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UFP Industries' (UFPI) PalletOne Buys 50% Stake in Dempsey

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UFP Industries, Inc. (UFPI - Free Report) continued its acquisition spree with the latest buyout of a 50% stake in Dempsey Wood Products, LLC via its subsidiary PalletOne, Inc. Moreover, the agreement has an option for PalletOne to acquire the remaining interest in Dempsey after three years.

Share price of UFP has gained 1.5% during the trading session on Jun 27, 2022.

Buyout Synergies

Dempsey Wood Products has been producing kiln-dried lumber, pallet lumber and other industrial wood products from a single location in Orangeburg, SC. PalletOne has been securing industrial lumber from Dempsey for many years. Hence, this buyout will help PalletOne secure lumbers, which usually face supply shortages as larger mills produce less of this type of lumber.

Dempsey generated $8.9 million of sales in 2021 and five of its 10 largest customers were UFP affiliates. Almost 40 other UFP locations are expected to be served by Dempsey, courtesy of this buyout.

In view of this latest buyout, Howe Wallace, president of PalletOne said, “They’ve been a trusted supplier of ours for many years, and this investment will strengthen our ties, improve our work efficiencies and help satisfy our increasing need for lumber in this market.”

UFPI’s Inorganic Drive

Acquisitions have been a preferred route to solidify UFP’s product portfolio and leverage new business opportunities. Acquisitions contributed 7% to unit sales’ growth in first-quarter 2022. Acquisitions contributed $10 million to quarterly earnings.

On May 9, 2022, UFP announced the acquisition of Cedar Poly LLC via its unit Deckorators, Inc. The purchase price is $17 million and comprises incentive payments. Cedar Poly will operate in UFP’s Deckorators business unit.

Cedar Poly is a Tipton, IA-based full-service recycler of high-density and low-density polyethylene flakes and pellets. These pellets are used in composite decking and other products. With this addition, UFP will be able to expand its Deckorators product line using more sustainable raw materials.

UFPI’s capital-allocation strategy expects acquisitions to provide reasonable returns on investments. UFP’s balanced business model and a diversified product portfolio are the major positives in these challenging times.

Zacks Investment Research
Image Source: Zacks Investment Research

Shares of UFP have outperformed the Zacks Building Products - Wood industry in the year-to-date period. The trend is likely to continue as UFPI steadily benefits from its strategy of exploring new markets and enhancing its existing product portfolio via acquisitions and product innovation.

Earnings estimates for 2022 have moved up to $9.60 per share from $9.01 over the past 60 days. The trend signifies bullish analyst sentiments, indicating robust fundamentals and the expectation of a further outperformance in the near term. The estimated figure implies 11.8% growth from the year-ago reported figure.

Zacks Rank

UFP currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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