It has been about a month since the last earnings report for Universal Forest Products, Inc. (NASDAQ:UFPI) . Shares have lost about 9.9% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it 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 catalysts.
Universal Forest Lags Q2 Earnings, Expenses Increase
Universal Forest Products reported disappointing results for the second quarter of 2017. Growth in the top line was offset by higher cost of sales and operating expenses. Volatility in the lumber market was a concern in the quarter. Overall, net earnings grew a meager 1% year over year.
The quarter's earnings per share came in at $1.64, roughly 11.4% below the Zacks Consensus Estimate of $1.85. The bottom line was on par with the year-ago quarter tally.
Revenues: Net sales improved 23% year over year to $1.072 billion on the back of unit sales growth (contributing 16% to net sales increase) and higher lumber prices (contributing 7% to net sales increase). Also, the top line surpassed the Zacks Consensus Estimate of $1.04 billion by 3.1%. New products sales improved roughly 18.5% year over year to $115.9 million, driven by benefits from roughly 23 new products launches year to date.
Segmental Details: Performance in three end market-based segments, namely Retail Building Materials, Industrial, and Housing & Construction were impressive. The company's segmental sales sum up to total gross sales. In the quarter, the company's gross sales totaled $1,090.2 million, up 23% year over year. A brief snapshot of end-market sales has been provided below:
Retail Building Materials' (42.1% of second-quarter gross sales) revenues of $459.1 million increased 13% year over year on the back of healthy new products sales and improved businesses from big box and independent customers. Unit sales grew 8% and selling prices went up 5% in the quarter.
Industrial sales (30.8%) were $335.9 million, increasing 47% year over year. The growth was primarily triggered by synergistic benefits from acquisition of idX Corporation (closed in Sep 2016) as well as healthy businesses from new and existing customers.
Housing and Construction sales (27.1%) were $295.2 million, up 17% year over year due to impressive businesses from residential construction, manufactured housing and commercial customers.
Margins: Universal Forest Products' margin profile suffered from higher costs and expenses. As a percentage of revenues, the company's cost of sales increased 130 basis points (bps) to 86.2%. Gross margin decreased 130 bps to 13.8%. Selling, general and administrative expenses were roughly $94.3 million, accounting for 8.8% of net sales.
Balance Sheet & Cash Flow: Exiting the second quarter, Universal Forest Products had cash and cash equivalents of $24.6 million, below $31 million recorded in the preceding quarter. Long-term debt declined 19% sequentially to approximately $204.8 million.
In the first six months of 2017, the company generated net cash of $15.2 million from its operating activities, below $40 million in the year-ago period. Capital spent on purchase of property, plant and equipment amounted to $34.5 million, up from $24.3 million used in the year-ago period. Shares worth $9.9 million were repurchased while dividend of $9.2 million was distributed in the first half 2017.
Outlook: For 2017, Universal Forest Products expects an improvement in the top line, backed by addition of customers and products to its portfolio through organic and inorganic means. Also, enhancement of operating margin remains the company's primary area of focus.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There has been one revision lower for the current quarter. In the past month, the consensus estimate has shifted down by 18.3% due to these changes.
Universal Forest Products, Inc. Price and Consensus
VGM Scores
At this time, the stock has a great Growth Score of A, though it is lagging a lot on the momentum front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile 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.
Zacks' style scores indicate that the company's stock is suitable for value and growth investors.
Outlook
Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. It's no surprise that the stock has a Zacks Rank #4 (Sell). We are looking for a below average return from the stock in the next few months.
Universal Forest Products, Inc. (UFPI): Free Stock Analysis Report
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