Riding high on the strengthening housing market in the U.S., building products company Universal Forest Products Inc. UFPI reported record results for first-quarter 2016. The company surprised investors with a 9.2% positive earnings surprise as its earnings of 95 cents per share came in above the Zacks Consensus Estimate of 87 cents. Also, the bottom line was way above the year-ago tally of 51 cents.
Universal Forest Products Inc. - Earnings Surprise | FindTheBest
Talking of the top-line, Universal Forest Products’ net sales in the quarter were $682.2 million, increasing 7.8% year over year, driven largely by growth of 17% and 9.3% in the company’s retail and construction businesses, respectively. New products sales improved 32% year over year.
However, the top line lagged the Zacks Consensus Estimate of $696 million.
Segmental Details
Universal Forest Products’ segmental sales sum up to total gross sales (net sales including sales allowances). In the quarter, total gross sales were $693.9 million, up 8% year over year.
The three end market-based segments, namely, Retail Building Materials, Industrial, and Housing & Construction, represented approximately 39%, 29% and 32%, respectively, of the total gross sales. A brief snapshot of end-market sales of Universal Forest Products has been provided below:
Retail Building Materials revenues were up 17% year over year to $270.7 million on the back of improved businesses from big box and independent retail customers. However, lower selling prices proved to be a headwind.
Industrial sales were recorded at $204.2 million, down 3% year over year. The fall was primarily triggered by a decline in selling prices due to lower lumber costs.
Sales in the Housing and Construction end-market were $218.9 million, up 9% year over year due to impressive businesses from commercial and residential construction customers.
Margins
Universal Forest Products’ margin performance in the quarter improved year over year. As a percentage of revenues, cost of sales decreased 250 basis points (bps) to 84.9%. Gross margin improved 250 bps to 15.1%. Selling, general and administrative expenses were roughly $70.8 million, accounting for 10.4% of net sales.
Balance Sheet & Cash Flow
Exiting first-quarter 2016, Universal Forest Products’ cash and cash equivalents were at $43.1 million, down from $87.8 million recorded in the preceding quarter. Long-term debt remained roughly stable at $84.5 million.
In the quarter, Universal Forest Products used cash of $30 million for its operating activities, down from roughly $50.5 million used in the year-ago quarter. Capital spent on purchase of property, plant and equipment amounted to $12.9 million as against $15.1 million used in first-quarter 2015.
Outlook: For 2016, Universal Forest Products expects an improvement in the top line, backed by addition of customers and products to its portfolio. Also, enhancement of operating margin remains the company’s primary area of focus.
With a market capitalization of $1.7 billion, Universal Forest Products carries a Zacks Rank #3 (Hold). Currently, investors interested in the building products industry can consider stocks like AAON Inc. AAON, Watsco Inc. WSO and The Home Depot, Inc. HD. While AAON Inc. sports a Zacks Rank #1 (Strong Buy), both Watsco and The Home Depot carry a Zacks Rank #2 (Buy).
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