Universal Forest Products, Inc. (UFPI) reported encouraging results for the first quarter of fiscal 2010.
During the quarter, the company reported net earnings of $1.0 million from a net loss of $1.3 million in the same quarter of fiscal 2009. EPS was 5 cents compared to net loss per share of 6 cents in the year-ago quarter. The reported EPS highly surpassed the Zacks Consensus Estimate of 1 cent.
The increase in net earnings was due to 8.7% yearly increase in revenue. Revenue bloated from $361.7 million to $393.0 million during the first quarter of fiscal 2010. The increase was primarily attributable to 50% hike in composite lumber selling price due to decease in supply in comparison to total demand.
Supply slipped due to production cut and also due to plant closures. The company’s continued focus on eliminating waste and critical basics like inventory and receivables have proven to be the right strategy in fragile times.
The Do-It-Yourself (DIY) segment reported net sales of $164.4 million in the quarter, a decrease of 1.9% from the same period of 2009. The decrease was due to the slowdown in the demand of larger DIY projects based on the difficult market conditions.
Revenue in the Industrial packaging and components were $126.0 million, up 20.4% from the same period in 2009 based on the company’s continuous effort to improve services in the segment.
Site-built construction reported net sales of $60.9 million in the quarter, up 0.9% year over year. The increase was driven by the improvement in the housing industry and the company’s focus on profitable ventures like commercial and military projects. Manufactured housing sales in the quarter were $48.4 million, up from 32.2% from the year-ago quarter due to improved economic activity.
To cope with a difficult housing environment, UFPI has closed a number of facilities in the U.S. and Canada and sold some others. The company expects to improve productivity by 15%. By 2012, UFPI targets to improve its profitability by 300 bps through cost reductions and productivity improvements.
During the quarter, cost of goods sold as a percentage of revenue decreased by 20 basis points and SG&A expense decreased by 130 basis points.
The company is seeing positive outcomes from the transition to a value-added producer from a pure commodity supplier. The former carries higher margins, entails less competition and increases the attractiveness to customers looking for a full product portfolio. In 2004, value-added product sales comprised 50.7% of total sales.Currently, value-added products sales comprise more than 60% of the company’s total sales.
Universal Forest Products is focusing more on expanding its industrial business into markets where it currently doesn’t have a major presence. This will make the company much more diverse regionally. The company aims to achieve sales of $3 billion by the year 2012.
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