Universal Forest Strategizes to Grow

After reporting disappointing second quarter 2011 results, Universal Forest Products Inc. (UFPI - Analyst Report) proposes to undertake initiatives to drive profitability and growth. The company recently announced some strategic changes to augment new product development and fuel international sales. The changes are likely to be effective from October 1, 2011. 

The responsibilities of the business development initiatives have been assigned to the company’s Eastern Division President C. Scott Greene. In addition, Universal intends to merge its Atlantic Division with the Eastern Division which will be later headed by Robert Lees. The company’s Western Division will remain intact under the supervision of President Allen Peters.

Universal Forest is primarily engaged in engineering, manufacturing, treating, distribution, and installation of lumber, composite wood, plastic and other building products. The recent global economic meltdown with its far reaching effects on businesses worldwide greatly affected the US housing market; the impact, still quite palpable is being felt rather acutely in the company’s financial condition.

Weak sales to retail customers and lower spending on home improvement items greatly impacted the top line, while margins plunged due to higher fuel costs and a weak lumber market in the second quarter 2011.

We find the housing markets in the US still in the doldrums posing a major headwind for growth. Thus for the quarters ahead, outlook remains gloomy in the backdrop of weak consumer spending and management’s expectation of soft customer demand throughout the fiscal year 2011. Over and above all these, rising competition from peers like Bluelinx Holdings Inc. (BXC), Builders FirstSource Inc. (BLDR - Snapshot Report), and Louisiana-Pacific Corp. (LPX - Snapshot Report) raises our concern.

The current Zacks Consensus Estimate for the third quarter of 2011 is 37 cents, representing a 182.69% growth year over year. Estimates for fiscal years 2011 and 2012 are 53 cents and $1.32, representing a decline of 30.59% and growth of 150.24%, respectively.

We currently maintain a Neutral recommendation on Universal Forest.

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