Universal Forest (UFPI) Down 40.6% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Universal Forest Products (UFPI). Shares have lost about 40.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Universal Forest due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

UFP Industries Q4 Earnings Top Estimates, Margins Up

UFP Industries, Inc. reported strong earnings in fourth-quarter 2019 on the back of increased unit sales, its ability to leverage fixed costs, and improved sales of higher-margin, value-added products that comprise a greater portion of its product mix. The company’s bottom line not only surpassed the Zacks Consensus Estimate but also increased year over year. Notably, this was the best fourth-quarter performance in the company’s history.

On Feb 3, 2020, it announced changes in the frequency of dividend payments from semi-annual to quarterly. Also, it raised quarterly cash dividend by 25% to 12.5 cents a share, payable on Mar 15, 2020 to its shareholders of record on Mar 1, 2020.

Earnings & Net sales Discussion

The company’s earnings of 61 cents per share topped the consensus estimate of 59 cents by 3.4%. Also, the reported figure increased 19.6% from 54 cents reported in the year-ago period.

Net sales of $998 million marginally missed the consensus mark of $998.8 million but grew 1% on a year-over-year basis from $988.2 million. Lower lumber prices reduced gross sales by 5%.

End-Market Sales Discussion

UFP Industries classifies top-line results on the basis of end-markets served. Investors should note that UFP Industries’ end-market sales sum up to total gross sales. Gross sales during the reported quarter came in at $1,012 million, up 1% from the year-ago period.

UFP Retail: The segment’s sales increased 7% year over year to $323.3 million during the quarter. Retail unit sales were up 10% on the back of new product growth and market share gains. However, lower selling prices partially offset the same by 3%.

UFP Industrial: The Industrial segment’s sales totaled $309.7 million, reflecting a decline of 4% from the year-ago period. During the quarter, unit sales increased 2%, offset by 6% lower lumber pricing. The unit sales growth was attributed to acquisitions.

UFP Construction: Sales in the segment were $379 million, up 1% year over year. A 5% improvement in unit sales was partially offset by 4% decrease in selling prices. Unit sales in commercial, manufactured housing and residential customers grew 9%, 4%, and 3%, respectively, during the quarter.

Operating Highlights

Cost of goods sold, as a percentage of net sales, contracted 190 basis points (bps) from the year-ago quarter to 84.2%. Gross margin of 15.8% improved 190 bps year over year.

Selling, general and administrative expenses, accounting for 10.5% of net sales, increased 120 bps year over year. Operating margin in the quarter improved 60 bps to 5.2%. EBITDA totaled $70.9, reflecting an increase of 12% year over year.

Balance Sheet & Cash Flow

At the end of 2019, cash and cash equivalents were $168.3 million, significantly up from $27.3 million at 2018-end.

In 2019, net cash from operating activities totaled $349.3 million against net cash used in operating activities of $1167 million a year ago.

2019 Highlights

UFP Industries reported adjusted earnings of $2.91 per share, surpassing the consensus estimate of $2.89 and increasing 20.7% from the year-ago figure of $2.41. However, net sales of $4.42 billion declined almost 2% due to 8% lower lumber prices.

New product sales were $540 million in the year, up 13% from 2018. For 2020, it has removed $126 million of 2019 sales from its new products classification, despite continuing to sell those products.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 24.07% due to these changes.

VGM Scores

At this time, Universal Forest has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, Universal Forest has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.