. This quarter are highlighted by unit sales growth of 33% including 10% organic growth operating profit growth of 134% four times or unit growth and over $260 billion invested in Acquisitions this quarter or happy to report that transactions. We've completed since last April contributed 255 million and net sales forty million in operating profit in nineteen million of ebitda this quarter.

Now provide some additional color on the quarter starting with our income statement and sales by segment.

Net sales grew 77% comprised of a 44% increase in selling prices due to the lumber Market 10% organic unit growth and 23% unit growth from acquired businesses.

Sales to the retail segment increased 116% consisting of a 56% increase in selling prices 19% organic unit growth and a 41% unit increase resulting from a physician's organic growth was driven by a 64% increase in deckorators of 30% increase in hand print a 28% increase in outdoor Essentials and a 24% increase in a new product sales for the retail segment were also strong growing over 58% for the quarter.

Sales for the industrial segment increased 75% consisting of a 38% increase in selling prices 5% organic unit growth and a 32% unit issue resulting from recent acquisitions organic growth was driven by a new customer and new product sales.

Finally our sales to the construction segment increased 47% consisting of a 39% increase in selling prices and 8% unit growth unit growth was driven by our site built in Factory housing business units, which achieved 21% and 15% unit increases respectively these increases were offset by a 9% decline in our Commercial Business unit. I'm moving down the income statement. Our first quarter gross profits increased by $119 / 71%

my segment

Bill increased by $55 billion industrial increased by $36 billion and construction increased by $25 million recent acquisitions contributed ten million to retail them into construction 13 and 1/2 million to Industrial and twenty five and half way into our overall increase in Gross profits these increases resulted from a variety of factors, including a strong unit sales growth and leveraging fixed costs increase sales and value-added and new products that have higher margins and more effectively adjusting for increases in Lumber costs in our selling prices month.

Continuing to move down the income statement sg&a increased by forty 1 million to 150 million for the quarter acquired businesses contributed 11 and 1/2 million to the Yankees. The remaining increase was driven by a crude bonus expense and compensation cost which increased 22 million and 10 million respectively these increases were offset by a two million a decrease in travel costs and a $1 decrease in bad debt expense.

Finally our operating profits increased by $79 million, which was comprised of a $38 increase in retail a $22 increase in industrial as $16 increase in construction and a three million dollar increase in international Acquisitions contributed seven million of operating profit to each of our retail and Industrial segments.

Moving on to our cash flow statement our cash flows used and operations for the year was a hundred ninety-seven million and consisted of net earnings and non-cash expenses. Totaling 128 million compact is 62 million last year and a 325 million dollar increase in working capital since the end of December 2020 compared to 108 million dollar increase in the prior-year.

Our net working capital this year has been impacted by strong market demand and record-high lumber prices are people have done a great job of managing our working capital efficiently as evidenced by our cash which improved to 48 days this year compared to fifty nine days last year this Improvement resulted from a reduction in our days supply of inventory driven by strong demand and Supply constraints and greater use of better managed inventories, as a means of protecting margins on products sold with a variable price including treated lumber. We also improved our collection cycle by Thursday days while improving the percentage of our receivables that are current to 96%

Are investing in financing activities included Capital expenditures, totaling thirty-five million, including expansionary and efficiency capex of nine million. We're still planning for total Capital expenditures for the year of 115 million, which includes projects to expand our capacity to produce are mineral-based and would plastic composite decking products and our Edge siding pattern and trim products.

Towanda

61 million was spent two acquired pallet one and its subsidiaries Sunbelt Forest Products in January and JC Gilmore in March and we paid over $9 of dividend that this quarter at a page fifteen cents a share a 20% increase in the rate over last year.

Lastly net borrowing is under our revolving credit facility totaled $115 million.

With respect to our balance sheet at the end of March our total debt of cash was $429 million and our total liquidity was 421 million. We used 172 million of this liquid need to complete the purchase of Spartanburg Forest Products and walnut Hollow in April looking forward. We expect our seasonal working capital investment of a hundred three hundred and twenty five thousand in and that of Spartanburg totaling $67 million to be turned into Cash during Q3 leaving our balance sheet strong in in strong shape as the year progresses.

So I have in the financials Matt.

Thank you, Mike now I'd like to open it up for questions.

Thank you had asked a question. You would need to press star then one of your telephone to withdraw your question, please press the pound key again. That is star one if you would like to ask you a question.

Our first question comes on the line of Caden mamtora with BMO Capital markets your line is not open.

Thank you. Good afternoon, Matt and Mike and congrats again. It's it's becoming a habit for you guys. But again a very strong quarter. Thank you, maybe to start off on The Decorator side. Maybe just remind us kind of you know, uh, how much capacity your added in 2020 and what is more to come in 2021 and you know, perhaps elaborate a little more on kind of what you are seeing with demand, you know the industry on the composite side. There's a lot of capacity that come online. So maybe kind of talk about you know, what you see out there, you know from your customers in terms of demand and then just related to that, you know, obviously we've seen this huge run in lumber prices. Are you seeing any acceleration of share gains on the composite side because of that?

Well that that's a lot of questions to unpack there and I'll do my best to remember what they were but so let's let's kind of start out with what our expansion plans are often in what the capacities will end up being. So in twenty-twenty our capacity really didn't come come back online until probably late Q4. So we feel that allowed between 30 and 35% capacity the plan for this year, which will probably come online in 2022 will be for our minimum deposit product that should increase our capacity by about 25% maybe as high as 30% and then, you know continue plans in 2022 for both of those operations will include another 30% or so and in our wood plastic composite and roughly an equal.

now another twenty-five

The 30% on the mineral composite product and you kind of look at your next question, which I think is about, you know, the high level of lumber Market are we seeing consumers shift over to more wood plastic composite products and I'd say certainly at the low end of of the wood plastic composite space and the high end of the lumber space. There's definitely some converge in that would occur given the similarity or the closer similarity and pricing. We we still think that the composite Market is strong and the wood Market is obviously very strong too. So I just think there's more overall consumption, but certainly on the edges there has to be some conversion going on but still took lots of consumers are buying would

And that's that's helpful.

Okay, and then you know, I mean, this is just in terms of kind of looking at how lumber prices may have an impact on your performance in the past, you know a spike in lumber prices like the like the ones that we saw in q1 and you know in the back half of twenty twenty-five in the past that has had a bigger impact on your results, but it seems like you you're doing a much better job kind of managing that I'm curious kind of what has changed in in terms of how you are managing that and perhaps this ties into you know, where you mentioned in the release better pricing model in number so maybe touch on that a little bit.

Yeah, I think I have I have to really give a shout out to our purchasing team who's done just a remarkable job of sourcing material finding the right level apply and our operations teams who have done a terrific job of of basically preparing the product and making it available for sale as you think about 5 overall structurally. I don't know that there's been a lot changed. I think it's just a a very focused effort and I'd like to give some credit to the new structure as well where we have business unit life focused on what their needs are taking a much different. Look at how products are being costed and sold and making sure that we're staying current with the market. I also think there is some benefit from the from the Tailwind of higher lumber prices. But as we said, we we think long-term our strategy is dead.

Have those be more of a pass-through cost and try to get more efficient. I think one other Factor I'd point out is I think our manufacturing efficiencies clearly have improved as a result of high level of capacity utilization.

Got it. That's helpful. I'll turn it over. Good luck for the rest of 2021.

Thank you. My next question comes from the line of Julio Romero. Melissa. Doty is not open.

Hey, good afternoon. Everyone Hi, will I will you

first question is just on the pricing environment. I mean, you're obviously seeing very strong demand, but maybe you can you speak to the elasticity of demand and how much money you know, how how much more price can be driven in the current environment?

That's a terrific question. So I think obviously we we still see a strong demand even at the current pricing levels. I don't think long-term. That's the necessarily where anybody wants to Market to be. I think if you start looking in terms of projects, there's a lot of other price increases in a variety of authors Oddities as well. So we anticipate that one Supply kind of catches up with demand that will help alleviate some of the high price levels in the lumber market. So we we expect that to Trend in a more normal direction for the balance of the year in terms of the elasticity at least right now. I guess the proof is in a consumer and they they continue to buy but we definitely hear more complaints about the high prices and the price increases throughout the supply chain.

Got it. And you mentioned in the prepared remarks that your inventory levels are adequate to meet your demand for the next ninety days. You know, how about on a relative basis? I don't know. If you have any sense of loss, you know what your closest competitors have in terms of inventory and if they have adequate levels and you know, if they don't do you do you benefit I guess on a relative basis for the next one to two orders off? Yeah. I don't I don't know that we necessarily have good insight to what our competitors inventory positions are certainly our non-public ones. We don't so I I would say, you know, we're well-positioned. We do have some some shortages in some some areas that I mentioned such as panel Goods where it's a little bit more challenge, but I you know, even though we haven't been perfect in terms of filling every order completely we are our our customer satisfaction levels are very high right now relative wage.

To others so I think that's a big plus for us.

Great, I'll turn it over and I'll hop back in with any follow-ups. Thanks Julio. Thank you. Our next question comes on the line or Reuben Garner with Benchmark Bank open.

Thank you. Good afternoon, everyone and congrats that on your list quarter. So it says does maybe on the retail side? What are what are your customers telling you to expect sort of as you progress through the year or guess if they aren't what are you sort of expecting a progress through the year just you know, I think a lot of folks are looking at the the comps last summer a lot of people at home doing projects that took them to to the Lowe's and Home Depot's of the world. Did she anticipates available that the industry will be able to grow on top of what happened last year just cuz of you know changing Dynamics and secular strength, or or should that be something to keep in mind and maybe if if you do see growth it's more uh from from things within your control new new customers new products that sort of thing.

yeah, so for for our public companies we tend to

Follow what they're trying to to tell the street which is they're not really making predictions. Um, I guess what I would say is that we have been told to make sure that we have ample project available. So I think from our standpoint, that's our goal. We we want to make sure we can supply more than we did last year, but I couldn't tell you for sure if that's all going to materialize or not. But the trend lines today are are very good.

Okay, and then the industrial business is obviously snapped back pretty quickly. There's been some good indicators. I think maybe I had a good reading came out today on the commercial side. Should we expect that? You know that that will start to improve as we move through the year or is there a bigger delay there? And that might be more of a a 20 22 age take the recovery. Now we're seeing very positive results in the industrial segment. And I don't see any reason why those won't continue. I know a year ago. They were probably one of them are impacted areas as a result of the lockdown. So we're optimistic that as long as things stay open and running that they will be able to help perform.

Okay, and then I'm going to speak one more and if I can Mike anything that can help us on the the seasonality of of sg&a this year any reminders their life and maybe you know in that same realm how the Acquisitions might impact that if at all yeah, the the Acquisitions are fully based in for the quarter. So if you take the hundred and fifty million of sg&a for the quarter thirty-two million, I believe no, excuse me, thirty-six million of that sg&a was was was bonus expense. And and so if you can pull that out, that's how we think about kind of the core sg&a that that number is is fairly fixed over the course of a year from quarter-to-quarter and then as you know, we would approve for bonus expense at about a 20% rate of three bonus operating profit on that poor sg&a line. I would say it can Flex up a little bit with volume and which is typically higher in Q2 and Q3 wage.

That would that would move up a little bit from from the q1 number and then as we look forward to Spartanburg transaction, I think we talked about in February in our in our thoughts a year-end release if they uh, the ebitda margins for that business run at low low, 3% three two thousand three to four percent ebitda margins. It's a it's a lower margin treated treated lumber of lower-margin category single-digit gross margin, and then the sg&a is is is a modest numbers that were sent to sales. So hopefully that gives you enough for modeling.

Perfect. Thanks and congrats.

Thank you.

Thank you. Our next question comes from the line of Stanley Elliot was feeble your line is not open. Good afternoon everybody. Thank you guys for for taking the question Pac-Man on on the composite decking peace and be very strong numbers. I mean you get a sense that that that's just a fill-in the inventory or do you think that that's kind of the in demand that's nice too long or you know, we've had an early buy program or or a stock some do you think that's just kind of additional sell-through? Just trying to get a sense for you know, that business being up 64% off. Yeah, I think part of that might be a year-over-year comparison, but the way I'm looking at it is it's still the demand is very strong and you know order file a strong as I mentioned through Q2 were we've got strong customer commitment itself for me. I think there is a change. I I I know that people are recognizing our

Mineral composite product. They're they're really drawn to it. It's a terrific product. So I think that's true and in our wood plastic composite is still got a standing following. So I'd like to think that I know others are also seeing increased sales in there would plastic composite lines. So we we want to outperform the market there and not too far away. I think we're doing that and then in terms of the labor shortage you should we think about I guess how quickly can you address that it was that that's something that would you be a drag in terms of of kind of the the revenue

Number that you guys could put up and then kind of what sort of positions are you looking to to bring on?

Yeah, so if you if you kind of look over all we're probably looking at positions in in all areas of the company our biggest challenges in the production facilities and more on a tri-level side. So we are finding people but we're not finding enough people and we're not finding people that really want to work and grow their career with us off. So when we do find those individuals, they do a terrific job and and they continue to move up the ranks in our company. So that that's a continued challenge. I think right now we can kind of handle the volumes we have today, but it puts a lot of stress on the people in the organization. So we want to make sure that we we give them some relief and try to bring on more folks home and we've got our Outreach finding finding new sources of talent for us and as I mentioned with recruiting and trying to find different ways to to make the job

Easier for people to do through automation. So and we also are looking at automation at replacing some of those more physically exertion type rules. So I'm at the combination of all those things. We we plan to be able to keep going and hopefully being able to utilize the people we have and put them in positions of higher authority and responsibility and maybe using the the option with automation to eliminate some of those entry level positions that we have a hard time feeling. Yeah, no definitely high-class problem, but it kind of brings me to my next question. You kept capex Flatbush. What point do you decide to kind of put a little more to the accelerator on some of these automation programs that you guys have in place or in the works two jobs, you know try to kind of solve some of that. Yeah. I think that's a great question. I think we're we're willing to do it. I think the challenge you have is trying to find the equipment manufacturers capability to wage.

and fulfill orders

The limiting factor right now great guys. Thank you very much. Appreciate it. Thank you.

Thank you. Our next question comes from the line of Kurt. Yinger would be a Davidson your line is not open. Yes. Thanks and good evening in my home. So I mean it looked like really strong gross profit growth in the construction segment kind of despite a more modest increase in unit sales. Is it fair to think that a good chunk of that wage is associated with costs. You've already been able to take out from the commercial business.

Certainly a part of it. I think that's a that plays a role. But I also think kind of how they're executing at. The individual plant level is improved and trying not to hold pricing for as long of a period of time as we have historically as making a difference as well. So I think the constant vigilance on the mark staying in tune and working with the customer to make sure we can provide them product at a fair price is is really what's driving that Improvement.

Got it. And I guess to your second point, you know, typically I kind of think of at least the site built portion as having some of those longer lag times as far as long I guess catching up to commodity prices. It sounds like maybe that's shortened a bit. And so perhaps you don't get squeezed to the same extent there. Is that kind of a fair characterization of what's going on? Yeah. I think that is a it's a very fair characterization and I think if you if you reduce the period of time at which you keep your quotes open or the customer, it really helps that process.

Okay, that makes sense. All right, and then just Switching gears to the industrial segment. Could you just talk about you know what you're seeing in terms of sales Synergy opportunities between pallet one and the Legacy platform and then just the ability to maybe cross-sell other packaging Solutions or include, you know more mixed material kind of full Solutions as opposed to components and and how that's kind of playing in I guess the better-than-expected growth we've seen here in the last couple of quarters.

Well current I couldn't say it any better than you just did in your question. I mean you you hit exactly what our strategy is and what I will tell you is we think that on the whole protective packaging material side. We have a tremendous upside that we haven't really tapped yet and we do expect to to attack that may very vigorously this year and we're already in that process of doing that but that that's one of the key things that we think we can we can do with the combination with palette 1 month. They bring different customers to the mix and more opportunities and we're excited about watching the whole thing you talked about which is mixed material Solutions off and ultimately, you know, our goal of being the Global Packaging Solutions provider is really what drives this whole process.

Got it.

That makes sense and then just within retail. I mean obviously, you know, a lot of exciting stuff going on with deckorators, but it sounds like you're making, you know, some pretty sizable Investments at least on the prefinishing side and ufp Edge, you know, could you just talk about what you kind of see as some of the most exciting growth opportunities within retail off maybe excluding deckorators over the next one or two years?

Sure. I think I think the new product development process is probably most pronounced in the retail environment. So things like ufp edge things like refinishing products developing new products, whether that's siding pattern and trim items which were obviously working on all the time again different materials more. I'll call it exotic hardwood opportunities railing systems and and other ancillary outdoor Essentials type items. Those are areas where we think we can utilize the customer base. We have and drive more of that value-added product that consumers are looking for job and and really help ramp up our overall returns.

so that that's probably

Okay. All right, and then, you know a couple of times you guys to touch on, you know automation investment opportunities. Could you just help us I guess visualize what that would kind of look like from a process standpoint whether it's by kind of a facility or or by segment, you know, what is kind of that big automation opportunity as you guys see it.

Yeah, it's kind of two-fold. Some of it is just kind of helping with automation on N feeds and out feeds and and helping from a safety perspective. Um, the other part of it is really helping the process so that we can use more more automated equipment. So from a standpoint of not getting as many new employees were able to eliminate the need for new employees and allow our other employees to move up in their roles. So if if you took a look at is a pallet operations or other operations that produce a like product on a very consistent basis those opportunities are pretty significant for us to to create a lifestyle that drives drives a number of employee efficiencies as well as manufacturing efficiencies.

Okay, that makes sense. And just my last one going back to everyone's favorite topic. I mean, could you just I guess at a high level talk about the risks. You see here in the near term associated with the lumber Market just given how heavy of a quarter Q2 typically is 4 / treated volume and I imagine it's probably pretty difficult bulbs. Are you doing anything differently, you know this year just given where prices are to mitigate that risk at all.

Yeah, I think there's a number of things that I would point to on that curtain. If you kind of look at our percentage of inventory as a percent of sales, you'll see that it's down from a year ago. And I think overall what we have is we're probably managing at a little more tightly than we have. We have ample inventories. We're using a managed inventory programs and other things to to help perhaps hedge against price Falls, but as you know absence some kind of a fall off the table pricing event as long as the demand and Supply remained relatively consistent with where they are right now. We're very comfortable over the next 60 90 days. But you know the one caveat with that is it some kind of a sudden change in the market?

We don't foresee at the moment. Well, first three weeks of April or any indication. It shouldn't be too bad. So, all right. Well, I appreciate the color and good luck here in Georgia. All right. Thank you Kirsten.

Thank you our next question.

And our next question is from Jay McCanless from wedbush. Your line is open.

Good afternoon. Thanks for taking my questions. So first question for you, Mike. Alpha lumber prices finished 1/4 where they are now or should we expect a similar percentage Tailwind in terms of Revenue growth, or could you maybe give us a range if lumber prices say around where they are now?

I don't recall with Hugh to lumber prices for on average. But but if if looking back at at what I would do is look a you know, the current the current Lumber Price look at back at Q2 lumber prices on average last year and then I I would you know, we're not going to move exactly with with the market. Right? So June, um, usually we're about maybe forty to fifty percent of whatever the the the actual bumper prices and that's just because because of mixed and then also because Lumber is only took me to 50% of the sale price of our products. So that's how I take a look at it.

That's great.

Bayer helpful, thank you. And then I guess the the second question I had and may not really matter because of of the Acquisitions you've made but could you just remind us you know what how long if at all you guys were were shut down and and felt the impact that the beginning of COVID-19 and you know the the length of time and and how much potentially of a a month sales Tailwind you're going to see from that this year versus last year.

Yeah, I think J. If you kind of look at it the different bye-bye segment and actually different by business unit. So and and its Geographic. So I think I mentioned before that industrial probably was more of the hardest-hit a year ago because some of their markets were locked down for a longer period of time and it and Thursday we were deemed essential business some of our customers were not and and some of the other markets Factory built site built there were certain areas where we just couldn't perform. So well, it's a little bit of a kaleidoscope of of different opportunities that we have to improve over a year ago. And again retail was essential and I was quite strong. So I would say our opportunities tend to be more in some of the industrial spaces and the construction spaces when you're looking at year-over-year. Yeah putting some numbers to that page.

In Q2 of last year retail was up 22% So they had a they had a pretty good quarter but industrial was down 27 construction was down 16 in our International group was down 11:00 so long, you know for the industrial construction and the international groups. There's some there's some really easy comps there so,

Yeah, that's that's exactly what I was after and then then the last question I guess in terms of I know you talked about ramping up m&a is the package going a little bit easier because of the high cost of lumber. I mean, I got to think some of these smaller operators just don't have the bank facilities to to manage this high price of lumber. So any money I mean insight and give me there would be appreciated. Yeah. I don't know that it's necessarily easier. You know, we're we're trying to be a little more selective and trying to find a good quality companies with good teams in both in operations and in their leadership group, so there there are plenty. I think each of our Business Leaders is finding Targets in their strategic runways to grow but I I do agree with your premise that there are some companies out there giving the high price of

Lumber are just having a hard time playing at that level.

Got it. Okay. Great. Thanks for taking my questions. Thank you.

Thank you. And this entire Q&A session for today? I will turn the call back to Matt missad for his final remarks.

Thank you, Thank you again for joining us today in business as in life. It is important to celebrate victories.

And after the celebration, it's equally important to keep building for the future and working on the areas of improvement tonight. I'd like to toast all of the team members of ufp for their tremendous accomplishments the first quarter. I'd also like to toast our Board of Directors for their wise counsel and our shareholders for your investment. Please celebrate the success tonight and know that the team will continue our quest to set new records tomorrow morning. Have a great evening.

And this concludes today's conference call. Thank you for participating and you may now disconnect dead dead dead dead.