Universal Nails 3rd Quarter

October 14, 2005
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GRAND RAPIDS — William G. Currie, vice chairman and CEO of Grand Rapids-based Universal Forest Products, believes that if the company isn’t going to do something right, it shouldn’t do it at all.

That policy is paying off, as the nation’s leading manufacturer and marketer of engineered building products recently reported record performance in the third quarter of 2005. The company’s third-quarter net earnings increased to $19.1 million, 31.1 percent over last year’s results.

These earnings are derived from sales that have increased at a much more measured pace. The $721.5 million in net sales for the third quarter is only 1.7 percent higher than in that period of 2004. In other words, the company is making more money from about the same amount of revenue. The year-to-date revenue and earnings were good enough to make the company revise its net earnings growth estimates for the year. The projection of a healthy 15 percent to 20 percent growth rate has now been bumped up to 22 percent to 27 percent.

“These results underscore the power of focusing on doing things well and on improving the operations of both our new and our under-performing plants,” said Currie. “We’ve grown a culture of continuous improvement that drives our performance and ensures we execute to the highest standards.”

That means making a willing choice to jettison some products and procedures that are profitable, but not profitable enough. For example, the company recently announced a new partnership with Trus Joint, a division of Weyerhauser Corp. Universal will no longer produce its own joists and other manufactured building products for markets in the southeastern United States, choosing instead to market the Trus Joint products.

That kind of rethinking has extended to not just the company’s products, but also to the procedures it uses to make them. Revised procedures have resulted in a reduction by half of the number of underperforming plants. Now only “two or three” of the company’s 88 plants are not living up to the executives’ expectations.

The do-it-yourself market accounts for nearly 40 percent of the company’s sales. Universal is certainly not turning its back on this business, but is tweaking DIY a bit. The company is “walking away from business that doesn’t meet profitability expectations.” Proving that strategy effective, Universal’s DIY revenue was down by 1 percent from the third quarter of 2004, but its unit sales were down by 8 percent. So it brought in nearly the same level of revenue by selling fewer products.

Universal has chosen to “better balance its business by growing its other markets faster than the DIY/retail market,” according to a company statement. In these other markets — site-built construction, industrial products, and manufactured housing — unit sales growth outpaced revenue growth in the third quarter. In the case of manufactured housing, the company saw a revenue decline of 1.5 percent. Discussing the quarterly statement in a conference call, Currie said that there were promising opportunities in the manufactured housing market as the demand for lower-profit HUD (U.S. Department of Housing and Urban Development) orders decreased and higher-end manufactured home orders increased.

The company continues to see steady growth in both its industrial products and site-built construction markets. Universal has acquired complete or partial interest in several construction companies in recent years. Currie said that Universal plans to grow its existing construction capability and is open to further acquisitions, should the right opportunities arise.

The company expects to see increased revenues leading into 2006 as a result of rebuilding efforts in the Gulf Coast region. Currie said that none of the company’s operations were damaged by Hurricane Katrina, and just two of its Texas plants were mildly affected by Hurricane Rita. UFP might also receive a boost when lower-quality wood salvaged from the hurricane-stricken areas is milled into the type of chips that Universal uses in some of its products. Currie said that the price on these materials could come down once the hurricane-downed trees hit the market. Nonetheless, Currie said that the results of the hurricane-related activities won’t begin to show up until later in the fourth quarter and in early 2006.

During the conference call, Currie also highlighted some of the most promising areas for growth in the future. He said that he expects increased demand for the company’s products in southern California, the Mid-Atlantic region, Florida and Texas — especially after the hurricanes. He said that the company is also seeing an increased nationwide demand for its composite decking products. The company is working beyond capacity and cannot satisfy the demand for its own retail products and the store-brand products it makes for Home Depot. That and the many other products Universal sells through the Atlanta-based home-improvement retailer accounted for more than one quarter of UFP’s $2.45 billion 2004 sales.

Complete financial information is available at Universal’s Web site: www.ufpi.com.    

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