Earnings Scorecard: Universal Forest

Universal Forest Products Inc.’s (UFPI - Analyst Report) first quarter 2012 results showed remarkable improvement with its quarter results surpassing the Zacks Consensus Estimate. Outlook for the second quarter also raises hope for a good performance by the company.

Earnings Review

Universal Forest’s earnings per share in the first quarter were 21 cents, up drastically from a loss of 19 cents reported in the year-ago quarter. Results were above the Zacks Consensus Estimate of earnings of 3 cents. Top line increased by 18% on the back of improved demands and favorable weather conditions.

The quarter witnessed roughly a 100 basis point improvement in the gross margin as cost of sales plummeted modestly in the quarter.

Agreement/Magnitude of Estimate Revisions

It seems the brokerage firms covering the stock agree on the positive outlook as communicated by management at its first-quarter earnings release. Two firms increased their EPS estimates for the second quarter in the last 7 days while another two raised the same for the fiscal year 2012 and three other firms for 2013. There were no negative revisions for the estimates.

Magnitude of estimate revision shows how vehemently the brokerage firms expect the company to perform well in the quarter ahead. Estimate for the second quarter inched up 5 cents to 63 cents, representing a 186.36% year-over-year increase. Fiscal year 2012 estimate escalated 27 cents to $1.27 while 2013 estimate increased 37 cents to $2.02 per share, reflecting a year-over-year increase of 297.92% and 58.38%, respectively.

Our Take

Higher sales, increased operating efficiencies as well as cost control drove Universal Forest’s first quarter results. Demands were strong in all end markets, each reporting high revenue growth rates. Favorable weather conditions were also conducive to the growth.

Inspired by its first quarter results, the company looks forward to a sustained healthy demand growth in the second quarter as well. Our viewpoint too is in conformity with the company’s hopeful future prospects and as such our estimate for the quarter stands at 63 cents, as compared with 21 cents reported in the first quarter.

The Michigan-based company faces stiff competition from its peers like Bluelinx Holdings Inc. (BXC), Builders FirstSource Inc. (BLDR - Snapshot Report), and Louisiana-Pacific Corp. (LPX - Snapshot Report). We currently maintain a Neutral recommendation on Universal Forest. The company also bears a Zacks #2 Rank, implying a short-term Buy rating.