Building products company Universal Forest Products Inc. (UFPI - Analyst Report) reported record-breaking third-quarter 2016 results, but its bottom line failed to surpass the Zacks Consensus Estimate. The company’s earnings came in at $1.36 per share, up 7.9% year over year but short of the Zacks Consensus Estimate of $1.46 by 6.8%.
Universal Forest Products generated net sales of $826.7 million in the quarter, increasing 8.4% year over year and exceeding the Zacks Consensus Estimate of $806.6 million. The improvement was driven by solid performance in the retail and construction markets. Year to date, new products sales improved roughly 16% year over year to $247.9 million.
Universal Forest Products’ segmental sales sum up to total gross sales. In the quarter, the company’s gross sales totaled $839.1 million, up 9% year over year.
The three end market-based segments, namely, Retail Building Materials, Industrial, and Housing & Construction, represented approximately 40.5%, 27.9% and 31.6%, respectively, of the total gross sales. A brief snapshot of Universal Forest Products' end-market sales has been provided below:
Retail Building Materials’ revenues of $339.7 million increased 15% year over year on the back of improved businesses from big box and independent retail customers. Unit sales grew 9% and lumber prices improved in the quarter.
Industrial sales were recorded at $233.8 million, down 1% year over year. The fall was primarily triggered by a weak economy and fall in export business in the U.S. as well as due to Universal Forest Products’ focus on higher-margin, value-added businesses.
Sales in the Housing and Construction end-markets were $265.6 million, up 10% year over year due to impressive businesses from commercial and residential construction customers.
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 20 basis points (bps) to 85.7%. Gross margin decreased 20 bps to 14.3%. Selling, general and administrative expenses were roughly $74.5 million, accounting for 9% of net sales.
Balance Sheet & Cash Flow
Exiting the third quarter, Universal Forest Products had cash and cash equivalents of $36.7 million, significantly below $87.5 million recorded in the preceding quarter. Long-term debt grew to $110.4 million from $84.5 million in the second quarter.
In the first nine months of 2016, Universal Forest Products generated net cash of $136.4 million from its operating activities, above $121.4 million generated in the year-ago quarter. Capital spent on purchase of property, plant and equipment amounted to $35.7 million down from $36.5 million used in the year-ago period. Dividend payment totaled $8.5 million.
Outlook: For 2016, 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 $1.95 billion, Universal Forest Products carries a Zacks Rank #3 (Hold). Currently, investors interested in the building products industry can consider stocks like Louisiana-Pacific Corp. (LPX - Snapshot Report) , Lowe’s Companies, Inc. (LOW - Analyst Report) and Weyerhaeuser Co. (WY - Analyst Report) . While Louisiana-Pacific sports a Zacks Rank #1 (Strong Buy), both Lowe’s Companies and Weyerhaeuser carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Louisiana-Pacific Corp.’s financial performance has been impressive, with an average positive earnings surprise of 53% for the last four quarters. Also, earnings estimates for 2016 and 2017 have been revised upward over the last 60 days.
Lowe’s Companies has strong earnings growth potential, with long-term earnings growth expectation at 15.70%. Weyerhaeuser’s average earnings surprise is a positive 8.66% for the last four quarters.
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