Building materials manufacturer UFP Industries (NASDAQ:UFPI) reported Q4 CY2024 results beating Wall Street’s revenue expectations , but sales fell by 4.1% year on year to $1.46 billion. Its GAAP profit of $1.12 per share was 9.3% below analysts’ consensus estimates.
Revenue: $1.46 billion vs analyst estimates of $1.42 billion (4.1% year-on-year decline, 2.7% beat)
EPS (GAAP): $1.12 vs analyst expectations of $1.24 (9.3% miss)
Adjusted EBITDA: $132.7 million vs analyst estimates of $128.6 million (9.1% margin, 3.2% beat)
Operating Margin: 5.4%, down from 8.1% in the same quarter last year
Market Capitalization: $6.85 billion
Company Overview
Beginning as a lumber supplier in the 1950s, UFP Industries (NASDAQ:UFPI) is a holding company making building materials for the construction, retail, and industrial sectors.
Building Materials
Traditionally, building materials companies have built competitive advantages with economies of scale, brand recognition, and strong relationships with builders and contractors. More recently, advances to address labor availability and job site productivity have spurred innovation. Additionally, companies in the space that can produce more energy-efficient materials have opportunities to take share. However, these companies are at the whim of construction volumes, which tend to be cyclical and can be impacted heavily by economic factors such as interest rates. Additionally, the costs of raw materials can be driven by a myriad of worldwide factors and greatly influence the profitability of building materials companies.
Sales Growth
A company’s long-term performance is an indicator of its overall quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for years. Over the last five years, UFP Industries grew its sales at a decent 8.5% compounded annual growth rate. Its growth was slightly above the average industrials company and shows its offerings resonate with customers.
UFP Industries Quarterly Revenue
Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. UFP Industries’s recent history marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 16.9% over the last two years.
UFP Industries Year-On-Year Revenue Growth
This quarter, UFP Industries’s revenue fell by 4.1% year on year to $1.46 billion but beat Wall Street’s estimates by 2.7%.
Looking ahead, sell-side analysts expect revenue to grow 3.1% over the next 12 months. Although this projection implies its newer products and services will catalyze better top-line performance, it is still below average for the sector.
UFP Industries has done a decent job managing its cost base over the last five years. The company has produced an average operating margin of 8.5%, higher than the broader industrials sector.
Looking at the trend in its profitability, UFP Industries’s operating margin might have seen some fluctuations but has generally stayed the same over the last five years . Shareholders will want to see UFP Industries grow its margin in the future.
In Q4, UFP Industries generated an operating profit margin of 5.4%, down 2.7 percentage points year on year. Since UFP Industries’s gross margin decreased more than its operating margin, we can assume its recent inefficiencies were driven more by weaker leverage on its cost of sales rather than increased marketing, R&D, and administrative overhead expenses.
Earnings Per Share
Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.
UFP Industries’s EPS grew at an astounding 18.1% compounded annual growth rate over the last five years, higher than its 8.5% annualized revenue growth. However, this alone doesn’t tell us much about its business quality because its operating margin didn’t expand.
UFP Industries Trailing 12-Month EPS (GAAP)
Diving into UFP Industries’s quality of earnings can give us a better understanding of its performance. A five-year view shows that UFP Industries has repurchased its stock, shrinking its share count by 1.8%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings.
UFP Industries Diluted Shares Outstanding
Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.
For UFP Industries, its two-year annual EPS declines of 21.8% mark a reversal from its (seemingly) healthy five-year trend. We hope UFP Industries can return to earnings growth in the future.
In Q4, UFP Industries reported EPS at $1.12, down from $1.71 in the same quarter last year. This print missed analysts’ estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects UFP Industries’s full-year EPS of $6.76 to grow 8.2%.
Key Takeaways from UFP Industries’s Q4 Results
We enjoyed seeing UFP Industries exceed analysts’ revenue expectations this quarter. We were also happy its EBITDA outperformed Wall Street’s estimates. On the other hand, its EPS missed. Zooming out, we think this was a decent quarter featuring some areas of strength but also some blemishes. The stock remained flat at $116.35 immediately following the results.
