Universal Forest's Q1 Earnings Up Y/Y, Lag Ests - Analyst Blog

Universal Forest Products Inc. UFPI reported mixed results for first-quarter 2014. The company's bottom-line improved despite a lackluster top-line result. Earnings per share in the quarter were 36 cents, up 38.5% year over year. However, the result was below the Zacks Consensus Estimate of 43 cents.

The year-over-year improvement was due to healthy performance in the industrial businesses as well as a tight control over costs and expenses.

Revenue

Total gross sales in the quarter were $562.2 million, relatively flat compared with the year-ago quarter. Excluding sales allowances, Universal Forest Products generated net sales of $554.0 million in the quarter. Top-line results were impacted by lower selling prices that offset a 3% increase in unit sales. Bad weather conditions lowered plant operations days.

However, the top-line result was below the Zacks Consensus Estimate of $599 million.

Universal Forest Products classifies its revenue results under three end market-based segments, namely Retail Building Materials, Industrial and Housing and Construction. A brief snapshot of end-market sales has been provided below.

Retail Building Materials revenues (36.0% of first-quarter total gross sales) were down 2% year over year to $202.3 million. Industrial sales (30.3%) were $170.4 million, up 7.0% year over year. Sales in the Housing and Construction end market (33.7%) were $189.5 million, down 3.0% year over year.

Margins

Universal Forest's cost of goods sold represented 88.1% of net sales in first-quarter 2014, down 150 basis points (bps) year over year while gross margin increased by the same magnitude to settle at 11.9%. Selling, general and administrative expenses were roughly $53.9 million and accounted for 9.7% of revenues.

Balance Sheet

Exiting first-quarter 2014, Universal Forest Products had a cash overdraft balance of $12.2 million versus $1.1 million reported for the previous quarter. Long-term debt increased 69.4% sequentially to $143.5 million.

Cash Flow

In first-quarter 2014, Universal Forest Products used cash of approximately $54.7 for its operating activities. Capital spending increased by 11.2% year over year to $9.0 million.

Going forward, Universal Forest Products anticipates improvement in its top-line growth through addition of new customers and products to its portfolio. Also, operating margin enhancement remains a prime area of focus.

Universal Forest Products currently has a market capitalization of $1.08 billion and carries a Zacks Rank #3 (Hold). Stocks to watch out for in the sector are Stock Building Supply Holdings, Inc. STCK, CaesarStone Sdot-Yam Ltd. CSTE and United Rentals, Inc. URI. While Stock Building Supply Holdings and CaesarStone Sdot-Yam carry the same rank as Universal Forest Products, United Rentals holds a Zacks Rank #2 (Buy).