UFP Industries, Inc. (NASDAQ:UFPI)
Q2 2021 Earnings Call
Jul 21, 2021, 4:30 p.m. ET
- Prepared Remarks
- Questions and Answers
- Call Participants
Ladies and gentlemen, thank you for standing by, and welcome to the UFP Industries Second Quarter 2021 Earnings Conference Call. [Operator Instructions]
I would now like to hand the conference over to your speaker, Mr. Dick Gauthier, Vice President of Business Outreach.
Dick Gauthier — Vice President, Business Outreach
Welcome to the second quarter 2021 conference call for UFP Industries.
Hosting the call today are CEO, Matt Missad; and CFO, Mike Cole. Matt and Mike will offer prepared remarks, and then the call will be opened for questions. This conference call is available simultaneously in its entirety to all interested investors and news media through our webcast at ufpi.com. A replay will also be available at that website.
Before I turn the call over to Matt Missad, let me remind you that today’s press release and presentation include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from the Company’s expectations and projections. These risks and uncertainties include, but are not limited to, those factors identified in the press release and in the filings with the Securities and Exchange Commission.
Now, I would like to turn the call over to Matt Missad.
Matthew J. Missad — Chief Executive Officer
Thank you, Dick, and good afternoon, everyone.
As you can see from the press release, the UFP family is en fuego. While Mr. Bezos is flying into suborbital space, the UFP team made a quantum leap to another galaxy in the second quarter. The first six months of 2021 constitute the best earnings year in UFP’s 66-year history. I send a sincere thank you to all of the UFP family of companies for your incredible effort.
When the Company is successful, we share that success with our teammates, and we are grateful to share over $10 million in additional benefits and bonuses with our hourly employees for the first six months of 2021 to thank them for their exceptional effort too. You have seen a truly remarkable financial performance, and Mike will provide more analysis shortly. I would like to highlight a few items, while providing some insight into the balance of 2021.
We saw more records in the second quarter than the Grammys, yet our team is not focused on receiving awards; for them, it is about competing, improving, growing our people and opportunities, and making our company stronger. They had a grand slam in the second quarter.
We can’t talk about Q2 without acknowledging the significant impact of the lumber market. We had top line help from a rising lumber market during the first half of the quarter. However, the last half saw a drastic drop in lumber prices, which made an impact on our retail variable-priced products. While we had anticipated a market reduction in that late second or third quarter, we did not anticipate that it would fall as far and as fast as it did. Included in our quarterly results was a charge of $23 million to reduce the value of inventory on certain of our variable-priced products in our Retail segment.
Since the Southern Yellow Pine market has dropped nearly a $1,000 per 1,000 in the last several weeks, the impact would have been much worse if not for the skill and dedication of our purchasing and operations teams, who managed inventories very well under the circumstances. This lumber market drop also highlighted another benefit of our new structure as our teams were able to coordinate movements of inventory and maximize utilization of on-hand items to limit the impact of the market decline. Thanks to our balanced business model, diverse product and customer mix, and a variety of pricing methodologies, we are well positioned to weather these kinds of events.
As we have discussed on many occasions, these diverse markets and pricing methodologies enables us to create a natural hedge against lumber market fluctuations like we just experienced. Last fall, when prices were rising, the Retail segment benefited overall, while the Industrial and Construction segment to suffered. Going forward for the balance of 2021, we expect that Retail will lag while Construction and Industrial will benefit.
We expect the lumber market to normalize and believe that mills will try to balance inventories to match demand. We believe the lumber market is trading today within the range where it should remain for the next 30 to 60 days, with slight fluctuations. Since most of the lumber products are sold under agreements between suppliers and customers, a significantly smaller volume is actively traded and reported via Random Lengths and other market reporting services. Therefore, this metric is subject to more fluctuation and it is less reflective of the overall lumber market than it used to be.
Certain products such as OSB remained tight. However, DIY demand is not as robust as it was a year ago, while professionals are still very busy and maintaining robust purchases for their businesses. Many believe that DIY demand is paused due to other pursuits, such as vacations and travel, which were severely curtailed due to the lockdowns in 2020. Overall, however, we remain confident in our original [Indecipherable] targets for the year.
A quick review by market shows that our Retail Solutions team was the most impacted by the lumber market decline. The segment recorded a 6% decline in unit sales versus a year ago. Looking at retail business units, the ProWood unit sales were down 17% as demand returned to more normalized levels from a significantly higher sales in Q2 of 2020.
The Sunbelt team has done a great job growing their business, and more recently, integrating the acquisition of Spartanburg Forest Products. We have been impressed with their treating operations and quality, and have worked together to target synergies in our purchasing and administrative areas. This team suffered the most from the lumber market drop as customer orders did not match customer forecast.
UFP-Edge, our siding pattern and trim business unit, was up 27% in unit sales, as new capacity came online during the quarter. More capacity will be added in Q4 and early in 2022 to meet expected demand for our high-quality finishing services and our pattern and trim products.
The Deckorators unit sales increased 11% over record Q2 2020 levels. The patented Deckorators’ Voyage and Vault mineral-based composite products continue to grow their fan base among contractors as the strength to weight ratio, product flexibility and ease of installation, make it a preferred product. As a result, the production is sold out through year end. And as previously disclosed, additional mineral-based capacity will be coming online starting in November of ’21, and by the end of ’22, we will have doubled the mineral-based capacity. Our wood-plastic composite line is sold out through November, with additional capacity coming online in 2022, which will add around 30% to 35% more capacity in those product lines. Deckorators continue to feel some of the impacts of higher resin and transportation costs in Q2, while passing along some of these costs to customers during the quarter.
Handprint, the new home and decor business unit, formally known as Dimensions, will be rolling out its new website in late Q3 and will be adding to its ready-to-make craft and product — and project line of products. Handprint continues to gain more sales volume with its cut-to-size [Phonetic] product offering for building materials retailers too.
Outdoor Essentials has expanded its fencing range to include a variety of materials, including aluminum and composite. It is also unveiling a new raised planter for 2022, specifically targeted for customers’ e-commerce portals.
Moving to the UFP Construction segment. Unit sales increased 29% over the second quarter of 2020. Strong single-family residential demand continues in the geographic markets we serve. And multi-family remains solid and may even begin to expand again as developers who held off due to high prices reengage as commodity prices normalize. Steel products, such as the connectors used in our trust [Phonetic] manufacturing, remain in short supply due in part to overseas shipping constraints.
Unit sales to the factory-built business unit rose 56%, as strong demand continues. The robust growth in factory-built reflects the growing recognition that it is an authentic and much needed affordable housing option, and our factory-built team has been working hard to meet this need. Our team continues to grow its new product portfolio for the factory-built market, and we should see growing new product sales units by Q4, and several new product lines. The factory-built customers have also seen shortages in certain items such as appliances and other items using microchips, which has moderated their growth somewhat.
Unit sales to the site-built customers rose 32% in the quarter. The customers in this business unit are bullish on the market and have been very complimentary of the ability of our teams to supply product in this challenging market. They’re also imploring us to add more capacity to serve their growing needs.
Unit sales to the commercial construction unit rose 11%. More importantly, our commercial business unit was profitable in Q2 and focused on improving margins and rationalizing customer concentration. We continued to position the commercial business unit for significant improvements in performance and have been refining our customer mix to ensure that we do not work for free, or worse yet, pay a customer to do work for them.
Our concrete forming business unit continues to grow. The team has been offering new solutions to its customers and expanding its supply…