Universal Forest Products Lags Q3 Earnings, Improves Y/Y - Analyst Blog

Universal Forest Products Inc. (UFPI) reported improved year-over-year results for third-quarter 2014. Earnings came in at 96 cents per share, up 3.5% from 71 cents earned in the year-ago quarter. The year-over-year improvement was driven by healthy performances in retail, building and construction end markets.

However, the bottom line includes $0.7 million (or roughly 4 cents per share) of gain on the sale of certain assets. Excluding this gain, adjusted earnings came in at 92 cents per share, below the Zacks Consensus Estimate of 94 cents.

Revenue

Universal Forest Products generated net sales of $713.5 million, up 9.5% year over year and above the Zacks Consensus Estimate of $699 million. Total gross sales (net sales including sales allowances) were $723.6 million, increasing 9.5% year over year.

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 (37.7% of third-quarter total gross sales) were up 10% year over year to $272.5 million. Industrial sales (29.2%) were recorded at $211.3 million, up 13% year over year. Sales in the Housing and Construction end market (33.1%) were $239.8 million, up 6% year over year.

Margins

Universal Forest's cost of goods sold represented 87.4% of net sales in the third quarter, down 60 basis points (bps) year over year, while gross margin increased by the same magnitude to 12.6%. Selling, general and administrative expenses were roughly $59.9 million, accounting for 8.4% of revenues.

Balance Sheet

Exiting third-quarter 2014, Universal Forest Products had cash and cash equivalents of $26.2 million as against an overdraft balance of $13.7 million in the preceding quarter. Long-term debt declined 10.9% sequentially to $84.7 million.

Cash Flow

In the nine months ended Sep 30, 2014, Universal Forest Products generated cash of $70.5 million from its operating activities, down 47.9% from the year-ago comparable period. Capital used on purchase of property, plant and equipment totaled $31.7 million, down 1.2% year over year.

During the period, Universal Forest Products disbursed $4.2 million as dividends to its shareholders while repurchasing shares worth $4.8 million.

Concurrent with the earnings release, Universal Forest Products announced that its board of directors has approved an increase in its quarterly dividend rate, applicable for the December disbursement. The rate presently stands at 40 cents per share, increasing from the previous rate of 21 cents.
 
Going forward, Universal Forest Products expects an improvement in top-line growth through addition of new customers and products to its portfolio. Also, operating margin enhancement remains a prime area of focus.

With a market capitalization of $888.3 million, Universal Forest Products carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the sector include Boise Cascade Company (BCC), Potlatch Corporation (PCH) and Apogee Enterprises, Inc. (APOG). While Boise Cascade sports a Zacks Rank #1 (Strong Buy), both Potlatch Corporation and Apogee Enterprises carry a Zacks Rank #2 (Buy).
 

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
UNIVL FST PRODS (UFPI): Free Stock Analysis Report
 
APOGEE ENTRPRS (APOG): Free Stock Analysis Report
 
BOISE CASCADE (BCC): Free Stock Analysis Report
 
POTLATCH CORP (PCH): Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research