UFP Industries Reports Record Second Quarter Results
GRAND RAPIDS, Mich., July 21, 2021 – UFP Industries, Inc. (Nasdaq: UFPI) today announced record net sales of $2.7 billion for the second quarter of 2021, a 117 percent increase over the second quarter of 2020, and record net earnings attributable to controlling interest of $173 million, a 161 percent increase over the same period of 2020. The company also reported record EPS of $2.78 per diluted share compared to $1.08 in the second quarter of last year. Recent acquisitions contributed $455 million to net sales and $0.17 to EPS.
“In the last year and a half, UFP Industries has been tested by an unprecedented economic disruption and the most turbulent supply and pricing changes in our industry’s history. Despite those challenges, we have continued to improve our business and serve customers without disruption,” said CEO Matthew J. Missad. “We continue to break records with our financial performance, a feat I attribute to the hard work of our employees, our new market-focused organizational structure, and our balanced business model, which allows us to sell into a variety of diverse markets. Another key contributor to our success is our improved pricing model and managed inventory programs, which allow us to mitigate the impact of lumber market fluctuations like those we experienced during the second quarter.”
Second Quarter 2021 Highlights (comparisons on a year-over-year basis):
- Net sales of $2.7 billion increased 117 percent due to a 70 percent increase in selling prices, a 36 percent unit increase from acquisitions, and an 11 percent increase in organic unit sales.
- Earnings from operations of $236.9 million increased 157 percent, including the impact of an inventory valuation reserve.Management evaluated the impact of falling lumber prices on its products sold with a variable price tied to the lumber market, primarily in its ProWood and Sunbelt wood pressure-treating operations.As a result of its evaluation, a lower of cost or net realizable value reserve was recorded, which reduced the value of inventory and gross profits by approximately $23 million. The company’s vendor-managed inventory programs and ability to shift lumber inventory to business units with high demand and volume requirements helped mitigate the impact of the decline in prices on variable-priced products, particularly in its ProWood business unit.
- An increase in SG&A of nearly $71 million, or 62 percent, is largely attributable to recent acquisitions ($15 million, including amortization expense of $1.5 million) and increases in bonus and sales compensation resulting from increased profitability (up $33 million and $9 million, respectively, over 2020). SG&A as a percentage of gross profit improved from 56 percent in 2020 to 44 percent in 2021, as the company continues to focus on leveraging its cost structure as it grows.
- New product sales of $232.1 million increased 61 percent.
- Adjusted EBITDA of $261.5 million increased 137 percent and the adjusted EBITDA margin expanded by 80 basis points to 9.7 percent.
UFP Industries maintains a strong balance sheet with liquidity of approximately $288 million at the end of the second quarter despite an increase in our seasonal investment in net working capital of $444 million, which resulted from unprecedentedly high lumber prices and market demand. Net debt increased to $562 million from a net cash position of $37 million at the end of the second quarter of 2020, primarily due to these factors and the acquisitions of PalletOne and Spartanburg Forest Products. Management anticipates that as lumber prices and seasonal demand normalize, the increase in net working capital will be converted to cash, providing significant capital available to pursue growth opportunities and returns to shareholders through its dividend and share repurchase activities.
“We remain optimistic about the rest of this year and our prospects in 2022,” said Missad. “We expect market conditions to normalize during the second half of 2021. While falling lumber prices and more normalized demand create challenging year-over-year profitability comparisons for our retail segment, the stabilized lumber market should benefit our industrial and construction segments. Furthermore, we expect all of our segments to benefit from more stable pricing in 2022. In addition, our industrial and retail segments should continue to benefit from the integration of our recent acquisitions of PalletOne and its subsidiary, Sunbelt Forest Products, as well as Spartanburg Forest Products.”
By business segment, the company reported the following second quarter 2021 results:
UFP Retail Solutions
- $1.26 billion in net sales, up 107 percent over the second quarter of 2020 due to a 59 percent increase in selling prices and a 48 percent unit increase due to the acquisitions of Sunbelt Forest Products and Spartanburg Forest Products. Organic unit sales fell 4 percent due to a 17 percent decline in the ProWood business unit. Organic growth was achieved by UFP-Edge (up 27 percent), Deckorators (up 11 percent), and Outdoor Essentials (up 6 percent), due in part to expanded operational capacity.Additional capacity for each of these product lines is expected to come online in 2022. New product sales grew 32 percent, driven by UFP-Edge shiplap and trim, ProWood Fire Retardant treated lumber, and Outdoor Essentials fencing and picnic tables.
- Gross profit dollars for the retail segment grew 47 percent. Acquisitions contributed approximately $3.5 million, or 4 percent, to the increase and were significantly impacted by the inventory valuation reserve.
- $611 million in net sales, up 172 percent from the second quarter of 2020, reflecting in part the benefits of reopening the U.S. economy after pandemic-related closures. Unit sales increased 73 percent and selling prices increased 99 percent. Organic growth accounted for 26 percent of the unit sales growth; the acquisitions of PalletOne and T&R Lumber accounted for 47 percent. New product sales grew 192 percent from the second quarter of 2020.
- Gross profit for the segment rose 262 percent, exceeding unit sales growth of 73 percent, due to the company’s focus on adding value-added products and the significant improvement in unit sales, which allows the company to better leverage fixed costs and include the impact of higher lumber, labor, and transportation costs in its selling prices. Acquisitions contributed over $23 million, or 62 percent, to the increase in gross profit.
- $739 million in net sales, up 106 percent over the second quarter of 2020, due to a 29 percent increase in unit sales and a 77 percent increase in selling prices. Unit sales to factory-built and site-built housing customers rose 56 percent and 32 percent, respectively. Unit sales to commercial customers improved, rising 11 percent. New product sales increased 184 percent from the prior comparative quarterly period.
- Gross profit for the construction segment grew 118 percent over the second quarter of 2020, primarily as a result of significantly improved unit sales and the company’s ability to better leverage fixed costs and include the impact of higher lumber, labor, and transportation costs in its selling prices.