Q4 2021 Ufp Industries Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Q4 2021, UFP Industries earnings Conference call and webcast. At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question during the session you will need.
The press Star one on your telephone please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your Speaker, Mr. <expletive> Gauthier, Vice President of communication and Investor Relations. Please go ahead Sir.
Welcome to UFP industries fourth quarter 2021 conference call hosting the call today are CEO , Matt <unk> and CFO , Mike Cole.
Matt and Mike will offer prepared remarks, and then answer questions. This conference call is available simultaneously and in its entirety to all interested investors and news media through a webcast at USPI Dot Com a replay will also be available at that website through Friday February 18 2022.
Before I turn the call over to Matt Massage, 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 $19 95. 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 the filings with the Securities and Exchange Commission I will now turn the call over to Matt <unk>.
Thank you <expletive> and good afternoon, everyone.
2021 is over in like the Super Bowl champion Los Angeles Rams the U S. P team left the mantra, we will win.
And unlike the nail biter that the Rams experienced UFP team was strong the whole year and shattered its previous records.
I would like to give the UFP family, a virtual standing ovation for the amazing year.
They deserve all the accolades and the recognition for the company's performance.
Some quick highlights we had record net sales for the quarter were 2.02 billion and $8 65 billion for the year.
Record PBT for the quarter was $239 $7 million and $911 5 million for the year.
Record gross profit dollars were $371 5 million for the quarter and 1.41 billion for the year and finally record EPS was $2 21 for the quarter and $8 59 for the year.
If you say the number's fast enough it might not seem as incredible as the performance really was.
Net sales were up over 65%.
And earnings per share more than doubled while putting us well ahead of our strategic growth plan.
Now do we slow down when we're ahead of course, we don't we just keep pushing harder and set new more ambitious targets.
As we think about the future, let's recap the segments and explore some key items from the business units.
And the retail solutions segment retail sales were $3 42 billion for the year, although profits were down from the record set in 2020.
The segment was impacted by the falling lumber market through October , resulting in substantially lower margins than treated lumber products, which negatively impacted our <unk> and sunbelt units.
Market solidified in Q4 and has remained at elevated levels through the first several weeks of 2022 and this is how both of these business units get off to a good start in 2022.
UFP edge, our siding pattern and trim business grew by double digits in Q4.
The product line was very well received at the recent international builders show in Orlando, Florida, including the new domestically produced UFP edge thermally modified wood products.
UFP edge welcomes additional manufacturing capacity during Q4 and as capital plans to add another facility in 2022 and a third in 2023.
Decorators decking products sold well in Q4 with double digit unit sales increases.
Conversely, lattice and PVC railings were down from record 2020 levels.
Our alternative railing products sold very well through the retail stores in Q4, creating a robust restocking of these items during Q1 of 2022.
The overall outlook for <unk> remains strong as our trailhead WPC product experiences high demand.
And as a reminder, we expect to complete the current WPC capacity expansion by the end of Q2.
Demand for our mineral based composite decking remains very strong and we have been challenged to meet the heightened demand.
Fortunately about half of the additional planned capacity has come online this month with the balance expected by the end of January or excuse me the end of April 2022.
Our continuous process improvement efforts are also helping increase capacity one.
Once fully realized this capacity together with the new machinery will add approximately 100% to the pre expansion capacity.
Capacity of mineral based composite.
Among the new products for decorators in 2022, or the new voyage Sedona color, a new line of low voltage lighting and our much requested 11 and a quarter and step treads.
The decorators team is also very excited about its recently completed acquisition of ultra aluminum.
Ultimate team will strengthen our capabilities in aluminum railing and fills a strategic gap in our yard enclosures offering by operating matching railing and enclosure product, which ties the outdoor living environment together.
And print the home at the core business unit continues to gain more sales volume with its cut the size product offering for building materials retailers.
Outdoor essentials is excited to introduce several new raised garden beds and elevated planters just in time for spring.
Our new outdoor essentials garden beds, and planners are e-commerce friendly they feature tool free assembly and they are designed using a variety of materials and finishes.
Our ecommerce sales continue to climb and our new Fort worth, Texas fulfillment center is up and running.
We are investing in additional team members and technology to prepare for additional growth.
And working with our new products teams. We're also developing more products, which are e-commerce friendly for efficient shipping.
The overall outlook for retail is positive as our big box customers have an optimistic forecast for consumer demand.
From DIY as well as the pros.
The UFP construction unit sales increased very nicely in Q4.
The <unk> business had strong single family residential demand in the geographic markets we serve.
And multifamily remains resilient with order files now stretching into 2023 and some of our markets.
The new products from recent acquisitions, such as aluminum cladding and aluminum tax for multifamily and commercial projects have created opportunities in other geographic locations as we continue to scale these new products.
Our truss facilities are operating near capacity with the available labor.
We continue to recruit and hire to fill additional shifts where possible.
On the new services front I do trust tracks program has been very well received by customers, who now have real time mobile access to orders and deliveries among many other features.
We will continue to enhance our technology for our customers as we expand our role as the preferred solution provider to our site built customers.
Our factory build business unit also improved in Q4 as strong demand continues even with rising prices.
Order files are still very strong for our manufactured housing customers, whose units are growing market share and being readily accepted in the marketplace.
Recreational vehicle demand has also proven to be resilient.
We continue to assist customers on their standardization initiatives and emphasizing new products to help them reduce labor needs and increase their efficiencies.
Commercial construction was profitable for the year and has seen strong order files for the first half of 2022.
Last year, we discussed the need for dramatic improvement in the group responded very well, which was an incredible swing year over year.
The next challenge is achieving an acceptable ROI and the team has implemented a multifaceted plan to complete the recovery.
Among the action steps are implementing price increases to reflect higher raw materials cost and recognizing the increased value we add.
Rationalizing product lines and categories to ensure that we can produce and deliver the products efficiently.
And providing new standards of business to encourage customers to work in partnership with us to bring about lower cost and better efficiencies.
Our concrete forming business unit will be adding new stand alone locations in 2022 to accelerate growth.
The first regional facility will be in Maryland, which is expected to be running by early Q2.
Other markets will be in the southwest southeast and in the West.
And these remaining locations are expected to be operational by the end of 2023.
The team will expand the horizontal forming rental program in 2020 to expecting to more than double the 2021 rentals.
Customer demand in our space is strong and customers in most markets are telling us they are bid log it's maxed out.
Our backlog of Covid delayed projects are starting up this quarter and customers anticipate the government infrastructure projects will start hitting markets later in the year.
UFP industrial grew unit sales and profitability through the fourth quarter as it implemented strategic plan to be the packaging solutions provider for all of its customers.
The industrial team is growing its runways and end markets through its national sales growth teams, which as you can see have accelerated the financial results.
To complement the sales efforts the segment has enhanced its technology and sales tools and reorganize the design and engineering functions to take advantage of regional expertise and create greater efficiencies.
It will be adding resources in marketing and product development to continue to drive product awareness and to provide new solutions.
Great strides have been made to convert sticks and panel sales to design and engineered mixed materials solutions. There is still a lot of work and a lot of opportunity to improve here.
The industrial team has also embraced automation and manufacturing improvements as it is learned new methods from the acquisition of pallet one.
It will be investing heavily in automation material sourcing and recruitment as they continue to enhance the solutions offered to our customers.
And the protective packaging runway of drawing from a small base and is pleased to welcome the advantaged label and packaging team to its business unit.
Advantage is an excellent company, which will be a terrific foundation that can be scaled throughout our industrial markets.
And our international group continued its exceptional performance in the fourth quarter as Mexico continues to excel and Australia adds additional products to its mix.
The recent investment in <unk> in India as well as the acquisition of box pack in Australia continued progress toward our goal of being the global packaging solutions provider.
The International group and the industrial segment are working hand in hand to meet the needs of and provide solutions for our multinational customer base.
And now the 2021 is in the history books, we have changed our attention to 2022.
Year in which we plan to innovate to drive even more improvements in our business.
A key building block to successful innovation is new product introductions.
In 2021, new product sales totaled $842 million.
However to improve our results and set an even higher bar, we have tightened the criteria for new products for 2022.
As a result, we have sunset nearly $376 million of new product sales.
While we will continue to sell these products they will no longer be considered new products going forward.
With that in mind, we have established a sales target of $525 million for new products in 2022, using the enhanced criteria.
To help meet these tougher targets the construction and industrial segments will be adding resources to ramp up their new product efforts.
So what does the external outlook for 2022.
Here are a few of the data points.
The first repair and remodel market, which is a good guidepost for retail big box remains strong.
Leading indicators for the joint housing study showed strong growth through Q3 before normalizing to more historical growth levels.
Our big box customers remain optimistic as well.
The construction market looks strong through Q2 with order files extended on multifamily as mentioned before through the end of 'twenty two.
Industrial durable goods manufacturing is also strong through Q2 with many appliance manufacturers reporting order files out 16 to 26 weeks or more.
And the manufactured housing Institute is predicting another strong year for manufactured in modular housing.
And where the market is strong as the one that we are in there are always challenges.
A few of the challenges we are working on our first finding sufficient labor.
While we have seen an increase in applications and applicants we still have over 600 job openings.
Our HR teams have been very creative and aggressive in developing and implementing tools to recruit those individuals who are willing to work hard and join our growing team.
Our referral incentives are helping and one of the most impactful retention tools is sharing the company's success with our teammates.
2021 will be a year to remember for our frontline teammates who do whatever it takes to serve our customers' needs are.
Our typical incentives coupled with the special year end bonuses, which recognize the exceptional efforts of all of our frontline teammates in a very challenging COVID-19 year will result in over $40 million of payments to our hourly employees shattering all previous OE incentive records.
We also provided extra incentive compensation to our production managers and supervisors and appreciation for their incredible contributions.
We are truly grateful for all of their efforts and believe that this will continue to be a powerful retention program.
Our hope is that inflation bad policy decisions and increased taxes don't eat up all their compensation increases.
The second transportation is a constant struggle and is also a factor in the elevated lumber market.
Lack of cars in Canada force producers to curtail production in a few locations.
<unk> costs are expected to increase at least through the middle of the year as equipment cost fuel and driver wages are all up.
Ocean freight is still over priced and although it is not a large percentage of our transportation costs.
We still have to remain vigilant and obtaining reimbursement for these costs.
The third area is interest rates.
Federal Reserve.
Interest rate increases to fight inflation.
We have a very strong balance sheet and are not concerned with our financial position How's.
However, as we have learned in prior cycles. These officials tend to over correct over correct because they underestimate the time lag between action and market response.
We hope that they use prudence and patience.
And while higher rates will reduce the number of individuals who can qualify for a mortgage.
We believe those rates will further fuel demand for rental dwellings, rather than eliminating demand for housing.
And it is important to note that manufactured housing becomes relatively more attractive in a higher interest rate environment.
So our ability to serve both site built and manufactured housing provides a great balance to our construction segment.
The fourth challenge is the lumber market.
Discuss the elevated level of the lumber market pricing, which creates its own set of challenges.
We are taking a balanced approach in our inventory positioning and utilizing our natural hedge between our business segments to prevent one sided impacts to our overall business.
We are using our purchasing strategies to obtain our current supply without taking oversized market risk.
And our new MRO team is implementing its strategies as well.
With all of the exciting new business opportunities and the challenges of continuing our trajectory.
We rely on our ROI focused business model to keep enhancing shareholder value.
At the top of that list is capital allocation.
We prioritize capital on growth, creating long term value and providing a solid return to our shareholders.
In the growth area, we focus on strategic acquisitions, new products and services expansionary and efficiency capital expenditures.
With each business unit identifying targets and their runways the acquisition pipeline remains robust.
And we have substantially increased capital commitments for automation and technology and expect that trend to continue.
We are also utilizing more capital on Greenfield expansion as acquisition valuations in certain sectors preclude us from achieving our ROI targets via acquisition.
To enhance long term value, we will grow our investment in long term development through our innovation accelerator, which is designed to speed and enhance the return on investment in new products.
We will also invest in our facilities to provide a better employment experience reduced repair and maintenance costs and create a more efficient company.
And we returned capital to our shareholders in a few ways, including the cash dividend of <unk> 20 per share payable in March.
The board also authorized additional shares for our share repurchase program, bringing the total authorization to $2 6 million shares.
We will employ opportunistic share repurchases when appropriate to mitigate dilution from our share compensation programs.
Now I'd like to turn it over to Mike Cole, who will provide more details on our financial performance.
Thanks, Matt and good afternoon, everyone.
Our consolidated results. This quarter are highlighted by strong growth in our profitability improvements headlined by 25%.
Unit growth and 89% adjusted EBITDA growth.
Operating cash flow of $512 million $176 million ahead of last year.
<unk> balance sheet with only $50 million of net debt and liquidity over $800 million.
And our return on invested capital for the year of nearly 27%.
Now I'll review the financial statements for the quarter in more detail starting with our sales by segment.
Sales to the retail segment increased 39% and consisted of a 3% increase in selling prices unit growth from acquisitions of 34% and organic unit growth of 2%.
We anticipated a challenging organic growth comparison in Q4, when unprecedented demand in the fourth quarter of 2020 helped us grow unit sales by 38%.
The organic unit increase this quarter varied by business unit as increases in UFP edge and retail building products were offset by declines in decorators and outdoor essentials.
The results of our decorators business unit very bright product category with accessories reporting a decline of 21%, while our decking unit sales increased by 11%.
Capacity expansion contributed to our unit increases and decorators decking and UFP edge looking forward. The investments we made in these business units should add planned sales of nearly 100 million to retail in 2022.
Sales in the industrial segment increased 67%.
Which includes a 42% increase in selling prices as we continue to improve our value added product mix execute value based selling initiatives and maintain pricing discipline.
Our unit sales increased 29% as a result of our pellet one acquisition.
Organic unit growth declined 4% this quarter due to capacity constraints and as we continue to be selective in the business. We take in order to focus on higher margin value added products.
Strong execution of the sales strategy resulted in a tremendous improvement in our gross profits, which I'll review shortly.
Market share gains contributed sales of $25 million associated with new customers $21 million from new locations of existing customers and $18 million from new products This quarter.
These gains were offset by the loss of unit sales on less profitable accounts.
Finally, our sales to the construction segment increased 33% consisting of an 18% increase in selling prices, 13% organic unit growth and 2% contribution from acquisitions.
Organic unit growth was driven by a 38% increase in commercial 20% and factory built housing and 2% and site built housing.
Demand in our backlogs of business remained strong, which we believe will continue for the seeable future.
Capacity constraints on our site both business unit remain a challenge. Consequently, we continue to focus on being selective in the business, we take an exercise pricing discipline.
Moving down the income statement, our fourth quarter gross profits increased by $185 million or <unk>, 99%.
Outpaced our 25% increase in unit sales as our profit per unit improved.
By segment industrial gross profit increased by $75 million or a 152%.
Besides acquisitions, which contributed $23 million of the increase value based selling and favorable changes in product mix were the primary drivers for the increase in gross profits.
Construction gross profit increased by $76 million or <unk>, 98%.
Led by a $53 million increase in site built.
And then $11 million increase in each of factory built and commercial as each experienced strong organic unit growth, giving us the ability to leverage fixed costs.
Improvement in commercial is also a result of actions taken last year to reduce capacity to align with demand and implement value based pricing and other operational improvements.
Retail increased by nearly $4 million for the quarter entirely due to the businesses we acquired.
For the year lumber market volatility and an increase in our product mix of treated lumber contributed to a decline in our retail gross margins looking forward. We plan to continue to invest in development of new products innovation and core product lines and capacity expansion of key product categories, like decorators and edge to improve overall margins.
Continuing to move down the income statement, our SG&A expenses increased $91 million, including $10 million from recently acquired businesses.
Remaining $81 million.
Increase consists of a $54 million increase in bonus expense and $3 million increase in sales incentives, a $5 million increase in wages and benefits and a $3 million increase in travel costs.
Bonus expense this year includes payments to our hourly and production workforce totaling $50 million, representing an additional incentive on top of our usual programs.
Sequentially, our SG&A increased from $170 million in Q3 to $178 million in Q4 due to bonus expense as a result of an increase in our pre bonus operating profit.
Finally, our operating profits increased from nearly $107 million.
Increased nearly $107 million, primarily due to a $61 million increase in construction and a $45 million increase in industrial.
Acquisitions contributed $20 million to the operating profit increase in industrial and 24 million to the increase in its EBITDA.
Moving on to our cash flow statement, our cash flows generated from operations for the year was $512 million and consisted of net earnings and noncash expenses totaling $655 million compared to $339 million last year.
And $143 million increase in net working capital since the end of last year compared to a $3 million increase in the prior year.
We measure our cash cycle to assess our working capital management and an increase to 57 days this year, which is consistent with our historical trends with 12 days higher than last year. When they were widespread inventory shortages due to the pandemic.
Our investing activities included capital expenditures totaling $151 million, including expansionary and efficiency capex of $82 million.
Notable projects include expanding our capacity to produce our decorators composite decking products and our <unk> siding pattern and trim products, expanding our machine the pellet capacity and taking advantage of automation opportunities.
We also invested 460 $476 million and previously announced acquisitions.
Lastly, our financing activities include $40 million of dividends paid this year and our board recently approved an increase in our first quarter dividend to <unk> 20, a share a 33% year over year increase reflecting confidence in our business outlook.
With respect to our balance sheet at the end of December our total debt net of cash was only $50 million and our total liquidity was 805 million consisting of surplus cash of $270 million and $535 million in availability under our revolving credit facility.
The strength of our cash flow generation and balance sheet provides us with plenty of capital to grow and to return to shareholders.
Capital expenditures and business acquisitions continue to be priorities based on the number of opportunities we have and the strength of potential returns we see.
More specifically with respect to capital allocation.
We're planning to continue paying dividends at the increased rate of <unk> 20, a quarter.
Our board continues to consider our payout ratios and yield when determining the appropriate rate.
We will continue to target share buybacks based on the amount we issue under our share based compensation plans and when the price reaches our target.
Our board recently authorized an increase in our share repurchase program and we have authorization to purchase up to $2 6 million shares.
We're targeting capital expenditures of $175 million to $225 million, which is much higher than last year, reflecting the number of opportunities identified in our business units and a focus on enhancing the working environments of our plans for employees.
Priority continues to be given the projects and strategies that have strong long term growth potential in areas, we have competitive advantages, new and value added products automation opportunities and of course, our ability to hit targeted financial metrics.
Notable projects include investments to expand the capacity of our decorators business unit expand UFP edge geographically enhanced automation and expand the capacity of our machine build pallet and other structural wood packaging operations enhanced automation and expand the capacity of our site build operations, including geographically.
And expand our transportation fleet to meet our customers' needs.
We believe these and other investments along with our strategies to increase market share will help us achieve our long term goals to grow our annual unit sales by 5% to 7%, we anticipate smaller tuck in acquisitions will continue.
Continued to contribute towards that goal.
Achieve and sustain a 10% EBITDA margin by continuing to enhance our capabilities and grow our portfolio of value added products.
And earn an incremental return on new investment over our cost of capital.
Thats, all I Havent financials, Matt.
Thank you Mike now I'd like to open it up for any questions you may have.
Thank you as a reminder to ask a question you will need to press star one 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 Keith <unk> with BMO capital markets. Please go ahead.
Thank you and good afternoon.
And a big congratulations to the entire <unk> team.
Thanks Judy.
Maybe first question just sticking on that point can you talk about sort of.
The thing that you guys have done over the last couple of years really heads.
Navigate such extreme volatility in lumber prices that <unk> 9 million in the past it used to be a bigger kind of short term issue.
But over the last two or three quarters, we've seen very high lumber prices, we saw a sharp drop and then we've seen a value, but you guys have kind of deliver that so just thoughts sort of full of tiki points, Mike or Mike.
Sure Keith I think I got to give all the credit to our experienced operations team, both our purchasing group as well as the segments for really working together well to help balance their inventories to anticipate the changes in the market.
I think their ability to manage through it is the number one reason behind the success.
I would point also to our balanced business model.
We talk a lot about fixed price products variable priced products and how we have a natural hedge and I think you've seen that very very apparently over the last couple of years, where you saw at times, where retail was.
<unk> very very well in the other units struggled a little bit more in this past year, you've seen the reverse of that but overall the balance in the business has really helped us perform exceptionally well.
Sure.
Got it that's helpful and then maybe switching to decorators.
Can you talk a little bit about <unk>.
Got it a little bit for us in terms of.
<unk> being down 31%.
<unk> up 11%.
What drove that kind of diversion.
And then you know kind of what is your expectation for volume growth.
In 2022 and decorators.
Yes, I think Kate in the <unk>.
<unk> for the the lattice in particular in some of the other accessories is if you look at it on a full year basis year over year, it's a little different depend.
Depending on how the original stocking orders went we were pretty heavy in the first half of the year in 'twenty, one and then not much in the second half. So I think there was a little bit of bumping. This in those particular numbers I think overall demand is still strong.
With respect to the decorators decking products.
We've had some capacity constraints, there, which we're doing our best to alleviate and the good news is is that there's just a really strong customer demand out there that we're trying to fill.
And as I've said before I think our mineral based composite technology is the best thing out there and we're really looking forward to growing that and add new products as well.
Understood and then as you look at sort of your broad retail.
Portfolio.
Okay.
Do you see.
Channel inventories at this point, especially the ones that go through the big box channels.
Yes, I think it's always a little bit challenging keating to figure out how much inventory is in the channel and our purchasing people again to a very good job of sorting through that information and I think theres kind of.
People are well stock.
The takeaway during the first quarter and early second quarter will kind of determine.
How the year shapes up, but I would say right now.
The market is fairly balanced and we just need to kind of see how it what the takeaway it looks like.
Understood and Mike on share repurchases out of the $2 6 million authorization can you just remind us how much how many shares you've already seen.
Purchased.
Oh, that's the net $2 6 million is the total amount that we have available so any any amount that we've previously repurchased has already been backed out of that amount.
Understood got it that's very helpful. I'll turn it over good luck.
Thank you Keith.
Thank you. Our next question will come from Stanley Elliott with Stifel. Please go ahead.
Okay, everybody. Thank you guys for taking the question.
Thanks Stanley Stanley.
Congratulations.
Quick question on a lot of investments you guys are making.
Automation side to improve the productivity.
Curious kind of what sort of pushback you're getting from the.
The machine orders and things of that nature, just given how.
Jumped up some of the supply chains are being <unk>.
What impact if any do you think thats going to have on your ability to push through some of these high return projects this year.
Yes, it's a great question Stanley I think you're dead on and I think our ability to implement all of the things that we want to do this year is going to hinge.
Very tightly on what these manufacturers are able to provide for us. So we expect there to be some spillover, we won't be able to get everything done that we have hoped to get done this year. So.
It will probably spill into 'twenty, three but we're definitely committed to continuing on this journey and making ourselves stronger and helping our employees make their lives a little easier.
Okay.
The new product piece, you tightened the criteria, maybe a little bit more color on that.
Matt.
Then also just kind of help me.
It looks like the debt business I think it's going to grow double digits.
You just want to make sure that I was thinking about the correctly and kind of what led to the tightening of that criteria.
Yes, you are.
The calculation is exactly right, we're looking at double digit growth.
And one of the things when we first started on this new product path, but we recognize that we wanted to really get everyone involved in participating in driving new products. So we created a fairly broad net.
In order to qualify as a new product now.
Now we've added margin targets kind of length of time.
And other production metrics that we're looking at to make sure that all of the new products are in fact really going to help drive our bottom line performance.
No.
It's tougher to get in as a new product going forward, but we're very confident that we'll have enough and it's going to be they're going to be really strong products.
Perfect Thats it for me I'll turn it over congratulations best of luck. Thanks.
Thanks, Shannon and thank you.
Thank you. Our next question will come from Reuben Garner with benchmark company. Please go ahead.
Sure.
Thanks, Good afternoon, everybody and congrats again.
Everyone is already set up a congrats on the year very very impressive results.
The improvement in this room.
The.
More on the investments you mentioned expanding geographical reach in a couple of.
Of areas can you can you kind of <unk>.
Elaborate on that UFP edge and in the company.
Alright, I'm sorry, the site built operations is that expanding into entirely new markets with your capabilities there or is that just kind of broadening your reach in an existing.
Geographical region that you're in.
Sure, Yes, so on the USPI side as you recall, that's more of a newer business unit for us and we're very excited about the growth pattern there.
We completed out our first major facility.
Improvement.
Just in Q4 and now we're driving for additional capacity in the southwest.
This year and then next year it'll be probably more in the northeast market or somewhere in the east area. So that's really just the geographical spread to help with distribution.
With respect to the site built group, we're looking there at all call adjacent geographies that we feel have good long term growth potential.
It's not that we're going into a radically new territories, but we're going to areas that we believe will have a good solid run they are not overvalued, so kind of consistent with where we are in our other markets.
Okay, Great and do you I mean is that an area where is that one of the items that may get pushed out into 'twenty three I've heard that it's it can be difficult to get the equipment that you need for those.
Operations is that fair.
Do you assume that's one of the tougher one.
If I could answer that question for you Ruben I would I don't I don't know for sure.
Particular equipment manufacturers is going to be a problem and I don't know, how we can leapfrog to the front of the line with the other companies that you're covering.
But if we can we will try to sneak in front of them.
Got it.
Let's see and then you mentioned <unk> is a relatively new business line I wanted to ask about the <unk>.
Targets I think each business unit.
In time supposed to get to a $500 million revenue number is there a time horizon on that and then with some of the categories like UFP edge in the home and decor ones would those be the most likely areas that we would see kind of M&A help to make that happen I guess, how much of that would.
Organically driven and some of the new products you launched at the builder show versus.
Bolt on M&A to your existing portfolio.
Yes, that's a great question. So yes, there is a time horizon and no. We haven't told you what it is yet but.
Believe me, we are pressing our business unit leaders to drive that as quickly as possible.
I would tell you that the strategies may be slightly different.
We are looking more of an organic model with UFP edge.
We talked about the additional facilities and the plans there fairly easy for a diagram, how we get to our targets that way.
With the handprint kind of home decor stuff little more challenging to try to draw that pathway and I would think that acquisitions might be part of that as well as in the protective packaging space, that's more likely to require additional acquisitions as well.
Perfect.
From a sneak one more in if I can.
The the culling of business I don't know if thats. The term you used but maybe focusing on the most profitable areas given how tight.
Your capacity as have.
Have we kind of gotten past the vast majority of that and maybe we start to see.
Unit growth again in that particularly in the industrial side or is there more of that to go.
Yes, I think.
It's probably a little bit mixed and it's tough to give you a good read on that so.
As I discuss sticks and panels converting those to actual designed engineered and manufactured product using mixed materials that probably ends up being a different kind of unit change. So it doesn't compare well, but it's actually a better sale for us and it's better for the customer so that's it.
Difficult to kind of talk about unit sales growth there because it's a little apples and oranges.
Great. Congrats again, guys and good luck on that.
Setting a new bar.
Thanks Ruben.
Thank you and our next question will come from Kurt Yinger with D. A Davidson. Please go ahead.
Great Thanks, and good afternoon, Mike.
Hey, Curt Hadrian.
<unk>.
Really strong last couple of months for lumber.
Kind of coinciding with when I think you are typically building some inventory on the pressure treated side. So could you just talk about how you're approaching that.
If there is any actions you are taking or how youre thinking about maybe trying to mitigate any risk.
Associated with <unk>.
Correction that may or may not come in lumber prices in the spring.
Well, yes, it's such a great question you actually gave the answer in your question. So I'm not sure how much more you need from me, but we're trying to follow your advice there Curt we're trying to be cautious about it we are obviously well aware of the situation there and again im leaving it to a real talented leadership.
Teams to help drive that but your observation is correct.
There wasn't a big opportunity to take a huge position early on and so I think as we look at the tea leaves here, we are using our our programs that we have had in place for a while to help mitigate any downside risk.
And again, we rely on our balanced business model to help us through it.
Okay.
I mean kind of thinking back to the third quarter.
I think.
Spartanburg.
Sunbelt kind of were particularly hit hard when lumber rolled over and I believe at the time.
Part of that was perhaps them, taking heavier inventory position than you typically would as I mean.
There have been any changes to that or is that just kind of structurally how those businesses run versus.
How you approach pro wood.
No.
Thank Kurt working together with our teams.
I think they have they have.
Positioned themselves differently.
They are in a better position than they were before.
We get to know each other better and evaluate the synergies we have as a company.
I expect that to continue to get better.
And they can utilize some of our strategies and programs to help mitigate some of the variations in the lumber market as well.
Okay, Alright, that's helpful.
And then I guess switching to the fixed product side I mean.
Typically you think sharp inflation lumber can create some pinch on margins there, but you had a really good Q2 really good Q4.
Maybe you could just help us think about what's been most impactful there in <unk>.
Construction and industrial in terms of your ability to offset or avoid that headwind.
With the kind of inflationary trend that we would expect to maybe be.
Problematic.
Yes, I think.
It's tough to say that Curt that thats.
All to the <unk>.
Management's credit in terms of how they manage through it I think there are been some absolute shifts in our product mix and other things that have helped us.
And I think frankly.
High level of demand has helped to drive it as well so I would say as long as that high level of demand continues.
We'll be in good shape, if that tapers off and then you may see some impact but.
Right now it appears to be fairly strong demand portfolio and the continued improvement in some of the strategies that each the industrial and the construction teams are doing.
He will help us enhance it.
Okay.
That makes sense.
And then.
Just on the price impact this quarter on the top line.
Lumber itself was kind of pretty flat year over year. In Q4. So is that just you passing along all of these other areas of inflation or.
Is it really all mix.
Just kind of help walk us through what's going on there and how we should think about that separate from whatever we're assuming on the lumber side going forward.
I consider that to be.
Heavy mix.
<unk>, but also <unk>.
<unk> impacts in labor in particular, and passing those transportation costs and other one.
Sure we pass those along but then also value based pricing.
Especially on the I think in the industrial side, we provide a lot of value to our customers.
I think the structure change is up to us understand that.
Modify our pricing models to make sure we get paid for that value that we add so all of those things I think contributed to the kind of price increases that you see.
And the numbers.
Got it okay. Thanks for that Mike.
And Mike.
Mike sticking with you I mean, I think you talked about a 10% EBITDA margin.
Which you were close to in 'twenty, one, but other wise isn't something I think we've really seen from the business. So is that kind of an explicit hurdle that you expect to kind of achieve or exceed going forward.
If so maybe you could just talk about some of the structural changes.
Why the business is different from a margin perspective today than what we've seen over the last couple of years.
As we've talked about before we've been on this kind of transformational journey to become more and more value added continue to.
Make sure we're focused on solutions for our customers and enhancing our capabilities to provide those solutions for a long time.
And frankly, we've internally we've had we've had 10% EBITA margin and on our mind for years and and now we're getting we're getting close and so we wanted to.
That a public goal and it's not necessarily what we think will complete right away, but it is a long term goal and its our goal to get there sustain it.
While still continuing to focus on.
Return on investment and all the other important metrics that we think drive shareholder value.
Got it okay.
Appreciate all the color guys and good luck here in 2022.
Thanks, Kurt Thanks Darren.
Thank you. Our next question will come from Julio Romero with Sidoti. Please go ahead.
Hey, good afternoon, Matt Mike <expletive> Thanks for taking the questions alright, okay.
Thanks.
Hey, So you guys are two years into the change in organizational structure could you just talk about how big of a driver thats been your results in 'twenty, one and what you've learned two years in.
Maybe any unexpected takeaways whether.
Good or bad that the structure has revealed so to speak.
Yeah, Julio I guess.
My perspective.
I've been pleasantly surprised and again I think.
You see it in the segments you see how they've been driving change.
We all expected it to things to move faster, whether that was new products or changes in the business, but again I give the credit to the segment leads the business unit leads for really jumping on board and driving this change and we can see it and you can see it as well the results of what happens.
When they are able to focus on specific areas and devote all their talent and their energy to it.
That part to me has just been incredible they've done a terrific job on that.
I think at the operational level each of the plants.
Jump right in and they have driven their business at the local level. They produce the product ship them delivered them, especially in these crazy Covid times.
And those local management teams have done an outstanding job as well and.
Obviously for us the backbone for these past two COVID-19 years has been the people who are willing to come in and make the products and ship them and get them delivered.
Those production leaders as well as the production employers employees and teammates.
They've really been outstanding and that's why we're so pleased to be able to give them the big bonuses they deserve.
Got it.
I guess my second question is it's certainly been a really strong year performance wise I guess, what keeps you up at night, what do you see as the biggest Frisco variables as you head into 'twenty two Matt I think you talked about labor freight and even interest rates.
Yes, what do you see as your biggest near to medium term.
Risk operationally.
Yeah from an operations perspective it is.
I called out the challenges I think we we have strategies to try to deal with those challenges.
The things that we don't control that.
That are the things that we.
We have to figure out how to react to.
And for.
From my perspective, there is not much we can do about that and we count on the experience that we have with our leadership team to deal with those types of issues, but.
Inflation interest rates.
Policy decisions are being made those are the things that challenge us and those are things that it's difficult to prepare for because we're just not sure which way people are going to go with that.
Got it thanks for taking the questions and best of luck in 'twenty two.
Thank you.
Thank you. Our next question will come from Jay Mccanless with Wedbush Securities. Please go ahead.
Hey, guys. Good afternoon, Thanks for taking my question.
Okay I got several of them.
Rental rate through the I guess the first one.
What are you all seeing in terms of absenteeism at the plant due to Covid is that starting to improve yet or any any color you can give there.
Yes, I can't really give you that information on a local level because I don't have it but I can tell you anecdotally that I would say our teams have done tremendous job of working through that.
While it has been problematic I'm sure for each facility at one time or another they have really done an incredible job of managing through it. So I don't think thats had a huge impact.
Okay.
And then I guess, if we think about.
Since the beginning of the year.
You said the backlogs were good in full for both MH and site built at year end.
Have you been able to work those down or get the day shortened on those.
As you've moved through the first six weeks of 22.
Yes, I haven't gotten any additional information on that Jay from where we were at year end.
Anecdotally again is all I can tell you and I think there is still very strong.
Okay.
And then the next question Mike.
I know that there were some onetime bonuses, but what was the new acquisitions. This past year. What do you think the run rate quarterly SG&A, what should be the base number there.
Yes Jack.
So as we've talked about before.
You need to pull bonuses out of out of the SG&A number and that was a little over $50 million in the in Q4.
That's going to be about 20% of pre bonus operating profit.
We accrue and thats tends to be where we land.
The rest of the SG&A SG&A, then I think should remain pretty consistent from from this quarter to the next.
So it is a $124 million or so.
In February at the time, when we give annual raises so I think maybe 50% or so of our of our SG&A costs as wage related.
And then you would want to put a wage increase on top of that so.
With that I think that would be a pretty good pretty good place to start.
Okay great.
Yes.
And then some on that.
Question your competitors and decorators have talked to Bell <unk>.
Their belief that market share for composite has moved up into the low <unk>.
Yes.
Would you guys say that that is accurate and from your standpoint.
And also you look at decorators decking was up 11% in the quarter versus pro would being up only 1% and sales.
I mean is that is that real market share gains or is that just pro would having a much larger base to grow to get to that 1%.
Yes, I think there may be some market share gain Jay but I think your latter point is.
More correct. One if you just kind of look at total volumes of each.
The treated lumber volume for us anyway is substantially greater than the composite market. So.
We still we still look at it long term I think the area that we look at in terms of market share gains comes in what I would call the lower end of the composite.
Space.
When we called out trailhead, which is our entry level with.
Wood plastic composite product sale.
We're seeing growth there and if lumber prices are very high than the exchange between the high high price lumber and the low price composite is not as great.
I mean are you already starting to take some shelf space away from lumber with destroyed brought up.
I think the way you look at it in terms of store space I don't I don't think Thats, certainly not that that drastic of a market share change.
So you are talking in the one or two to.
3% kind of share shift, which is baked volumes, but in terms of store space, it's not significant.
Interest.
And then my last question so on industrial.
Knowing that organic growth was down year over year, I mean, we've heard a lot more complaints lately about domestic freight lean issues about the lack of drivers like you talked about.
The lack of railcars in Canada was a new one but I guess, if we can get some of these supply chain hurdles domestically.
Fixed <unk> improved should that be a tailwind to organic unit volumes for industrial.
Yes, we would certainly hope so I think.
I think the impact of Covid on the manufacturers who are our customers.
I don't have a great handle on what that is.
But I know there as we called out some appliance makers that have very long lead times.
And.
If they if they are constrained by labor, that's probably not going to do a whole lot to help those lead times, even if transportation gets fixed.
But.
I don't know that for certain.
Okay, great. Thanks, Kim Alright.
Alright. Thank you thanks Jay.
Thank you and we do have a follow up question from Kian <unk> with BMO capital markets. Please go ahead.
Thank you just a couple of quick ones.
On the fiber side and then when you talk about getting into new.
New geographies in the past you've talked about.
You've seen maybe from some of these boom and bust markets.
As you look at kind of how the housing demand is.
Evolving.
Any change in thinking around that.
There isn't any change in mean not wanting to go into boom and bust markets.
And the expansions that we're talking about are not going into historical boom or bust markets.
I think what we are looking at is kind of transformational shifts in population and demographics.
And trying to make sure that we're in those areas that have really good long term growth prospects.
So I think that's that's probably a difference it's not a shift in our strategy.
Got it that's helpful and then.
Mike.
The sales in 2020 one in dollar millions.
Decorators business unit.
It's more than just the decking was $260 million I think roughly.
Got it that's perfect. That's all I had thank you guys.
Okay. Thanks Keith.
And speakers I'm showing no further questions in the queue. At this time I will turn the call back over to you for any closing remarks.
Well thank you.
<unk> been running in 2022, and we're very excited about what the future holds as you can tell.
As we look ahead, we see more and more opportunities.
Our new segment structure has made us faster and deeper.
And we're going to build on this foundation to create even more value.
And in 2022, we will innovate.
Our interests are aligned with the shareholders. Because we are shareholders. We look forward to meeting the challenges head on and breaking more records in the future.
Thank you for your time today and thank you for your investment in Us have a great day.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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