Why Is Universal Forest (UFPI) Up 0.6% Since Last Earnings Report?
It has been about a month since the last earnings report for Universal Forest Products (UFPI). Shares have added about 0.6% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Universal Forest due for a pullback? 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.
Universal Forest Products (UFPI) Q2 Earnings Beat, Margins Up
Universal Forest Products reported better-than-expected earnings in the second quarter of 2019. The company’s bottom line not only surpassed the Zacks Consensus Estimate but also increased year over year, reaching its highest level ever.
Despite being hurt by rising labor costs and significant fluctuations in the lumber market, the company managed to generate strong earnings on the back of solid growth of new and value-added products.
The company’s earnings of 88 cents per share topped the consensus estimate of 83 cents by 6%. Also, the figure increased 23.9% from 71 cents reported in the year-ago period.
Net sales of $1.24 billion marginally missed the consensus mark of $1.245 billion and declined 4% on a year-over-year basis from $1.29 billion. Lower lumber prices and a 9% reduction in selling prices largely affected its gross sales.
End-Market Sales Discussion
Universal Forest Products classifies top-line results on the basis of end-markets served. Investors should note that Universal Forest Products’ end-market sales sum up to total gross sales.
Gross sales during the reported quarter came in at $1,264.5 million, down 4.2% from the year-ago period. Unit sales during the reported quarter grew 7%, of which organic sales accounted for 4% and acquisitions added 1%.
New product sales were up 18% year over year to $175.3 million. Mix of value-added sales relative to commodity sales surged 67% from the year-ago period.
Retail (41.2% of gross sales): Retail segment sales fell 4% year over year to $521 million during the quarter. Selling prices also dropped 10% from the prior-year quarter, offsetting the 6% increase in unit sales. The increase in unit sales was mainly attributable to strong organic growth, driven by sales of Deckorators decking and deck accessories.
Industrial (28.3%): The segment’s sales totaled $357.3 million, reflecting growth of 3% from the year-ago period. During the quarter, unit sales increased 7%, partially offset by 4% lower pricing. Moreover, acquisitions contributed 6% and organic growth added 1% to unit sales improvement.
Construction (30.5%): Sales in the segment came in at $386.2 million, down 10% year over year. A 14% decline in selling prices offset the 4% positive impact of unit sales. Unit sales in the commercial and residential market rose 5% each while the same increased 1% in the manufactured housing market during the quarter.
Cost of goods sold, as a percentage of net sales, decreased 230 basis points (bps) to 84.9% from 87.2% in the year-ago quarter. Gross margin of 15.1%, however, improved 230 bps to 15.1%.
Selling, general and administrative expenses, accounting for 9.1% of net sales, increased 10 bps year over year. Operating profit in the quarter improved 22% from the prior-year period to $74.2 million. EBITDA totaled $90.8 million, reflecting an increase of 18.2% year over year.
Balance Sheet & Cash Flow
At the end of the second quarter, cash and cash equivalents were $20.5 million, down from $27.5 million in the comparable year-ago period. Long-term debt and capital lease obligations totaled $187.5 million, down from $276.2 million in the year-ago period.
In the first six months of 2019, net cash provided by operating activities totaled $70.9 million versus net cash used in operating activities of $36.1 million in the comparable year-ago period.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision.
At this time, Universal Forest has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top 20% 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.
Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise Universal Forest has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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