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Universal Still On Track For Its Performance Goals
“We don’t accept a lot of excuses. We have our goals and we’re paying our people to accomplish those goals,” said Universal CEO William Currie in response to how the firm evaluates its plans in light of declining economic conditions.
“Sure, you’re going to be affected to some degree by circumstances outside your control. But you can also manage your business better during those times, and doing that usually leads to a stronger company as these extraneous problems are overcome,” he added. “As long as we stay tight and right, and do things the way they should be done, I don’t mind the down markets too much. It gives us opportunities.”
As one part of the commitment to meet its performance objectives, Universal made two recent acquisitions. One was a down-market opportunity that Currie referred to, as Universal is buying some assets of Kevco Manufacturing, a firm that filed for bankruptcy protection.
In addition, the Grand Rapids-based company saw its earnings top its target last quarter.
Universal, traded on the Nasdaq as UFPI, had fourth-quarter net earnings of 16 cents per share, higher than the predicted earnings of 12 cents to 15 cents per share. Universal exceeded its projection despite the added cost of having to close two plants.
Fourth-quarter 2000 sales totaled nearly $283 million, well within range of Universal’s projection, but were down about $17 million from the same quarter in 1999. Total sales for 2000 were $1.39 billion, slightly lower than the $1.44 billion the firm had in 1999. But for the year, Universal reported earnings of $1.49 a share, edging the $1.48 earned the previous year.
“We achieved increased unit sales to the do-it-yourself, site-built construction and industrial markets,” said Currie. “But our financial performance in the last six months of 2000 was impacted by dramatic price deflation in the wood-fiber market, and persistent softness in the manufactured housing market.”
Although unit sales were up, lumber prices were down about 20 percent due to technological advances in the industry that allow for more lumber to be processed from each tree, and a glut of foreign wood on the market. Current prices have fallen to 1990 levels, a 10-year low for that industry.
“Lumber prices are off last year’s first quarter. The lumber market is going to be 24 percent lower than last year’s, which was terrible, too. The lumber market is the wild card for us to make our top-line sales number,” said Currie.
“If we had the same numbers that we had when we opened the initiative, we’d make our objectives hands down. So we have to be growing the market faster than it is dropping. That’s a pretty tough deal. We’ll make our unit-sales goal, but the sales-dollars number could be an issue,” he explained, and added that Universal wasn’t backing off its original goals and still expects to reach those figures.
Universal doesn’t anticipate lumber prices rising until at least June and doesn’t expect the manufactured housing market to improve until year’s end. But the firm does expect growth in the D-I-Y, site-built and industrial-agricultural markets. Universal feels first-quarter sales should total between $300 million and $315 million, and earnings for the quarter should be between 23 cents and 25 cents per share.
Earlier this month, a Universal subsidiary agreed to acquire the assets of the Sunbelt Wood Components Division of Kevco Manufacturing. These assets include plants in North Carolina, Alabama, Georgia and Arizona that serve the manufactured housing and industrial markets. Kevco was Universal’s strongest competitor for manufactured housing business, but went bankrupt because it wasn’t as diversified as Universal. The transaction, which needs bankruptcy court approval, is expected to close by the middle of April.
“We bought four or five plants for the price of one,” said Currie.
The asset acquisition should dramatically increase Universal’s share in that market, and Currie expects the firm will get some mid- and long-range financial gains from the purchase.
Universal President Michael B. Glenn noted that customers have had concerns about getting materials ever since Kevco filed for bankruptcy. But Glenn felt there wasn’t anything for them to be worried about.
“We want our customers to know we are committed to supply their needs through these difficult market conditions,” he said.
In late January, Universal signed a letter of intent to acquire half the assets of D&R Framing Contractors of Englewood, Colo. UFPI is forming a limited liability company with D&R Operations Manager David Baltz to purchase all the assets of the company.
“Our manufacturing facility in Lafayette, Colo., has had a long-standing business relationship with D&R Framing Contractors. Universal will benefit immediately from D&R’s additional sales revenue, which approached $44 million in 2000,” said Glenn.
The manufactured housing market has slowed because of overproduction in 1999. The market may straighten itself out in the second half of the year, but chances are that won’t happen until next year.
On the other hand, housing starts still look strong as 1.5 million units are expected to be built this year — which is good news for the firm. Universal also feels it has lots of room to grow in the retail D-I-Y market with the Home Depot chain.
“We’re not seeing any major problems in any of our markets,” said Chuck Felix, senior vice president of development.
So look for Universal to make a few more acquisitions over the next six months.
The biggest concern that Currie has for meeting the company’s goals has more to do with weather conditions than with market conditions. Heavy rains in California and in the South, snow in the Northeast and cold in the Midwest have delayed construction in the first quarter.
“The building sites are wet, they can’t get into them, and the D-I-Y traffic has slowed. We haven’t got a break in the weather anywhere.” said Currie.
“We have the business and we have the inventory ready to go to market. But that sun has to shine for a while for the depots to open up full-blast and for the big homebuilders to be able to pour foundations and set their components. The weather, I’d say, for the first quarter of this year has been an extremely difficult circumstance.”
Currie said he wasn’t worried about Universal’s stock price with the company listed on the Nasdaq, even though the exchange has lost half its value in a year. In fact, he felt the exchange would find itself in this condition someday, and he thinks it may fall even further.
“It doesn’t make me nervous. It almost makes me happy. We’ve always been a value-type company where our stock is basically trading for our asset value, and I never had a strong belief in the ‘new economy.’ It almost did exactly what I thought it would do and that is why I never let our company go down that road,” said Currie.
“I expect that Nasdaq will hit 1800 and it might even go lower than that. But I don’t think it’s going to affect our stock,” he added. “I think our investors and our internal ownership will continue to acquire back shares if these get to a level we don’t like, and we have the money to do that. And if we have to buy them all back and become a private company again, we’ll do that.”
Universal established its five Performance 2002 goals in 1997. One of those objectives is for the firm to total $2 billion in sales by the end of next year. The company made that aggressive commitment before it had reached the $1 billion mark in annual sales revenue, and that may be the only goal the firm might miss.
“I think we can tell your readers that we are on track,” said Currie. “We’re making the right decisions. Our balance sheet is excellent. Our company is being managed on a daily basis and there isn’t any grass growing underneath our feet. We know exactly what we’re doing and we’re committed to reaching our goals.”