UFPI Monitors Home Depot Realignment
GRAND RAPIDS — Universal Forest Products Inc. is closely watching the leadership realignment at The Home Depot’s corporate headquarters in Atlanta for any sign of change in its long-standing business relationship with the company.
“The change in the leadership at Home Depot, we don’t have that all sorted out yet. I’m not sure they have it all sorted out yet,” William Currie, vice chair and CEO, said during Universal’s second quarter teleconference last week.
“We’re watching those changes as close as we can to insure there’s a relationship there.”
Two weeks ago, Atlanta-based Home Depot announced realignment of its merchandising leadership with the appointment of three new senior managers, all of whom report directly to president and CEO Bob Nardelli.
The move is intended to further flatten the company’s merchandising structure and align Home Depot products more closely with local customer demographics.
Among the senior managers Universal officials have spoken with, Nardelli is highly respected and management thinks he’s on the right track to giving The Home Depot new impetus, Currie said.
Universal has supplied Home Depot with lumber products since 1978. Home Depot, the world largest home improvement retailer, operates more than 1,200 stores in the U.S., Puerto Rico, Canada, Chile and Argentina.
In 2000, the Do-It-Yourself (D-I-Y) market accounted for 47 percent of Universal Forest Products’ revenue mix. Earlier this year, management projected the company would generate $1 billion in sales in that market by 2002.
Universal’s D-I-Y market was up 18 percent for the quarter, driven by a 24 percent increase in sales to Home Depot. Home Depot sales represented 73 percent of Universal’s total D-I-Y sales for the quarter.
The sales increase was primarily due to new store openings and additional business Universal was able to capture for this year and next, most of which involved two-year sales agreements.
“We see strong D-I-Y sales going into the third quarter. We think that market is in good shape and we’ll be looking at some plans to increase market share on the D-I-Y side,” Currie added.
Earnings per share increased 11 percent to 70 cents in the second quarter, and net sales were up 13 percent over the same quarter last year to $486 million, which was about what management anticipated, Currie said. Higher unit sales accounted for the increase.
Lumber prices spiked in May but dropped back down in June and are now trending at or below last year’s level. Currie said the spike was so short that it had little impact on Universal’s selling prices and sales for the quarter.
While industry shipments were off by about 30 percent for the quarter, sales to the manufactured housing market were down only 11 percent in comparison, pointed out Michael Cole, chief financial officer.
Currie said he’s probably proudest of the company’s growth in that particular market.
“The manufacturers look like they’re entering the first stages of turnaround. The toughest hurdles to overcome in that market are the number of repossessions and the difficulty in finding financing for manufactured housing.
“We continually have all the major producers on a credit watch. Our exposure is in very good shape. We’re discounting with almost all of our major customers. We’re thinking that we’re on the rebound in that market and that the year 2002 will rent some increases in that business.”
Cole said Universal increased market share as the result of the April 3 acquisition of Kevco’s Sunbelt Wood Component Division manufacturing facilities in North Carolina, Alabama, Georgia and Arizona.
Its site-built construction market was up 30 percent for the quarter due not only to acquisitions but also to organic growth at existing plants, Cole said. The company claimed all the assets of Superior Truss on June 1 and 50 percent of the assets of D&R Framing Contractors of Englewood, Colo. in February.
The $11 million acquisition of Superior Truss added a large site-built plant in Minnesota that serves the Minneapolis-St. Paul market and part of Iowa.
Industrial market sales were up 7 percent for the quarter, and Universal added 312 new accounts, representing a 17 percent increase.
The company expects continued unit sales growth in its D-I-Y, site-built and industrial/agricultural markets for the balance of the year.
Though the slowdown in the housing market is not expected to improve in the next six months, Currie said management believes the company’s leadership position will help increase sales to the manufactured housing market when demand resumes.
For the balance of the year, the expectation is that supply will be ahead of demand.
“We think the lumber market has reached its high and will probably stay here or trend a little lower for the next quarter and possibly a little bit better in the fourth quarter,” Currie remarked.
Universal is looking at four to five acquisitions, a couple of them specialty acquisitions that are much larger in scope than the company is used to on the industrial side, Currie noted. The company also is actively working on penetrating West Coast markets where it doesn’t as yet have representation.
Targets for the third quarter are sales ranging from $420 million to $440 million and earnings from 45 cents to 48 cents per share. Management continues to target sales and earnings per share growth of 7 to 10 percent for the year.