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Earnings Preview: Universal Forest

UFPI

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Universal Forest Products Inc. (UFPI - Analyst Report) is slated to release its financial results for the third quarter of the fiscal year 2011 on Wednesday, October 12. The current Zacks Consensus Estimate for earnings per share (EPS) is 37 cents, representing a year-over-year growth of 182.69%.

With respect to earnings surprises over the trailing four quarters, Universal Forest outperformed the Zacks Consensus Estimate in one quarter while lagged behind in other three quarters. The average earnings surprise was a negative 632.08%, implying that the company underperformed the Zacks Consensus Estimate by the same magnitude over the last four quarters.

Second Quarter Highlights

Universal Forest’s earnings per share in the second-quarter 2011, excluding 11 cents per share of severance and early retirement charges, were 33 cents compared with 70 cents in the year-ago quarter. However, results were above the Zacks Consensus Estimate of 15 cents per share.

Top line plummeted 14.8% year over year to $544.1 million but compared with the previous quarter, the company fared well, registering an increase of 40.5%. The year-over-year downfall can be primarily attributed to weak consumer spending on home-improvement items, like fencing and decking.

In the quarter, unit sales fell 5% while selling prices moved south by 10%. Yearly comparison was also impacted by the expiration of the federal stimulus program, including the housing tax credit, at the end of April 2010.

Agreement & Magnitude of Estimate Revisions   

In the last 30 days of the analysts providing estimates for the stock, none revised their estimates for the third quarter and fiscal years 2011 and 2012.

Third-quarter 2011 estimate remains stable at 37 cents. Estimate for the fiscal year 2011 is 53 cents and that for 2012 is $1.32. These estimates represent year-over-year decline of 30.59% and growth of 150.24%, respectively.

Our Take   

Outlook seems gloomy for the Michigan-based company, as we still find the housing markets in the US in doldrums, which poses to be a major headwind for growth. Moreover, for the quarters ahead, weak consumer spending and management’s expectation of soft customer demand throughout the fiscal year 2011 remain a cause of concern.

The current Zacks earnings estimate for the third quarter represent year-over-year growth of 182.69% and sequential increase of 12.1% on the back of cost cutting and product development initiatives taken by the company.

We currently maintain a Neutral recommendation on the stock.

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