Q2 2021 Ufp Industries Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to the U S. P industries second quarter 2021 earnings Conference call. At this time, all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session to ask a question. During the session you will need to press star 1 on your telephone please.
Please be advised that today's conference is being recorded if you require any further assistance. Please press Star then zero I would now like to hand, the conference over to your Speaker, Mr. <expletive> Coffee Air Vice President of business out.
Welcome to the second quarter 2021 conference call for UFP industries hosting the call today are CEO, Matt <unk> and CFO, Mike Cole, Matt and Mike will.
After our prepared remarks and on the call will be opened for questions. This conference call is available simultaneously in its entirety to all interested investors and news media through our webcast at USPI Dot Com AR.
A replay will also be available at that website before I turn the call over to Matt <unk>, Let me remind you that today's press release and presentation include forward looking statements as defined in the private Securities Litigation Reform Act of 1995 day.
These statements are subject to risks and uncertainties that could cause actual results to differ materially from the company's expectations and projections. These risks and uncertainties include but are not limited to those factors identified in the press release and in our filings with the Securities and Exchange Commission.
Now I would like to turn the call over to Matthew side.
Thank you <expletive> and good afternoon, everyone.
As you can see from the press release, the UFP family is in <unk>.
While Mr. Bezos is flying into sub orbital space. The U F. P team made a quantum leap to another galaxy in the second quarter.
The first 6 months of 2021 constitute the best earnings year and U S. P 66 year history.
I sent a sincere thank you to all of the UFP family of companies for your incredible effort.
When the company is successful we share that success with our teammates and we are grateful to share over $10 million in additional benefits and bonuses with our hourly employees for the first 6 months of 2021 to thank them for their exceptional effort too.
You have seen the truly remarkable financial performance and Mike will provide more analysis shortly.
I would like to highlight a few items, while providing some insight into the balance of 2021.
We saw more records in the second quarter than the Grammys.
Yet our team is not focused on receiving awards for them. It is about competing improving growing our people on opportunities and making our company stronger they hit a grand Slam in the second quarter.
We can't talk about Q2 without acknowledging the significant impact of the lumber market.
We had top line help from a rising lumber market during the first half of the quarter. However, the last tap saw a drastic drop in lumber prices, which made an impact on our retail variable price products.
While we had anticipated a market reduction in net late second or third quarter, we did not anticipate debt it would fall as far and as fast as it did.
Included in our order in our quarterly results was a charge of $23 million to reduce the value of inventory on certain of our variable price products in our retail segment.
Since the southern yellow pine market has dropped nearly $1000 per thousand in the last several weeks the impact would have been much worse, if not for the skill and dedication of our purchasing and operations teams, who managed inventories very well under the circumstances.
This lumber market drop also highlighted another benefit of our new structure as our teams were able to coordinate movements of inventory and maximize utilization of on hand items to limit the impact of the market decline.
Thanks to our balanced business model diverse products and customer mix and a variety of pricing methodologies, we are well positioned to weather these kinds of events.
As we have discussed on many occasions, these diverse markets and pricing methodologies.
Enable us to create a natural hedge against lumber market fluctuations like we just experienced.
Last fall when prices were rising the retail segment benefited overall, while the industrial and construction segments suffered.
Going forward for the balance of 2021, we expect that retail will lag, while construction and industrial will benefit.
We expect the lumber market to normalize and believed that mills will try to balance inventories to match demand.
We believe the lumber market is trading today within the range, where it should remain for the next 30 to 60 days was slight fluctuations.
Since most of the lumber products are sold under agreements between suppliers and customers a significantly smaller volume is actively traded and reported a D. A random lengths in other market reporting services.
Therefore, this metric is subject to more fluctuation in it is less reflective of the overall lumber market than it used to be.
Certain products such as OSB remain tight however, DIY demand is not as robust as it was a year ago, while professionals are still very busy in maintaining robust purchases for their businesses.
Many believe that DIY demand has paused due to other pursuits, such as vacations and travel which were severely curtailed due to the lockdowns in 2020.
Overall, however, we remain confident in our original Pea Bob targets for the year.
A quick review by market shows that our retail solutions team was the most impacted by the lumber market decline.
The segment recorded a 6% decline in unit sales versus a year ago.
Looking at retail business units. The pro would unit sales were down 17% as demand returned to more normalized levels from a significantly higher sales in Q2 of 2020.
The Sun belt team has done a great job growing their business and more recently integrating the acquisition of Spartanburg Forest products.
We have been impressed with their treating operations and quality and have worked together to target synergies in our purchasing and administrative areas.
This team has suffered the most from a lumber market drop as customer orders did not match customer forecasts.
UFP edge, our siding pattern and trim business unit was up 27% and.
In unit sales.
As new capacity came online during the quarter.
More capacity will be added in Q4 and early in 2022 to meet expected demand for our high quality, finishing services and our pattern and trim products.
The decorators unit sales increased 11% over record Q2.2020 levels.
The patented decorators voyage involved mineral based composite products continue to grow their fan base among.
Among contractors as the strength to weight ratio product flexibility and ease of installation make it a preferred product.
As a result, the production is sold out through year end.
And as previously disclosed additional mineral based capacity will be coming online starting in November of 'twenty, 1 and by the end of 'twenty..2 we will have doubled the mineral based capacity.
Our wood plastic composite line is sold out through November with additional capacity coming online in 2022, which will add around 30% to 35% more capacity in those product lines.
Decorators continued to feel some of the impacts of higher resin and transportation costs in Q2, while passing along some of these costs to customers during the quarter.
And print the new home on the core business unit, formerly known as dimensions will be rolling out its new website in late Q3, and we'll be adding to its ready to make kraft and products and project line of products.
Handprint continues to gain more sales volume with its cut the size product offering for building materials retailers too.
Outdoor essentials has expanded its fencing range to include a variety of materials, including aluminum and composite.
It is also unveiling a new raised plant or for 2022, specifically targeted for customers E Commerce portals.
Moving to the UFP construction segment unit sales increased 29% over the second quarter of 2020.
Strong single family residential demand continues in the geographic markets, we serve and.
And multifamily remains solid and may even begin to expand again as developers who held off due to high prices reengage as commodity prices normalize.
Steel products, such as the connectors used in our trust manufacturing remain in short supply due in part to overseas shipping constraints.
Unit sales to the factory built business unit rose, 56% as strong demand continues.
The robust growth in factory built reflects the growing recognition that it is an authentic and much needed affordable housing option.
And our factory built team has been working hard to meet this need.
Our team continues to grow its new product portfolio for the factory built market and we should see growing new product sales units by Q4, and several new product lines.
The factory built customers have also seen shortages in certain items, such as appliances and other items using micro chips, which has moderated their growth somewhat.
Unit sales to the site built customers rose, 32% in the quarter.
Customers in this business unit are bullish on the market and they have been very complimentary of the ability of our teams to supply product in this challenging market.
They are also imploring us to add more capacity to serve their growing needs.
Unit sales to the commercial construction unit rose 11%.
More importantly, our commercial business unit was profitable in Q2 and focused on improving margins and rationalizing customer concentrations.
We continue to position the commercial business unit for significant improvements in performance and.
And have been refining our customer mix to ensure that we do not work for free or worse, yet pay a customer to do work for them.
Our concrete forming business unit continues to grow.
The team has been offering new solutions to its customers and expanding its supply network geographically.
We expect continued organic growth in this market and are looking at potential targeted acquisitions as well.
UFP Industrial segment grew unit sales, 73% over lockdown impacted 2020.
Organic growth accounted for 26% of unit sales growth.
Acquisitions led by pallet, 1 DNR and pallet USA comprised 47% of the unit growth.
The assimilation and integration of these acquisitions is going very well operationally.
Both PNR and pallet USA have been part of the family for over a year and have been working well in their geographic regions.
Pallet, 1 was a very large acquisition for us and the cultural fit has been incredibly good.
They have great team members and have a can do spirit and treat each other well.
They are also becoming an integral part of our industrial leadership team and the exchange of best practices has been exceptional.
We have already utilized the pallet, 1 experience with automation and technology to fuel our adoption in existing facilities.
And we expect that process to grow.
Unit sales of protective packaging products, our newest runway on industrial rose, 53% in the quarter.
Gross profit for the industrial segment rose, 262% well in excess of unit sales growth.
And pallet, 1 made a big impact by contributing 54% of the increase in gross profit.
Rationalizing capacity enhancing operating leverage and utilizing better analytics helped improve this gross profit return.
The industrial team is working together to drive increased automation consolidate capacity and utilization of its vast facility network to serve national and regional customers better.
New products sales increased to $232.1 million for the quarter and our $396.9 million year to day, well in excess of our year to date budget.
We also launched our new innovation accelerator initiative in June and it will work with the business units to identify new product opportunities and rapidly design prototype and test them to increase our speed to market.
We have increased the breadth of products in each business unit, but we need to be even faster to vet and bring these new products to consumers more quickly.
We continue to deploy capital targeted on automation and expansion.
To promote and invest in new products and technology and to develop our teams.
We have been forced to increase our spend on regulatory issues cyber security and other non value added requirements as well.
Physicians remain a strategic growth initiative as we pursue targets in each segment with an emphasis on scalable and synergistic new products or services complementary value added products and core competencies.
Our capital allocation strategy targets acquisitions at reasonable ROI based values first followed by greenfield growth and automation and efficiency projects.
During the quarter, we completed Sunbelt's acquisition of Spartanburg Forest products, which added scale to the sunbelt operations.
We expect to scale, the and durable building products acquisition with our existing site build business unit geography, as it adds adjacent product lines for both new and existing customers.
And our Handprint unit added Walnut Hollow farm, which introduces handprint to craft and the core customers and allows expansion through the existing manufacturing and distribution network of USB retail.
Given the number of automation opportunities available to us, which help us become the low cost producer and grow our businesses.
We are adding an additional $25 million for capital expenditures in 2021.
Given the long lead times for equipment most of the installations will not occur until late Q4 or early Q1 of 2022.
Labor continues to be a challenge as we have more than 500 open positions posted on a weekly basis.
In geographic areas, where the states have eliminated the additional $300 a week bonus.
The labor market has loosened up somewhat and other areas, where taxpayers are subsidizing cash and benefits to the tune of nearly $20 an hour.
Not surprisingly hardworking employees are tougher to find.
However, our HR teams and business operators have worked together to craft creative solutions for the markets, where our facilities are located.
And by taking care of our strong performing team members.
Using as 1 example, I previously mentioned the $10 million on year to date bonuses and extra benefits paid to our hourly employees, we hope to be able to alleviate challenges in finding and retaining talent.
We have expanded our recruiting to discover additional sources of employees and broaden our outreach to make sure that all demographic groups are aware of the opportunities for them at UFP.
And we have incentive incentivised existing team members to recruit from their own network of friends and acquaintances.
Now I'd like to turn it over to Mike Cole, who will provide more details on our financial performance.
Thanks, Matt and Hello, everyone. Our consolidated results. This quarter are highlighted by unit sales growth of 47%, including 11% organic growth and 36% growth from acquired businesses.
Organic growth included $88 million of new products sales growth, which continues to provide a margin lift for us.
And operating profit grew by 157%.
As acquisitions contributed $15 million on operating profit and $18.5 million on EBITDA for the quarter.
Now ill review, our income statement and sales by segment.
Sales to the retail segment increased to 107% consisting of a 59% increase in selling prices and a 52% unit increase from acquisitions offset by a 4% decrease in organic unit sales.
Organic growth was impacted favorably by a 27% increase in UFP edge, an 11% increase in decorators and a 6% increase in outdoor essentials.
New products sales for the retail segment were also strong growing by over 32%.
Unfortunately, our pro with business unit reported a 17% decrease in units compared to last year, reflecting a decline in demand as consumers shifted spending as a result of pandemic related restrictions being lifted and the economy being reopened.
Sales to the industrial segment increased to 172% consisting of a 99% increase in selling prices.
6% organic unit growth and a 47% unit increase resulting from acquisitions.
Year over year organic growth was strong due to the impact of the pandemic related restrictions last year and strong demand this year, while market share gains from new customer and new products sales contributed $33 million and $27 million, respectively to sales growth for this quarter.
Finally, net sales to the construction segment increased 106% consisting of a 77% increase in selling prices and 29% unit growth, including a 3% contribution from acquisitions.
Organic unit growth was driven by our factory built and site built housing business units, which achieved 56% and 24% increases respectively.
Our commercial business unit also achieved an 11% unit increase again these organic increases were largely due to the impact of the pandemic related restrictions last year and a strong demand environment. This year.
Moving down the income statement, our second quarter gross profit increased by $216 million or 106%.
By segment retail increased by $39 million in spite of a $23 million reserve to reduce the value of our treated inventory to net realizable value at quarter end, primarily in our new sunbelt in Spartanburg business units.
Industrial and construction gross profit increased by $97 million and $73 million respectively.
Recent acquisitions contributed $3 million for retail 2 million to construction $23 million to industrial and $30 million to our overall increase in gross profits.
These increases resulted from a variety of factors, including strong unit sales growth and leveraging fixed costs.
Increased sales of value added in new products that have higher margins and more effectively adjusting for increases in number and other costs in our selling prices.
Lumber prices that continue to fall and normalize will continue to impact our gross profits of commodity based products sold on a variable price primarily.
Treated lumber products that were not purchased through a vendor managed inventory program.
We anticipate that this will be more than offset by the benefit we experienced on value added products sold on a fixed price primarily in our industrial and construction segments.
Continuing to move down the income statement, our SG&A expenses increased by almost $71 million consisting of $15 million from recently acquired businesses, a $33 million increase in bonus expense and a $9 million increase in sales incentives the remaining $14 million increase.
Primarily related to higher compensation and benefit costs and travel costs, which has started to normalize.
Finally, our operating profits increased by $145 million, which was comprised of a $16 million increase in retail a $64 million increase in industrial a $48 million increase in construction and an $8 million increase in international.
Again acquisitions contributed $15 million to our operating profit primarily in our industrial segment.
Moving on to our cash flow statement.
Cash flows used in operations for the year was $116 million and consisted of net earnings and noncash expenses totaling $328 million compared to $148 million last year, and a $444 million increase in net working capital since the end of December of 2020 compared to a $300000.
<unk> in the prior year, reflecting strong market demand and record high lumber prices this year.
Our people continue to do a great job managing our working capital efficiently as evidenced by our cash cycle, which remains on pace with last year.
Our investing activities include capital expenditures totaling $79 million, including expansionary and efficiency capex of $42 million.
We're now planning for total capital expenditures for the year of $140 million, which includes projects to expand our capacity to produce our mineral based and wood plastic composite decking products, our UFP edge siding pattern and trim products expand our machine built talent capacity and take advantage of automation opportunities.
And $433 million was spent on acquisitions, so far for the year, including the recent additions of Spartanburg forest products Walnut hollow and in durable building products this quarter.
Lastly, our financing activities include another $9 million of dividends paid this quarter at a rate of 15 cents a share a 20% increase in the rate over last year.
And net borrowings under our revolving credit facility totaling $260 million to finance the increase on our net working capital.
With respect to our balance sheet at the end of June our total debt net of cash was $562 million and our total liquidity was $288 million.
Looking forward to Q3 and Q4, we expect our seasonal working capital investment of $444 million to be converted to cash as lumber prices and demand normalized, leaving our liquidity and balance sheet and strong shape as the year progresses.
That's all I have on the financials Matt.
Thank you Mike now I'd like to open it up for any questions you may add.
Yes.
Thank you as a reminder to ask a question you will need to press star 1 on your telephone to withdraw your question press the pound key.
Please standby, while we compile the Q&A roster.
Our first question will come from Stanley Elliott with Stifel. Please go ahead.
Hey, guys. Thank you all for taking the question and congratulations on that.
Other linked quarter, a very very nicely done.
Can you talk on on the decorators business. It sounded like there was somewhat inventory constrained curious to kind of get your view a little bit of a step down from Q1.
But still very good numbers in terms of the units, but just curious kind of what youre seeing in the marketplace there.
Yes, we're still seeing very very strong demand.
And again, I think we're kind of lapping year over year, where we had capacity issues a year ago.
We're full up as I've mentioned on the mineral base through the end of the year and on.
Wood plastic composite in November so.
We're still feeling really good about the demand there obviously I mentioned a couple of cost challenges.
That I think will be will be rationalized out and so we should be able to get ahead of those certainly by the end of the third quarter or so.
Again, very very optimistic about where we are there.
And when we think about kind of the working capital unwinding on the back part of the year it could be.
Nice boost.
With so many growth opportunities it sounds like we could still see a fair amount of M&A activity.
On the horizon.
Yes, I think thats.
That's 1 of our forefront ideas, that's what we're trying to get accomplished here and again, we want to make sure valuations are right and continue with our conservative approach to how we value and acquire companies, but yes definitely the pipeline is full there is a lot of a lot of opportunities out there and we just want to make sure we choose the right ones and.
The market for valuations is right.
Perfect and then last from me.
Any comments on the visibility that you are hearing from your construction customers as it relates to state projects moving forward other infrastructure projects moving forward.
We have not gotten a whole lot more insight into the kind of infrastructure type projects.
Maybe it's because I, probably turned a little bit of a deaf ear to some of that until it becomes a reality there has been talk about it for several years.
As soon as something hits I think then then it will become much more real but.
Our concrete forming group is probably going to be the 1 that would be most impacted there on a positive way so.
We're hopeful that we end up with something thats reasonable and rational and that we can participate in.
Perfect guys. Thank you very much I appreciate the time and best of luck.
Thank you.
Thank you. Our next question will come from Kurt Yinger with D. A Davidson. Please go ahead.
Yes, good afternoon, Matt Mike Index.
Hey, Kurt.
Just a couple of questions here first.
On customers and site built looking to you to perhaps add capacity I think in the past that's been an area, where you've been kind of cautious growing the footprint given the cyclicality.
That changed at all and do you feel like in this type of environment. The adoption of component solutions can be more significant than it has been in the past.
Yes, Kurt I still think there is opportunities for us to convert theirs.
Maybe not as many people that are doing total stick framing but.
Our our floor cassette concept roof trusses wall panels.
Selling more components is definitely where we want to go and I think that's the that's the capacity they're looking for is labor is tight, particularly skilled labor in the field. So.
We're still going to be cautious about it but if we have good insight into both the customers plan and our own ability to service it.
There'll be areas that we will continue to expand again, we're trying to keep it within our basic geography that we're in today.
On a still stay away from the so called boom and bust markets, but.
Where we are today I think a very steady stable type markets.
Got it okay. That's helpful.
And then.
Obviously, it was a great 2020, but your commentary this afternoon seems to be more cautious than we've heard previously in terms of the repair and remodel and in DIY side, just curious how recently, you've maybe seen some deterioration there.
Are you concerned at all that this is more than just a tough comp situation and that the market could really start to slow down quite a bit.
Yes, I think I tried to outline the differences there.
Professional builder contractor, they're still extremely busy and.
So that indicates that demand is solid and I do think DIY you can.
Discuss whether they pulled forward from sales in 2020 from future years.
Or if it was because people were locked down at home and they just did more projects. So I think it will normalize.
What.
I've tried to convey mostly is that we just had a blowout quarter.
Yes.
Trying to moderate people's expectations relative to repeating that type of quarter.
Got it okay that makes sense and then on the <unk> and commercial construction businesses.
Type of progress have you made there in terms of getting that business back to breakeven.
Are you seeing any green shoots in terms of pent up demand or new quoting activity anything along those lines.
There's been a really fundamental shift as we've.
Tried to focus on it and that team has been working extremely hard trying to get.
Get the ship right sized I would say and in terms of both looking at analyzing their customer base.
Their margin profiles for those customers and what I would call the imbalance.
Where the customer has historically held most of the leverage and.
Taking a position that we need to be able to make money as I mentioned in my remarks, we need to be able to make money in order to stay on business. So we've changed our pricing methodology and we probably have lost a few customers along the way, but that's the right thing to do so and they are they are running at a profitable rate here for the last.
A couple of months and we anticipate that will continue so.
It's a big turnaround, we're still we're still not there yet but they are on the right path.
I really thank him for all the effort that day.
Put forward.
Okay, Alright, that's encouraging and then just last 1 from me kind of higher level.
Over with the performance over the last year and some of the benefits from the ryzen on lumber market I think there's been a lot of concern here.
That's rolled over you'll give a lot of it back, but I think Mike said.
With the trend Youre seeing in lumber do you expect the benefits from the fish price products to kind of outweigh the headwinds you might see on the variable side could you just maybe.
Walk through some of the other puts and takes there as we think about the back half of the year on into 2022.
The comp issue associated with lumber and your view on much.
Smaller issue than it seems to be.
You talked to or at least in terms of maybe what the stock might suggest.
Yes, I think the way that I would encourage folks to look at at least our company is.
We try to focus on unit sales.
Sales dollars is going to is not going to be a good comparable because the lumber market pricing impacts so much of that but.
But if we look at unit sales and more particularly gross profit dollars.
On a per unit basis and overall.
That's kind of where I would focus the attention and we feel good about that as you mentioned the fixed price and Mike talked about fixed price items in industrial and construction and they actually had a headwind a year ago as prices were rising so they will have hopefully a little bit more.
Of a tailwind this year.
With the lower price levels. So.
And the question is is how how does that balance off against the challenges at retail will face from the declining market in that area. So we feel good overall as I mentioned I think we feel very comfortable with our original forecast for the year, but I think as we look at the different stress points.
On the different margins within the segments, that's where we would expect to see.
Okay, Alright, well I appreciate all the color and good luck here in Q3 guys.
Thank you Sir.
Thank you. Our next question will come from Jay Mccanless with Wedbush Securities. Please go ahead.
Hey, good afternoon, great quarter guys.
Hey.
I guess the first question on per would.
Have you ever communicated we're trying to find out from the field what the split from the sales on that are produced yourself versus contractors installing this debt.
Yes, it's really really difficult to do I think.
And prior years I would say 10 years ago actually Jay was probably a little easier to do because the big box retailers were primarily DIY.
And right now on.
All the big box retailers have been pushing more to the pro customer so its kind of blur that line.
We can kind of tell who's our independent retail customers are that generally serve the professionals and the contractors, but we havent been able to really nor have we necessarily tried to get after detailed level at the big box.
Okay.
And then.
The next question I had just maybe give me a little more.
You're supporting I guess ideas that lumber prices were going to be able to stabilize at these levels is it.
The transportation issues and candidly getting better or.
Youre seeing a little bit better delivery.
In the South just maybe.
We hear so much in the media about all of these transportation issues and supply chain issues. Just what are you seeing that makes you feel like lumber prices can stabilize here because with the puts and takes of the acquisitions and they're getting at least getting close on the lumber price would certainly help.
Yes, that's an excellent question and I'm not sure I got a great answer for you on that what I would say is that transportation issues are still there they've they've.
Moderated quite a bit.
Thank the international transportation issues are still.
A bigger problem bigger challenge, but I would say the production side on the mill side has improved.
The demand takeaway hasnt been as great as originally forecast.
Particularly at retail.
And I think that's created a little breathing room in the marketplace.
A lot of retailers had considerable amounts of inventory.
In there and their supply chain and that takeaway being not as great as really opened up a lot of product availability.
Again, certain items are still tight, but I'd say overall.
Theres a good there's a good supply right now.
Okay, and then just digging down on the retailers I mean do you feel like the retailers are overstocked right now to sell through sufficient.
Keep you guys maybe not up.
In terms of units year over year, but at least flat to slightly negative.
Yes, I would say on its tough to paint them all with a broad brush I think they all have different strategies in terms of what they are purchasing.
Our strategy was so some some wanted to commit early and make sure. They had supply given last year when they ran out of supply so.
I would say that overall I think your last statement is accurate, though in terms of how we would look at unit sales takeaway.
Okay, Alright that sounds great. Thanks, guys. Thank you.
Thank you on our next question will come from Keaton mantra with BMO capital markets. Please go ahead.
Okay.
Hey can you hear me.
Yes.
Hey.
We thought you did a mic drop.
Sorry about that Mike on that.
On a very strong quarter.
First question, maybe to start off on the industrial side.
Very strong performance, there, especially on the gross profit side.
2 part question, maybe talk a little bit on our own.
From a unit sales standpoint that you are seeing.
As of strength.
And products, where you're seeing increased traction I know kind of 1 of the focus areas has been.
Kind of growing on the mixed material side. So that's some of the acquisitions you've done.
Maybe talk about kind of where you are seeing the most traction.
And then.
Obviously, great performance on on the gross profit side, you know talk a little bit about kind of.
And then you've been able to make the most progress.
Well there is a lots of on pack on those questions. There cadence so I'll try to I'll try to hit the high points. So on the industrial side debt.
The industrial teams have been doing just an outstanding job.
What they've been focused on is.
Providing more value added customer oriented solutions.
As you will recall historically, we started out selling sticks and panels to people who made their own creates in packaging materials and that's been a constant goal of ours is to continue to convert those types of customers to customers, who will buy our complete value added program and I think they've done an hour.
Standing job of that they've also utilize their own pricing analytics and tools to make sure that again as we mentioned before with some of the commercial things.
Let's make sure that we're properly.
Getting paid for the value that we provide.
And I think they've done really really nice work in that area as well. So I think on industrial debt as part of their strategic plan and they've just had really really good execution.
Overall, I think again, it's a tale of different markets.
If you look at construction and industrial.
You've seen improvement and enhancement there and.
A lot of its efficiency in terms of getting utilization and operating leverage pickups too.
But lumber market certainly helps there.
Retail is the 1 that we've already talked enough about that 1 so they were hitting it out of the park last year, and we don't expect that to happen this year, but we still expect it to be strong.
Got it and then.
Sticking with industrial and obviously on the pricing side it was a big hurdle.
Almost 100% year over year increase.
As we look into the back half of the.
And I know you don't provide specific guidance, but I'm just.
Just trying to understand what is the right way.
To think about it, especially given how how sharply prices lumber prices have fallen over the last 8 weeks can you just help us.
And I'll kind of help us frame what is the right way to think about debt.
Yes, I think.
Mike and I have talked to on about that.
Ill turn it over to Mike I think there's some some examples in metrics that you can probably look to that will help guide you there Mike can do.
Yes.
Natural lag.
Pricing for on the industrial side on the fixed price side.
For 1 reason is because you've got it you got to sell through that inventory that you bought in order to be able to supply the customers. So there's kind of a natural lag that occurs.
It helps us and we would expect that as a result of that lag that's really going to help us offset in the construction and the industrial side.
It's going to occur on the retail side with more variable price products.
I think the other thing thats happening those there's a lot of.
Pricing rationalization I think thats occurred throughout the company, just making sure that as we're able to add more value and provide more solutions for our customers, we're making sure we're getting paid for it in our in our prices and so there's all of those activities that are going on which I think sets up for industrial and construction in particular.
On a nice healthy operating margin environment, the back half of the year.
Understood.
And then.
Shifting to the to the retail side.
I'm just curious.
<unk>.
And on.
There is it seems like on the treated lumber side.
There is some easing in demand.
You've seen a sharp drop in lumber prices and I'm. Just curious are you seeing any signs.
Of having any ripple effects on the composite decking side from BARDA and HUD and the on prepared remarks on the team like that demand is.
It is still pretty strong, but I'm curious if you are starting to see signs for.
At least in sort of Q4 on into next year.
Having any impact on composite decking demand.
Yes, maybe I can kind of frame it a slightly different way and so as I look at the composite.
<unk> debt we provide.
More and more of those our do it for me projects as opposed to do it yourself projects. They are spending a lot more money on them and they want to make sure it's done right.
So what we're seeing with the composite is consistent with that what we're seeing on the DIY side for the pro would decades for example, thats much more of a do it yourself type project people feel comfortable doing that and.
It's kind of consistent with the overall theme that says hey, maybe people are taking a pause and they're going on vacation in there and then they are doing other things now.
Now that they are able to do it.
So I.
I don't I don't see anything that says the composite demand is going to fall off.
Again absent some other kind of change in the economy that.
Isn't obvious today so.
Got it that's very helpful. I'll start on it or good luck in the back half of the year.
Keith.
Thank you and speakers.
I am showing no further questions in queue at this time I would now like to turn the call back over to you for any further other line.
Thank you.
As we look ahead, we expect debt under unlike Mr. Bezos 11 minutes have had on which ended 1 day landed on Earth.
<unk> will continue its incredible focus on adjusted the economic changes that inevitably will come our way and to perform our plans.
Our business model helps chart, the course, but our talented and experienced teammates are the ones responsible for our ultimate success.
Whether it's crazy lumber market unpredictable government on Otani curve ball I am confident that we will win.
Thank you for your investment and have a great day 8 day.
Yes.
Ladies and gentlemen. This concludes today's conference call. Thank you for your participation you may now disconnect and have a wonderful day.
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