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Universal Forest (UFPI) Q4 Earnings Up Y/Y on Sales Growth

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Building products company Universal Forest Products Inc. (UFPI - Free Report) reported impressive fourth-quarter 2016 results. The company’s earnings came in at $1.02 per share, up 9.8% from the year-ago tally of 93 cents.

For 2016, the company’s earnings were $4.96 per share, up 24.3% from $3.99 recorded in 2015.

Revenues

Universal Forest Products’ fourth-quarter 2016 sales totaled $859.6 million, increasing 31.5% year over year and exceeding the Zacks Consensus Estimate of $705.1 million. The improvement was driven by solid performance in the three markets.

Segmental Details: Universal Forest Products’ segmental sales sum up to total gross sales. In the quarter, the company’s gross sales totaled $869.9 million, up 32% year over year.

The three end market-based segments, namely, Retail Building Materials, Industrial, and Housing & Construction, represented approximately 31.7%, 36.6% and 31.7%, respectively, of the total gross sales. A brief snapshot of end-market sales has been provided below:

Retail Building Materials’ revenues of $275.7 million increased 19% year over year on the back of improved businesses from big box customers. Unit sales grew 11% in the quarter.

Industrial sales were $318.6 million, surging 52% year over year. The growth was primarily triggered by synergistic benefits from acquisition of idX Corporation (closed in Sep 2016) as well as healthy businesses from new and existing customers.

Sales in the Housing and Construction end markets were $275.6 million, up 225% year over year due to impressive businesses from residential construction customers.

For 2016, the company’s net sales were $3.24 billion, above the Zacks Consensus Estimate of $3.09 billion and up 12.2% year over year. New products sales improved roughly 28.9% year over year to $354.3 million.

Margins

In the quarter, Universal Forest Products’ margin profile suffered from higher costs and expenses. As a percentage of revenues, the company’s cost of sales increased 70 basis points (bps) to 85.8%. Gross margin decreased 70 bps to 14.2%. Selling, general and administrative expenses were roughly $87 million, accounting for 10.1% of net sales.

Balance Sheet & Cash Flow

Exiting the fourth quarter, Universal Forest Products had cash and cash equivalents of $34.1 million, below $36.7 million recorded in the preceding quarter. Long-term debt decreased 1.2% to approximately $109.1 million.

In 2016, Universal Forest Products generated net cash of $172.5 million from its operating activities, increasing 2.2% from the year-ago tally of $168.8 million. Capital spent on purchase of property, plant and equipment amounted to $53.8 million, up from $43.5 million used in the year-ago period. Dividend payment totaled $17.7 million.

Outlook: For 2017, Universal Forest Products expects an improvement in the top line, backed by addition of customers and products to its portfolio. Also, enhancement of operating margin remains the company’s primary area of focus.

Zacks Rank & Stocks to Consider

With a market capitalization of $2.14 billion, Universal Forest Products carries a Zacks Rank #3 (Hold). Currently, investors interested in the building products industry can consider stocks like Boise Cascade Company (BCC - Free Report) , Louisiana-Pacific Corp. (LPX - Free Report) and Chicago Bridge & Iron Company N.V. . While both Boise Cascade Company and Louisiana-Pacific Corp. sport a Zacks Rank #1 (Strong Buy), Chicago Bridge & Iron Company carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Boise Cascade Company’s financial performance has been impressive, with an average positive earnings surprise of 436.3% for the last four quarters. Also, earnings estimates for 2017 have been revised upward over the last 60 days.

Louisiana-Pacific Corp’s earnings estimates for 2017 have improved over the last 60 days. Also, the company’s financial performance in the last four quarters has been impressive, with an average positive earnings surprise of 66.28%.

Chicago Bridge & Iron Company N.V. has strong earnings growth potential, with long-term earnings growth expectation of 14.50%.

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