Q4 2024 UFP Industries Inc Earnings Call
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Speaker Change: Good day and welcome to the Q4 2024 UFP Industries, Inc. earnings conference call and webcast. At this time, all participants are in a listen-only mode.
Speaker Change: After the speaker presentation, there will be a question and answer session.
Speaker Change: To ask a question during this session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised.
Speaker Change: To withdraw your question, press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Stanley Elliott, Director of Investor Relations. Please go ahead. Thank you.
Stanley Elliott: Good morning, everyone, and thank you for joining us to discuss our fourth quarter and full year 2024 results.
Speaker Change: Joining me today on the call are Matt Missad, our Executive Chairman of the Board, Will Schwartz, our Chief Executive Officer, and Mike Cole, our Chief Financial Officer.
Speaker Change: This conference call is available simultaneously to all interested investors in news media through the investor relations section of our website, uspi.com. A replay of the call will be posted to our website as well.
Speaker Change: Before I turn the call over, 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.
Speaker Change: These statements are subject to risks and uncertainties that could cause actual results to differ materially from expectations. These risks and uncertainties also include, but are not limited to, those factors identified in the press release and in the company's filings with the Securities and Exchange Commission. I will now turn the call over to Matt.
Matt Missad: Thank you, Stanley, and good morning, everyone. We appreciate you joining us for our fourth quarter and year-end 2024 earnings call.
Matt Missad: In recognition of basketball season, this morning's call will feature a three-man weave.
Speaker Change: I will give a brief overview of Q4, then I will pass the ball to our new CEO, Will Schwartz, who will talk about our markets and plans for 2025 and beyond.
Speaker Change: Will will pass to Mike Cole for a more detailed financial discussion before we open the line for questions.
Speaker Change: The fourth quarter of 2024 saw a similar declining sequential demand trend in most areas of our business.
Speaker Change: This continued weak demand decreased operating efficiency and increased competitive pressure.
Both of these factors compressed operating profits.
Speaker Change: In response to these trends, our leadership team have been executing the cost reductions and facility reductions we outlined in Q4.
Speaker Change: They are also identifying and planning for additional cost containment and prioritization of projects and administrative initiatives to ensure that those that are not mandated by regulations or higher risk factors are implemented based on the highest return to the company.
Speaker Change: And in spite of these challenges, the team finished 2024 with sales of $6.7 billion and EBITDA of $682.3 million.
A 10.3% EBITDA margin.
Speaker Change: More importantly, the balance sheet is exceptionally strong, with nearly $1.2 billion in cash and an equivalent amount of debt capacity.
Speaker Change: This liquidity positions the company to aggressively pursue its growth strategy as well as to take advantage of more reasonably priced M&A opportunities should they arise.
Speaker Change: It also allows us to continue returning capital to shareholders in the form of cash dividends and share repurchases. Our teammates are not happy with the overall performance, which they feel personally in the decline in their incentive compensation.
Speaker Change: This, however, is consistent with our philosophy to reward our team when business is great and to share the pain when it is not.
Speaker Change: Obviously we are all highly motivated to improve the results and drive shareholder value to new heights.
Speaker Change: As you can imagine, our leadership team, like Queen and David Bowie, feels the pressure coming down on them.
Now I'll turn it over to Will Schwartz.
Thank you, Matt, for the kind words.
Will Schwartz: Good morning, everyone, and thank you for joining us on our fourth quarter earnings call.
Speaker Change: I'd like to start by saying that I couldn't be more honored and proud to be entrusted with the CEO role. UFP has an incredibly rich history, having celebrated our 70th anniversary earlier this month, and I look forward to shaping this next chapter.
Speaker Change: I also want to thank Matt for his truly remarkable career and the impact he's had on transforming UFP over his 39 years with the company and 13 plus years as CEO.
Speaker Change: I am indebted to him for his leadership, mentorship, friendship, and support, as well as the support of our board and over 15,000 plus employees across the globe. I couldn't be more excited about the opportunities that exist in each of our business units.
We entered 2024 somewhat cautiously.
Speaker Change: Expecting total unit sales would range from slightly positive to slightly negative for the year.
Speaker Change: That framework largely played out. Fourth quarter unit sales were relatively unchanged in the quarter with 2% growth in construction and 1% growth in international offsetting a 1% decline in our packaging business and flat sales in our retail segment.
Unit sales declined 1% for the full year.
Speaker Change: 2024 proved to be more challenging than initially expected, more so on the pricing side and we felt these challenges primarily across our packaging and construction businesses.
Speaker Change: With the exception of Pallet One and Factory Built, conditions in the second half of the year took a step down where broad-based pricing pressures, commodity deflation, and negative manufacturing variances in product mix impacted our profitability.
Speaker Change: As we mentioned over the past few quarters, customer demand continues to be mixed. However, our broad-based portfolio has allowed us to dampen some of the in-market volatility.
Speaker Change: While down from 2023 levels, 2024 EBITDA margin is 300 basis points higher than 2019 levels. This portfolio of products can and will deliver better results, and we are actively addressing items under our control.
Speaker Change: Looking ahead, driving profitable growth will remain a key part of our overall strategy.
Speaker Change: We have identified runways across each of our business units that meet our high return threshold and continue to act on both inorganic and organic opportunities. We're going to be aggressive in gross sales, but we are going to grow the right sales.
Speaker Change: Our M&A team remains extremely active and our acquisition pipelines are healthy. The valuation gap we've seen over the past several years between buyers and sellers has started to narrow. However, we remain disciplined on what we're willing to pay.
Speaker Change: Earlier in January, we announced the acquisition of C&L Wood Products, a leading manufacturer of wood pallets in Alabama. We are excited to welcome C&L into the USP family.
Speaker Change: CNL will operate as part of UFP Packaging's Pallet One business unit and expands our geographic reach.
Speaker Change: Expanding into new geographies or expanding our product offerings or both are key criteria when identifying acquisition targets across all of our business units.
Speaker Change: We prefer M&A to greenfield expansion in most cases, but that being said, we have identified a number of greenfield opportunities as part of the $1 billion multi-year capital plan mentioned on previous calls.
Speaker Change: We are investing heavily in automation, technology, new product development, and capacity expansion that will leave us better positioned to create shareholder value. The strength of our balance sheet has allowed us to deploy growth capital across our highest growth and highest margin opportunities.
Speaker Change: We can do this while maintaining our conservative financial structure, which we believe positions us well to navigate through all phases of an economic cycle.
Speaker Change: New product sales for 2024 came in at 505 million and 7.6% of sales.
Speaker Change: We continue to strive for and see a pathway for new products to become 10% of sales over time. I am extremely pleased with the momentum we are seeing across the portfolio and believe our current product pipeline is one of the strongest in our company's history.
Speaker Change: We will showcase some of these products at the IBS trade show in Las Vegas next week where we will introduce new products and new applications featuring our proprietary mineral based SureStone technology.
Speaker Change: One product that we are particularly excited about is our new Summit decking board. Designed and engineered utilizing our Shearstone technology, but at a price point to target the DIY and small contractor markets.
Speaker Change: This product will become available through both independent and big box retailers over the course of 2025 as we continue to expand distribution and manufacturing capacities.
Speaker Change: We will support the launch with a marketing campaign designed to help drive brand awareness for decorators and the value behind this proprietary technology.
Speaker Change: Meeting our internal, returnal, and capital targets drives all of our business decisions. We remain keenly focused on the cost side of our business.
Speaker Change: In 2024, we closed underperforming operations and other less strategic locations as we look to balance our costs with the current business environment.
Speaker Change: We will continue to evaluate the entirety of our portfolio and explore strategic alternatives for products and assets that fall short of our profit thresholds.
Speaker Change: Across the portfolio, we continue to identify opportunities to reduce costs and become more efficient.
Speaker Change: From purchasing and manufacturing to sales, marketing, transportation, we will pursue actions that drive a better bottom-line performance. We have already identified $60 million of structural cost savings from cost and capacity reductions, and these efforts are ongoing.
Speaker Change: At the same time, we will not stop making strategic investments to develop our growth runways, which we believe will enhance our product mix and improve our return to shareholders.
Speaker Change: These investments include expanding capacity in new and value-added product manufacturing, expanding our core, higher margin products geographically, and improving efficiencies and throughput while lowering costs through automation.
Turning quickly to the segments.
Speaker Change: Retail. Our product strategy is to grow applications on the exterior of the home and in the yard while also adding new applications inside the home. I previously mentioned new products expanding our position in the composite decking space where there is a cautious optimism around the spring building season.
Speaker Change: ProWood continues to identify cost out and facility consolidation opportunities while investing in its go-to-market strategies.
Speaker Change: In construction, our site-built business continues to normalize following years of robust demand. Our factory-built operations continue to capitalize on favorable industry conditions and our strong market position to drive share gains during the year.
Speaker Change: We took aggressive cost actions in our commercial business, and we anticipate improved financial results going forward.
Speaker Change: Concrete forming continues to position its business to more front-end design and value-added solutions. We think our value proposition will become even more apparent should construction labor see any volatility resulting from recent policy decisions.
Speaker Change: Packaging. Organic sales declines in our structural and protective packaging more than offset growth in our highly automated PalletOne business.
Speaker Change: Pricing remains competitive, more of a function of end markets. Material costs are generally stable.
Turning to our outlook.
Speaker Change: We expect the business conditions that impacted our 2024 results will carry over through the first half of 2025.
Speaker Change: Existing home sales remain depressed. Home equity levels remain at record levels.
and housing affordability remains a challenge.
Speaker Change: Industry forecasts remain mixed as well as with housing starts estimates for 2025 ranging from slightly down to slightly up for the year. R&R forecasts are also showing a lack of true consensus with headwinds expected to continue in the first half of the year before returning to growth in the back half.
Speaker Change: This outlook is further clouded by recent news around tariffs on Canadian lumber. While the industry imports less than 20% of lumber from Canada, any movement in the commodity creates inflation in domestically sourced wood species as well.
Speaker Change: While the 25% tariff on Canadian lumber has been paused for 30 days, the situation remains fluid.
Speaker Change: Regardless of the outcome, we remain confident in our ability to navigate any potential pricing resulting from tariffs with our balanced portfolio and purchasing strategies.
Speaker Change: Historically, softer patches in the economy have allowed UFT to utilize our scale, strong financial position, and generally lower cost manufacturing position to gain share in the marketplace.
Speaker Change: All of this uncertainty is contributing to a lack of visibility beyond the first half of 2025.
Speaker Change: We expect modest unit declines across each business unit on the aggregate through the first half of the year. We do expect commodity deflation to be less of a headwind to margins in the coming year given recent trends in the lumber market.
Speaker Change: Longer term, we are well positioned to take advantage of favorable demographic trends and an underbuilt housing market.
Speaker Change: We plan to take market share as well. A hallmark of this company is that everything we do, from the boardroom down to the shop floor, is driven by a returns-focused approach, and that will not change.
Speaker Change: We will manage through this uncertainty and emerge a leaner, more nimble, and more profitable company. At this point, I will pass to our CFO, Mike Cole, to discuss the financials.
Mike Cole: Thank you, Will. Our consolidated results this quarter include a 4% decline in sales to $1.46 billion, driven by a 4% reduction in selling prices while unit sales were flat.
Mike Cole: The decline in selling prices primarily resulted from weaker demand, which led to more competitive pricing in our packaging and construction segments.
Mike Cole: This headwind resulted in a 28% decline in our adjusted EBITDA to $133 million, while our adjusted EBITDA margin fell to 9.1%. While volumes and margins are seasonally lower in Q4, persistent competitive pricing pressured margins more than typical trends.
Mike Cole: Importantly, we were able to deliver an adjusted EBITDA margin for the year of 10.3 percent, well above historical levels in spite of demand and pricing challenges throughout the year.
Mike Cole: Similarly, our return on invested capital was resilient at 18.3%, which is almost two times our weighted average cost of capital and well above historical levels, highlighting the strong returns our business can achieve even when faced with more challenging market conditions.
Mike Cole: We continue to generate strong operating cash flows, which totaled $643 million for the year, and our balance sheet continues to gain strength with a cash surplus that's grown to almost $1.2 billion, providing us with ample flexibility to pursue our financial and strategic objectives as we move into 2025 and beyond.
Moving on to our segments.
Mike Cole: Sales in our retail segment were $525 million, flat compared with last year, consisting of a 1% decline due to transfers of certain product sales to the packaging segment, offset by a 1% increase in unit sales.
Mike Cole: The unit increase was comprised of a 3% increase in volume with big box customers, while our volume with independent retailers declined by 7%. By business unit, we experienced a 1% unit increase in ProWid offset by a 2% decline in Edge and a 4% decline in Decorators.
Mike Cole: Within Deckorators, our decking sales increased 20%, driven by our SureStone decking product, which increased 43%.
Mike Cole: SureStem, which comprised 55% of our total composite decking sales in this quarter, will continue to benefit from our efforts to expand distribution, bring on new capacity, and increase our marketing efforts.
Mike Cole: Our year-over-year gross profits and gross margins in retail improved, primarily due to favorable changes in our ProWid product mix.
Mike Cole: due to skew rationalization and the sustained impact of operating improvements we've discussed throughout the year. Operating profits in retail improved by $7 million as a result of the improvement in gross profit and a $6 million decline in SG&A as a result of lower compensation costs and bonuses.
offset by an increase in additional Surestone advertising costs.
Mike Cole: Moving on to packaging. Sales in this segment dropped 9% to $375 million consisting of an 8% decline in selling prices and a 2% decrease in units, partially offset by a 1% increase as a result of the transfer of certain sales from retail.
Mike Cole: Customer demand in this segment remains soft and that's contributed to a more competitive pricing environment as we execute our strategy to gain market share.
Mike Cole: We also had an unfavorable change in product mix this quarter, as our largest and most profitable business unit, Structural Packaging, experienced the greatest decline in volume.
Mike Cole: As a result of these factors, year-over-year gross profits dropped by $21 million for the quarter and gross margin dropped by 360 basis points.
Mike Cole: Operating profits in the packaging segment declined by 23 million to a total of 20 million for the quarter due to the decrease in gross profits and 5 million dollars of impairment charges associated with plant closures and capacity reductions reflected as a separate line item in the income statement below SG&A.
Mike Cole: Year-over-year SG&A expenses declined by only $4 million for the quarter in the packaging segment.
Mike Cole: However, it's important to note that prior year SG&A included a $5 million adjustment to reduce annual accrued sales incentives and a $3 million adjustment to reduce an earn-out liability.
Mike Cole: Excluding these amounts SG&A declined by 12 million year-over-year primarily due to lower bonus and bad debt expense.
Mike Cole: Turning to construction, sales in this segment decreased 5% to $487 million as a 7% decline in selling prices was partially offset by a 2% increase in units.
Mike Cole: The increase in volume was due to our factory-built and concrete-forming business units. These increases were partially offset by declines in our site-built and commercial units due to weaker demand.
Mike Cole: The 19% volume increase in our factory built unit was due to an increase in industry production and market share gains.
Mike Cole: The increase in concrete forming was due to market share gains.
Mike Cole: Selling prices fell in each of our business unit with the greatest impact in our site built unit.
Mike Cole: Gross profit decreased by 33 million year-over-year, with gross margin down 560 basis points, driven by the decline in selling prices and a less favorable product mix, as SIPO comprised a lower percentage of our overall sales.
Mike Cole: When combined with an $11 million decrease in our SG&A due to lower bonus expense, our operating profits declined by $22 million to a total of $36 million for the quarter.
Mike Cole: As we manage through this cycle, we're mindful of our cost structure and working to find the right balance of making sure the company is appropriately sized relative to demand, while still investing in the resources needed to achieve our long-term objectives for growth.
Mike Cole: Product Innovation, Building Brand Awareness, and Improving Our Efficiency Through Technology.
Mike Cole: Our consolidated SG&A expenses declined 15 million for the quarter due to a 24 million dollar decrease in bonus expense.
Mike Cole: The remaining increase resulted from prior year adjustments totaling $8 million that I mentioned earlier to reduce annual accrued sales incentives and an earn out liability.
Mike Cole: Additionally, current year increases include $3 million for decorators advertising and $2 million for severances.
Mike Cole: Looking forward, we've targeted an annual run rate of EBITDA improvements from cost and capacity reductions of $60 million in 2026.
Mike Cole: Our plan for SG&A expenses next year, excluding highly variable sales and bonus incentives tied to profitability, is $565 million.
Mike Cole: This is flat when compared with 2024 and is comprised of $26 million of anticipated cost reductions, offset by $6 million of planned increases, primarily associated with new greenfield operations, technology improvements, and product innovation.
Mike Cole: and a $20 million increase in our decorators' advertising spend as we invest in building the SureStone brand.
Mike Cole: In addition to the SG&A cost reductions, we've taken actions to reduce or eliminate capacity of locations that are not meeting our profitability targets.
Mike Cole: We anticipate these actions will have a favorable impact on gross profits totaling approximately $15 million in 2025.
Mike Cole: Based on the actions we've taken to date and opportunities for continued improvement, we're optimistic we will achieve our 2026 goal.
Mike Cole: Moving on to our cash flow statement. Our operating cash flow is nearly six hundred and forty three million.
Mike Cole: Last year our operating cash flow of 960 million was elevated and included a 288 million dollar reduction in networking capital as we adjusted to reduce our inventories from the peak demand of the pandemic.
Mike Cole: Our investing activities included $232 million in capital expenditures, comprising $124 million in maintenance CapEx and $108 million of expansionary CapEx.
Mike Cole: As a reminder, our expansionary investments are primarily focused on three key areas.
expanding our capacity to manufacture new and value-added products.
Mike Cole: Geographic expansion in core higher margin businesses and achieving efficiencies through automation.
Mike Cole: Investing activities also included the acquisition of C&L Wood Products, a manufacturer of machine-built pallets located in Hartsell, Alabama, which fills a geographic gap for our Pallet One business unit.
Mike Cole: Finally, our financing activities primarily consisted of returning capital to shareholders through almost $81 million of dividends and $159 million of share repurchases.
Mike Cole: For the year, we repurchased approximately 1.4 million shares at an average price of less than $114.
Mike Cole: Turning to our capital structure and resources, we continue to have a strong balance sheet with nearly 1.2 billion in surplus cash, while our total liquidity has grown to two and a half billion.
Mike Cole: Our liquidity includes cash and amounts available to borrow under our long-term lending agreements.
Thank you.
Mike Cole: With respect to capital allocation, we plan to continue to pursue a balanced and return-driven approach. As we've discussed in the past, our highest priority for capital allocation is to drive organic and inorganic growth that results in higher margins and returns.
Mike Cole: Our strategy also includes growing our dividends in line with our long-term anticipated free cash flow growth and repurchasing our stock to offset dilution from share-based compensation plans.
Mike Cole: We'll continue to opportunistically buy back more stock when we believe it's trading at a discounted value. With these points in mind, our board approved a quarterly dividend of 35 cents a share to be paid in December, representing a 6% increase from the rate paid a year ago.
Mike Cole: Last July our board approved another 200 million share repurchase authorization that expires at the end of July 2025. We've repurchased over 9,300 shares at an average price under $112 under this new authorization.
Mike Cole: With regard to capital expenditures, last year we indicated we plan to increase our investments to an estimated range of $250 to $300 million in 2024 to capitalize on the automation and higher margin growth opportunities we see in each of our segments.
Mike Cole: Our capital expenditures this year totaled $232 million, which was below our target as a result of longer lead times for equipment and the time needed for site selection in the case of investments in new locations.
Mike Cole: Projects approved in 2024 that will be completed in 2025 are expected to total $143 million. In addition, we currently plan to approve new capital expenditure projects in 2025, totaling approximately $350 million.
Mike Cole: Finally, we continue to pursue a pipeline of M&A opportunities that are a strong strategic fit while providing higher margin return and growth potential.
Mike Cole: As we pursue these opportunities, we will remain disciplined on valuation.
Mike Cole: I'll finish up with comments about our outlook for the first half of the year.
Mike Cole: We anticipate demand will be slightly down in each of our segments during this period.
Mike Cole: We believe this soft demand environment will also continue to result in more competitive pricing.
Mike Cole: Each of these factors should make for more challenging year-over-year unit sales and profit comparisons in the first half of the year.
Mike Cole: While some market indicators relevant to our business suggest conditions may improve from the first half of the year to the back half, we continue to approach the year with a sense of caution.
Mike Cole: With this uncertainty, we'll focus on things in our control to manage through these more challenging conditions in the short term, reducing costs, eliminating excess capacity, and divesting underperforming assets.
Mike Cole: while positioning ourselves for eventual improvements in market demand and executing our strategies to drive long-term growth and margin improvements.
With that, we'll open it up for questions.
Mike Cole: Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. One moment while we compile the Q&A roster.
Speaker Change: And our first question will come from the line of Kurt Yanger with DA Davidson. Your line is open.
Great. Good morning, everyone. Morning.
Kurt Yanger: I just wanted to start off with decorators and was hoping you could maybe level set us around, you know, any shelf space changes at the big box level and kind of the expected impact on growth here in 2025.
Speaker Change: as well as, you know, maybe more so initiatives on the pro side, including any strategies to maybe expand distribution.
Speaker Change: Yeah, that's a really good question, certainly one that we're extremely excited about. You've heard a lot about the SureStone technology and
Speaker Change: We will have placement in a big way. That product is currently making its way to the big box, and second half of the year it should be.
Speaker Change: in a big way in 1,500-plus stores. We continue to build on our capacities through the CapEx investments that we've talked about and are excited, so you'll see that really in the second half of the year come into play.
Thank you.
got it okay that makes sense and then
Just on the construction gross margins, in terms of...
Speaker Change: kind of the pressure versus the prior year. How much of that is really attributable to mix and factory built, the strength there versus site built? And then within site built specifically, is that mainly an unabsorbed fixed cost dynamic?
Speaker Change: or how would you kind of describe the competitive dynamics there and gross margins you're bidding today versus the last couple quarters?
Mike Cole: Mike, you want to take that one? Yeah, sure. So, your first question about kind of the price decline we've seen in construction and in how much of that is mixed related versus, you know, just pricing declines.
Mike Cole: It's hard to break that out, Kurt, without giving you additional insights into the margins for each business unit, which
As you know, we're reluctant to do.
Kurt Yanger: I would, there have been, if I just kind of stay at a high level, the pricing declines within Citeboat were very significant. We expect those to continue sequentially into the first half of the year.
Kurt Yanger: We don't feel like those are at a bottom, we don't feel like those are getting worse.
Kurt Yanger: The mixed impact is also significant. If I get into the details there a little bit, factory built carries a much different gross margin structure and operating margin than the site built area. The site built business unit is our highest gross margin and highest operating margin business. And so that is a prominent impact too. Sorry, I can't break it down further for you.
Kurt Yanger: And we expect that mixed, sequentially too I should say, we expect that mixed, that mixed impact to continue into the first half of the year too with site building down more than the manufactured housing group.
Kurt Yanger: Directionally, would you think that would be flattish as well or any kind of specific bonus elements we should be aware of going into next year?
Kurt Yanger: yeah you know the the kind of the core SG&A that the number I kind of guided to the five hundred sixty five million
Kurt Yanger: That's a number that, if you look at future quarters, that's a pretty fixed number from quarter to quarter. Q4 is...
Kurt Yanger: generally a little bit lower than the other quarters. When you get into bonus and sales incentives, I think the metrics we've given you in the past.
Kurt Yanger: are still good metrics. Bonus expense now I would say maybe 16-17% of pre-bonus operating profit that rates
Kurt Yanger: a little bit lower at the return on investment tier level we're at now. Sales incentives are still pretty well locked in at about 5% of gross profits.
Kurt Yanger: If you use the 565 and kind of spread it the way I'm suggesting and use those variable elements for bonus and sales incentives, you should get to a pretty good SG&A for the year. It just depends on how profitability and gross profit looks throughout 2025.
Speaker Change: Okay, perfect. Appreciate the call. I'll turn it over. Thank you. Thanks. Thank you. One moment for our next question.
Speaker Change: And that will come from the line of Keaton Mamtora with BMO Capital Markets. Your line is open.
Good morning and thanks for taking my question.
Speaker Change: Maybe to start with, on the packaging side, can you talk about what trends you are seeing both from a demand standpoint
Speaker Change: and, you know, sort of pricing competitive dynamics. Are you seeing signs of, you know, stabilization or, you know, are we still seeing those pressures continue?
Speaker Change: Yeah, it's a really good question. Certainly, from our perspective, there continues to be pressure. The takeaway in the market is down, as we've expressed, and we continue to expect that to happen for at least the first half of the year.
Speaker Change: We believe we've reached kind of a bottom when you come to pricing, but we also don't expect to see pricing increases until we see some more demand and a more robust takeaway. So, hope that kind of gives you what you're looking for there.
Yep, that's how it's supposed to be.
Speaker Change: Is it fair to say that adding one of those specials up might be an add-on to Keaton? There is a mix.
impact as well.
Speaker Change: The Pallet One group has performed better from a unit sales standpoint, taking a lot of share. The margin structure there is quite a bit different than on the structural packaging side. I do expect that to continue on sequentially as well, but I just don't want you to lose sight of the impact on mixed there as well.
Speaker Change: Got it. Now that's helpful. And then turning to the CAPEX program, Mike, can you remind us out of that $1 billion, what have you already kind of spent in 2024? And as we think about this year, how much is towards that kind of the $1 billion program?
Speaker Change: Yeah, the one billion program is largely intact. We went through our five-year planning cycle, just completed it here recently, and those numbers are still robust for future investment.
Speaker Change: of that, you know, billion. Last year, you know, we had said that we would approve, I think, somewhere in the neighborhood of $300 million.
Speaker Change: And we approved, actually, $330 million. We just didn't get much of a spend this year through the CapEx line, maybe as much as you would have expected, because so much of that relates to
Speaker Change: equipment purchases that have long lead times because of the sophisticated
Speaker Change: sophistication of them, but also greenfields. The time it takes for site selection and close on greenfield locations is much longer. So I had referenced a carryover CapEx number of
Speaker Change: well over $100 million. I think it was $140 million into next year and that's part of the reason why it's just the time it takes to get to closure on some of those projects.
Speaker Change: This year we have another 350 million that we expect to go through that approval cycle with and kind of fits into all those categories we had talked about before, you know, very robust decorator spend.
Speaker Change: really each of the business units in the packaging segment has a robust spend and cycle business unit stands out within the construction segment. Really all of our highest margin businesses.
You know the only thing I would add in
Speaker Change: is really that's a commitment to deploying that capital and that one billion dollars was really based around the inability for the M&A side based on pricing. You could see a pricing environment change on the M&A side that could affect that number but deployment of capital doesn't change.
Speaker Change: Got it. And then just one last one from me. As we think about our incrementals and decrementals and packaging and construction...
Speaker Change: As you made some of the, you know, footprint changes, you know, rationalization on sort of, you know, the cost side, what do you think is the right way to think about it now?
Speaker Change: Yeah, you know, Keaton, I think when I think about the times when we've guided to incremental and decremental in the past, and there hasn't been, you know,
Speaker Change: Robust changes in pricing, you know, up or down and and I think those those
incremental and decrementals are largely intact. I look at
Speaker Change: The construction side and the packaging side is kind of being more around that 20% range.
retail
Speaker Change: will be changing with the growth of decorators. That's probably more in the 15% range now, with pro would being as prominent as it is. So I think those are pretty good percentages to use going forward, because I don't see the pricing being as big an element of change. It's really more volume related, I think, at this point.
that can result in changes in those estimates.
Got it, that's why I'll turn it over. Good luck.
Speaker Change: Thank you. Thank you. Thank you. One moment for our next question.
Speaker Change: And that will come from the line of Reuben Garner with Benchmark. Your line is open.
Thank you.
Hi, Reuben.
Speaker Change: Kind of an interesting question or potential opportunity on the lumber side.
Speaker Change: wood source that might help offset some of the pricing and margin pressure or is that just not something that I know historically in certain geographical markets it's not been possible but we've heard it's been increasing of later. You guys seeing that and any chance to kind of accelerate it?
Speaker Change: Yeah, that's a really good question Reuben and yes, I think the answer is
I think
Speaker Change: Other species will be adopted based on pricing in the marketplace. Some of that's already happened over the last few years. You've seen a big transition of production further south and in southern Yellow Pine production, and I expect that would continue to be the case if we start to see pricing of other species. I think the adoption rate would grow.
Speaker Change: Okay, and then a follow-up on Decorators, whether it was in Q4 or throughout 2024, was there a noticeable difference in kind of the sell-through your customers were seeing and what you guys were selling into the channel? In other words, do you feel like they've...
Speaker Change: destocked over the last year. What does the channel inventory look like today?
Speaker Change: No, I can't really speak to any significant changes in that respect. The takeaway of our product is really good and we're excited about the product and product mix, but no, I really can't speak to that change in a significant way.
Speaker Change: Okay and then last one I'm going to sneak one more in on the CAPEX side. Any material changes to the way you're thinking about that either near-term or longer term?
I'm sorry Reuben, can you repeat that one?
Speaker Change: Yeah, on the capital expenditures side, any material changes into how you're thinking about investing, whether it be in the near term or longer term?
Speaker Change: No, we've over-weighted capital deployment for growth, and the CapEx commitment is as high as I've seen it in my career. Just lots of opportunities to expand existing facilities. The greenfield growth is very prominent.
But also the efficiency and automation spend.
Speaker Change: You know, when you look at greenfields in our core businesses, it's always possible to pivot to M&A. We haven't built that into the plan. We know we're going to deploy the capital, but if we see M&A opportunities, obviously we prefer that to greenfield if we can't. The opportunities just need to be there.
Speaker Change: Great, thanks for the detail and good luck guys, look forward to seeing you next week.
Thank you very much, appreciate it.
Thank you. Thank you. One moment for our next question.
Speaker Change: And that will come from the line of Jay McCandless with Wedbush. Your line is open.
Hey, good morning guys. Thank you for taking my questions.
Speaker Change: I guess the first one just to kind of talk about the cost saves and the strategic review you guys highlighted last quarter I guess is is the 60 million in cost saves by year-end 26 is that where the plan is now or there's still some larger actions you guys could take under under consideration
Yeah, I think that
Speaker Change: That's a constant evaluation and we constantly look at it and we are looking at it based on where business sits today. We'll continue to look for opportunities for efficiency gains.
SG&A savings, so that's an ongoing effort.
Speaker Change: Yeah, and so in my comments, Jay, you heard that we had
Speaker Change: around 41 million of actions we've taken to that we think will be improvements to 025.
Speaker Change: Alright, so those have been identified, we're actively working on that, and most, if not all of it, will occur in 2025.
Speaker Change: The $60 million we expect to get to by full year impact in 026, those have been identified and as Will said, we'll be working hard throughout the year to try to make sure we're executing on those so we get the full year impact in 026.
Speaker Change: Great, thank you. And then the next question I had on MH, sounds like things are going really well there. The industry had had a very good year with shipments, I guess.
Speaker Change: What are y'all seeing early first quarter, and broadening it out a little bit more. Have y'all seen any impact on concrete forming from some of these potential budget changes, things like that? Something we need to be thinking about on that line item.
Speaker Change: Yeah, I'll start with the factory built question. We still believe this is going to be a promising spot for us.
Speaker Change: The affordability is certainly a challenge today, whether it's interest rate related or just cost of building, and we believe that's a place that will continue to grow.
Speaker Change: We're excited about it, continue to invest there. Secondarily, I think it's too early on that concrete forming question to realize any of that, so more to come in the future, nothing to speak of today.
Speaker Change: Okay, great. Thanks guys. Appreciate it. Thank you. Thank you. I'm showing no further questions in the queue at this time. I would now like to turn the call over to Mr Will Schwartz for any closing remarks
Will Schwartz: Thanks again for joining us on the call this morning. Despite an uncertain first-half outlook for 2025, we remain confident in our strategies.
Will Schwartz: ingrained in our culture we use the term tough times tougher people. We look at challenging periods as opportunities to prove what we're truly made of. Thank you for your investment in us and have a great day.
Will Schwartz: This concludes today's program. Thank you all for participating. You may now disconnect.
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Will Schwartz: and Michael Cole and Michael Cole and Michael Cole and Michael Cole and Michael Cole
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Speaker Change: Good day and welcome to the Q4 2024 UFP Industries Inc. earnings conference call and webcast. At this time all participants are in a listen-only mode.
Speaker Change: After the speaker presentation, there will be a question and answer session.
Speaker Change: To ask a question during this session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised.
Speaker Change: To withdraw your question, press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Stanley Elliott, Director of Investor Relations. Please go ahead.
Stanley Elliott: Good morning everyone and thank you for joining us to discuss our fourth quarter and full year 2024 results.
Speaker Change: Joining me today on the call are Matt Missad, our Executive Chairman of the Board, Will Schwartz, our Chief Executive Officer, and Mike Cole, our Chief Financial Officer.
Speaker Change: This conference call is available simultaneously to all interested investors and news media through the investor relations section of our website, ufpi.com. A replay of the call will be posted to our website as well.
Speaker Change: Before I turn the call over, 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.
Speaker Change: These statements are subject to risks and uncertainties that could cause actual results to differ materially from expectations. These risks and uncertainties also include, but are not limited to, those factors identified in the press release and in the company's filings with the Securities and Exchange Commission. I will now turn the call over to Matt.
Matt Missad: Thank you, Stanley, and good morning, everyone. We appreciate you joining us for our fourth quarter and year-end 2024 earnings call.
Matt Missad: In recognition of basketball season, this morning's call will feature a three-man weave.
Speaker Change: I will give a brief overview of Q4, then I will pass the ball to our new CEO, Will Schwartz, who will talk about our markets and plans for 2025 and beyond.
Speaker Change: Will will pass to Mike Cole for a more detailed financial discussion before we open the line for questions.
Speaker Change: The fourth quarter of 2024 saw a similar declining sequential demand trend in most areas of our business.
Speaker Change: This continued weak demand decreased operating efficiency and increased competitive pressure.
Both of these factors compressed operating profits.
Speaker Change: In response to these trends, our leadership team have been executing the cost reductions and facility reductions we outlined in Q4.
Speaker Change: They are also identifying and planning for additional cost containment and prioritization of projects and administrative initiatives to ensure that those that are not mandated by regulations or higher risk factors are implemented based on the highest return to the company.
Speaker Change: And in spite of these challenges, the team finished 2024 with sales of $6.7 billion and EBITDA of $682.3 million.
a 10.3% EBITDA margin.
Speaker Change: More importantly, the balance sheet is exceptionally strong, with nearly $1.2 billion in cash and an equivalent amount of debt capacity.
Speaker Change: This liquidity positions the company to aggressively pursue its growth strategy as well as to take advantage of more reasonably priced M&A opportunities should they arise.
Speaker Change: It also allows us to continue returning capital to shareholders in the form of cash dividends and share repurchases. Our teammates are not happy with the overall performance, which they feel personally in the decline in their incentive compensation.
Speaker Change: This, however, is consistent with our philosophy to reward our team when business is great and to share the pain when it is not.
Speaker Change: Obviously we are all highly motivated to improve the results and drive shareholder value to new heights.
Speaker Change: As you can imagine, our leadership team, like Queen and David Bowie, feels the pressure coming down on them.
Speaker Change: Fortunately, I have seen them under pressure, and I am very confident that Will and the team, whose veins are like ice, ice, baby, will succeed in spite of the pressure.
Now I'll turn it over to Will Schwartz.
Will Schwartz: Thank you, Matt, for the kind words. Good morning, everyone, and thank you for joining us on our fourth quarter earnings call. I'd like to start by saying that I couldn't be more honored and proud to be entrusted with the CEO role.
Will Schwartz: UFP has an incredibly rich history, having celebrated our 70th anniversary earlier this month and I look forward to shaping this next chapter.
Will Schwartz: I also want to thank Matt for his truly remarkable career and the impact he's had on transforming UFP over his 39 years with the company and 13 plus years as CEO.
Speaker Change: I am indebted to him for his leadership, mentorship, friendship, and support, as well as the support of our board and over 15,000 plus employees across the globe. I couldn't be more excited about the opportunities that exist in each of our business units.
We entered 2024 somewhat cautiously.
Speaker Change: Expecting total unit sales would range from slightly positive to slightly negative for the year. That framework largely played out. Fourth quarter unit sales were relatively unchanged in the quarter with 2% growth in construction and 1% growth in international offsetting a 1% decline in our packaging business and flat sales in our retail segment. Unit sales declined 1% for the full year.
Speaker Change: 2024 proved to be more challenging than initially expected, more so on the pricing side, and we felt these challenges primarily across our packaging and construction businesses.
Speaker Change: With the exception of Pallet One and Factory Built, conditions in the second half of the year took a step down where broad-based pricing pressures, commodity deflation, and negative manufacturing variances in product mix impacted our profitability.
Speaker Change: As we mentioned over the past few quarters, customer demand continues to be mixed. However, our broad-based portfolio has allowed us to dampen some of the in-market volatility.
Speaker Change: While down from 2023 levels, 2024 EBITDA margin is 300 basis points higher than 2019 levels. This portfolio of products can and will deliver better results, and we are actively addressing items under our control.
Speaker Change: Looking ahead, driving profitable growth will remain a key part of our overall strategy.
Speaker Change: We're going to be aggressive and grow sales, but we are going to grow the right sales.
Speaker Change: Our M&A team remains extremely active and our acquisition pipelines are healthy. The valuation gap we've seen over the past several years between buyers and sellers has started to narrow. However, we remain disciplined on what we're willing to pay.
Speaker Change: Earlier in January, we announced the acquisition of C&L Wood Products, a leading manufacturer of wood pallets in Alabama. We are excited to welcome C&L into the USP family.
Speaker Change: CNL will operate as part of UFP Packaging's Pallet One business unit and expands our geographic reach.
Speaker Change: Expanding into new geographies or expanding our product offerings or both are key criteria when identifying acquisition targets across all of our business units.
Speaker Change: We prefer M&A to greenfield expansion in most cases, but that being said, we have identified a number of greenfield opportunities as part of the $1 billion multi-year capital plan mentioned on previous calls.
Speaker Change: We are investing heavily in automation, technology, new product development, and capacity expansion that will leave us better positioned to create shareholder value. The strength of our balance sheet has allowed us to deploy growth capital across our highest growth and highest margin opportunities.
Speaker Change: We can do this while maintaining our conservative financial structure which we believe positions us well to navigate through all phases of an economic cycle.
Speaker Change: New product sales for 2024 came in at 505 million and 7.6% of sales.
Speaker Change: We continue to strive for and see a pathway for new products to become 10% of sales over time. I am extremely pleased with the momentum we are seeing across the portfolio and believe our current product pipeline is one of the strongest in our company's history.
Speaker Change: We will showcase some of these products at the IBS trade show in Las Vegas next week where we will introduce new products and new applications featuring our proprietary mineral based SureStone technology.
Speaker Change: One product that we are particularly excited about is our new Summit decking board. Designed and engineered utilizing our Shearstone technology, but at a price point to target the DIY and small contractor markets.
Speaker Change: This product will become available through both independent and big box retailers over the course of 2025 as we continue to expand distribution and manufacturing capacities.
Speaker Change: We will support the launch with a marketing campaign designed to help drive brand awareness for decorators and the value behind this proprietary technology.
Speaker Change: Meeting our internal return on capital targets drives all of our business decisions. We remain keenly focused on the cost side of our business.
Speaker Change: In 2024, we closed underperforming operations and other less strategic locations as we look to balance our costs with the current business environment.
Speaker Change: We will continue to evaluate the entirety of our portfolio and explore strategic alternatives for products and assets that fall short of our profit thresholds.
Speaker Change: Across the portfolio, we continue to identify opportunities to reduce costs and become more efficient.
Speaker Change: From purchasing and manufacturing to sales, marketing, transportation, we will pursue actions that drive a better bottom-line performance. We have already identified $60 million of structural cost savings from cost and capacity reductions, and these efforts are ongoing.
Speaker Change: At the same time, we will not stop making strategic investments to develop our growth runways which we believe will enhance our product mix and improve our return to shareholders.
Speaker Change: These investments include expanding capacity in new and value-added product manufacturing, expanding our core, higher margin products geographically, and improving efficiencies and throughput while lowering costs through automation.
Turning quickly to the segments.
Speaker Change: Retail. Our product strategy is to grow applications on the exterior of the home and in the yard, while also adding new applications inside the home.
Speaker Change: I previously mentioned new products expanding our position in the composite decking space where there is a cautious optimism around the spring building season.
Speaker Change: ProWood continues to identify cost out and facility consolidation opportunities while investing in its go-to-market strategies.
Speaker Change: In construction, our site-built business continues to normalize following years of robust demand. Our factory-built operations continue to capitalize on favorable industry conditions and our strong market position to drive share gains during the year. We took aggressive cost actions in our commercial business, and we anticipate improved financial results going forward.
Speaker Change: Concrete forming continues to position its business to more front-end design and value-added solutions. We think our value proposition will become even more apparent should construction labor see any volatility resulting from recent policy decisions.
Speaker Change: Packaging. Organic sales declines in our structural and protective packaging more than offset growth in our highly automated PalletOne business. Pricing remains competitive, more of a function of in markets. Material costs are generally stable.
Turning to our outlook.
Speaker Change: We expect the business conditions that impacted our 2024 results will carry over through the first half of 2025.
Speaker Change: Existing home sales remain depressed. Home equity levels remain at record levels.
and housing affordability remains a challenge.
Speaker Change: Industry forecasts remain mixed, as well as with housing starts, estimates for 2025 ranging from slightly down to slightly up for the year. R&R forecasts are also showing a lack of true consensus, with headwinds expected to continue in the first half of the year before returning to growth in the back half.
Speaker Change: This outlook is further clouded by recent news around tariffs on Canadian lumber. While the industry imports less than 20% of lumber from Canada, any movement in the commodity creates inflation in domestically sourced wood species as well.
Speaker Change: While the 25% tariff on Canadian lumber has been paused for 30 days, the situation remains fluid.