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Universal Forest (UFPI) Misses on Q2 Earnings, Beats Sales

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Universal Forest Products, Inc. (UFPI - Free Report) reported mixed results in the second quarter of 2018, wherein earnings missed the Zacks Consensus Estimate while sales beat the same. Quarterly earnings and revenues improved on a year-over-year basis, propelled by healthy contribution from three segments. Notably, for the 12th time in a row, the company came up with record sales and earnings

Earnings Miss

Net earnings of 71 cents per share missed the consensus mark by 5.3%. However, bottom line grew 29.1% year over year. Results were driven by healthy sales growth in three segments, partially offset by higher cost of sales and operating expenses.

Sales Beat: Segmental Performance Drives Net Sales

In the quarter, Universal Forest Products’ net sales were $1,294.4 million, reflecting year-over-year growth of 20.7%. The improvement was primarily driven by a healthy segmental performance.

Also, the top line surpassed the consensus estimate of $1,194 million by 8.4%.

The company’s segmental sales sum up to total gross sales. In the first quarter, gross sales increased 21% from the year-ago tally. Roughly 8% of the year-over-year growth was led by unit sales improvement — including 7% from organic sales and 1% from acquired assets — and 13% owing to favorable pricing.

A brief snapshot of end-market gross sales has been provided below:

Retail Building Materials (41.3% of second-quarter gross sales): The segment’s sales grew roughly 19% year over year to $545.5 million. Unit sales grew 6% (all organic) and favorable pricing contributed 13% to sales growth.

Industrial (30.6%): The segment’s sales totaled $404.1 million, reflecting growth of 19% from the year-ago period. Unit sales grew 8% and favorable pricing contributed 11% to sales growth. Of the unit sales growth, acquired assets accounted for 3% and organic sales contributed roughly 5%.

Housing and Construction (28.1%): This segment’s sales totaled $370.8 million, up 26% year over year. The improvement was backed by 16% gain from favorable pricing and 10% growth in unit sales. Organic sales accounted for 9% of the unit sales growth, while acquisitions accounted for 1%.

Business remained strong in manufactured housing, commercial and residential construction markets with year-over-year sales growth of 28%, 32% and 22%, respectively.

Mixed Margin Profile

In the quarter, Universal Forest Products’ cost of sales increased 22.1% year over year to $1,128.8 million, representing 87.2% of net sales versus 86.2% in the year-ago quarter. Gross profit grew 11.8% year over year but fell 100 basis points (bps), as a percentage of net sales, to 12.8%.

Selling, general and administrative expenses of $104.6 million grew 10.6% year over year and represented 8.1% of net sales (down 70 bps year over year). Operating margin contracted 40 bps to 4.5%.

Balance Sheet & Cash Flow

As of the quarter end, Universal Forest Products had cash and cash equivalents of $27.5 million, down from $24.6 million a year ago. Long-term debt surged 34.9% year over year to $276.3 million.

In the quarter, the company used cash of $36.1 million for operating activities, versus cash provided by operating activities of 15.2 million in the year-ago quarter. Also, the company used roughly $1.8 million for repurchasing common shares in the quarter.
 

Universal Forest Products, Inc. Price, Consensus and EPS Surprise

 

Universal Forest Products, Inc. Price, Consensus and EPS Surprise | Universal Forest Products, Inc. Quote

Outlook

In the quarters ahead, Universal Forest Products anticipates to gain from the existing product portfolio, efforts to introduce new products and initiatives undertaken for achieving better production efficiency. Also, the industrial market offers solid growth opportunities, which the company plans to leverage through organic and inorganic means.

Also, the company’s acquisitive nature is anticipated to be advantageous. The company acquired North American Container Corp. (NACC), an industrial packaging manufacturer based in Georgia, in early June. This acquisition will bring corrugated, steel and hardwood packaging solutions under one roof, and enable the company to penetrate into growth markets and improve technological expertise.

Zacks Rank & Stocks to Consider

Universal Forest Products, with a market capitalization of approximately $2.4 billion, currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the same industry are Boise Cascade Company (BCC - Free Report) , Louisiana-Pacific Corporation (LPX - Free Report) and PotlatchDeltic Corporation (PCH - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Boise Cascade, Louisiana-Pacific and PotlatchDeltic’s 2018 earnings are expected to grow 84.3%, 30.5% and 4.7%, respectively.

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