| |
| |
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10‑Q10-Q
For the quarterly period ended SeptemberMarch 30, 20172024
OR
Commission File Number 0‑226840-22684
UNIVERSAL FOREST PRODUCTS,UFP INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
| | | | |
| Michigan |
|
| |
| (State or other jurisdiction of incorporation or | | (I.R.S. Employer Identification Number) | |
| organization) | | | |
| | | | |
| 2801 East Beltline NE, Grand Rapids, Michigan | | 49525 | |
| (Address of principal executive offices) | | (Zip Code) | |
Registrant’s telephone number, including area code (616) 364‑6161364-6161
| | | ||
| NONE | | ||
| (Former name or former address, if changed since last report.) | | ||
| | | ||
| | |
Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒⌧ No ☐◻
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒⌧ No ☐◻
Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b‑212b-2 of the Exchange Act.
| | | |
Large Accelerated Filer | Accelerated Filer | Non-Accelerated Filer | Smaller |
| | | Emerging Growth Company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with ana new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐
Indicate by checkmark whether the registrant is a shell company (as defined by Rule 12b‑212b-2 of the Exchange Act). Yes ☐ No ☒⌧
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
| | | | |
| Class |
| Outstanding as of | |
| Common stock, $1 par value | |
| |
UNIVERSAL FOREST PRODUCTS, INC.
|
|
| |||
Title of Each Class | Trading Symbol | Name of Each Exchange On Which Registered | |||
Common Stock, no par value | UFPI | The Nasdaq Stock Market, LLC |
| |
| |
TABLE OF CONTENTS
PART I. | | FINANCIAL INFORMATION. | Page No. |
| | | |
| Item 1. | Financial Statements | 3 |
| | | |
| | 3 | |
| | | |
| | 4 | |
| | | |
| | 5 | |
| | | |
| | 6 | |
| | | |
| | Notes to Unaudited Condensed Consolidated | 7 |
| | | |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations | ||
18 | |||
| | | |
| |||
32 | |||
| | | |
| |||
33 | |||
| |
| |
PART II. | | OTHER INFORMATION | |
| | | |
| Item 1. | Legal Proceedings – NONE | |
| | | |
| |||
33 | |||
| | | |
| |||
33 | |||
| | | |
| Item 3. | Defaults upon Senior Securities – NONE | |
| | | |
| Item 4. | Mine Safety Disclosures – NONE | |
| | | |
| |||
33 | |||
| | | |
| 34 |
2
CONDENSED CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except share data) |
|
|
|
|
|
|
| |||
|
| September 30, |
| December 31, |
| September 24, |
| |||
|
| 2017 |
| 2016 |
| 2016 |
| |||
ASSETS |
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS: |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 22,044 |
| $ | 34,091 |
| $ | 36,683 |
|
Restricted cash |
|
| 905 |
|
| 398 |
|
| 909 |
|
Investments |
|
| 10,781 |
|
| 10,348 |
|
| 10,453 |
|
Accounts receivable, net |
|
| 419,183 |
|
| 282,253 |
|
| 343,771 |
|
Inventories: |
|
|
|
|
|
|
|
|
|
|
Raw materials |
|
| 203,930 |
|
| 198,954 |
|
| 180,740 |
|
Finished goods |
|
| 208,556 |
|
| 198,273 |
|
| 189,188 |
|
Total inventories |
|
| 412,486 |
|
| 397,227 |
|
| 369,928 |
|
Refundable income taxes |
|
| 763 |
|
| 11,459 |
|
| 7,407 |
|
Other current assets |
|
| 22,438 |
|
| 20,662 |
|
| 21,636 |
|
TOTAL CURRENT ASSETS |
|
| 888,600 |
|
| 756,438 |
|
| 790,787 |
|
DEFERRED INCOME TAXES |
|
| 1,899 |
|
| 1,546 |
|
| 2,416 |
|
RESTRICTED INVESTMENTS |
|
| 7,982 |
|
| — |
|
| — |
|
OTHER ASSETS |
|
| 7,634 |
|
| 8,617 |
|
| 8,757 |
|
GOODWILL |
|
| 212,029 |
|
| 198,535 |
|
| 207,832 |
|
INDEFINITE-LIVED INTANGIBLE ASSETS |
|
| 7,580 |
|
| 2,340 |
|
| 2,340 |
|
OTHER INTANGIBLE ASSETS, NET |
|
| 36,093 |
|
| 26,731 |
|
| 14,014 |
|
PROPERTY, PLANT AND EQUIPMENT: |
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
| 754,175 |
|
| 699,462 |
|
| 717,287 |
|
Less accumulated depreciation and amortization |
|
| (429,066) |
|
| (401,611) |
|
| (432,796) |
|
PROPERTY, PLANT AND EQUIPMENT, NET |
|
| 325,109 |
|
| 297,851 |
|
| 284,491 |
|
TOTAL ASSETS |
|
| 1,486,926 |
|
| 1,292,058 |
|
| 1,310,637 |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
Cash overdraft |
| $ | 26,617 |
| $ | 19,761 |
| $ | 13,940 |
|
Accounts payable |
|
| 171,774 |
|
| 124,660 |
|
| 137,979 |
|
Accrued liabilities: |
|
|
|
|
|
|
|
|
|
|
Compensation and benefits |
|
| 88,185 |
|
| 92,441 |
|
| 99,549 |
|
Other |
|
| 50,179 |
|
| 32,281 |
|
| 57,104 |
|
Current portion of long-term debt |
|
| 2,197 |
|
| 2,634 |
|
| 1,584 |
|
TOTAL CURRENT LIABILITIES |
|
| 338,952 |
|
| 271,777 |
|
| 310,156 |
|
LONG-TERM DEBT |
|
| 145,884 |
|
| 109,059 |
|
| 110,362 |
|
DEFERRED INCOME TAXES |
|
| 22,806 |
|
| 20,817 |
|
| 14,066 |
|
OTHER LIABILITIES |
|
| 29,204 |
|
| 29,939 |
|
| 28,963 |
|
TOTAL LIABILITIES |
|
| 536,846 |
|
| 431,592 |
|
| 463,547 |
|
SHAREHOLDERS’ EQUITY: |
|
|
|
|
|
|
|
|
|
|
Controlling interest shareholders’ equity: |
|
|
|
|
|
|
|
|
|
|
Preferred stock, no par value; shares authorized 1,000,000; issued and outstanding, none |
| $ | — |
| $ | — |
| $ | — |
|
Common stock, $1 par value; shares authorized 80,000,000; issued and outstanding, 20,391,399, 20,342,069 and 20,330,939 |
|
| 20,391 |
|
| 20,342 |
|
| 20,331 |
|
Additional paid-in capital |
|
| 200,778 |
|
| 185,333 |
|
| 183,962 |
|
Retained earnings |
|
| 715,497 |
|
| 649,135 |
|
| 637,536 |
|
Accumulated other comprehensive income |
|
| (871) |
|
| (5,630) |
|
| (4,854) |
|
Total controlling interest shareholders’ equity |
|
| 935,795 |
|
| 849,180 |
|
| 836,975 |
|
Noncontrolling interest |
|
| 14,285 |
|
| 11,286 |
|
| 10,115 |
|
TOTAL SHAREHOLDERS’ EQUITY |
|
| 950,080 |
|
| 860,466 |
|
| 847,090 |
|
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
| $ | 1,486,926 |
| $ | 1,292,058 |
| $ | 1,310,637 |
|
| | | | | | | | | | |
(in thousands, except share data) | | March 30, | | December 30, | | April 1, | | |||
|
| 2024 |
| 2023 |
| 2023 | | |||
ASSETS | | | |
| | |
| | | |
CURRENT ASSETS: | | | |
| | |
| | | |
Cash and cash equivalents | | $ | 979,746 |
| $ | 1,118,329 |
| $ | 423,299 | |
Restricted cash | |
| 761 | |
| 3,927 |
|
| 761 | |
Investments | |
| 36,978 | |
| 34,745 |
|
| 37,534 | |
Accounts receivable, net | |
| 713,414 | |
| 549,499 |
|
| 809,389 | |
Inventories: | | | |
| | |
| | | |
Raw materials | |
| 410,959 | |
| 352,785 |
|
| 425,835 | |
Finished goods | |
| 334,336 | |
| 375,003 |
|
| 534,503 | |
Total inventories | |
| 745,295 | |
| 727,788 |
|
| 960,338 | |
Refundable income taxes | |
| 2,185 | |
| 29,327 |
|
| — | |
Other current assets | |
| 36,036 | |
| 38,474 |
|
| 35,692 | |
TOTAL CURRENT ASSETS | |
| 2,514,415 | |
| 2,502,089 | |
| 2,267,013 | |
DEFERRED INCOME TAXES | |
| 3,595 | |
| 4,228 |
|
| 4,194 | |
RESTRICTED INVESTMENTS | | | 29,119 | |
| 24,838 |
|
| 22,267 | |
RIGHT OF USE ASSETS | | | 128,846 | | | 103,774 | | | 116,564 | |
OTHER ASSETS | |
| 96,977 | |
| 87,438 |
|
| 99,516 | |
GOODWILL | |
| 335,596 | |
| 336,313 |
|
| 337,467 | |
INDEFINITE-LIVED INTANGIBLE ASSETS | |
| 7,322 | |
| 7,345 |
|
| 7,336 | |
OTHER INTANGIBLE ASSETS, NET | |
| 168,209 | |
| 175,195 |
|
| 142,277 | |
PROPERTY, PLANT AND EQUIPMENT: | | | |
| | |
| | | |
Property, plant and equipment | | | 1,596,622 | | | 1,559,304 | | | 1,408,360 | |
Less accumulated depreciation and amortization | |
| (802,062) | |
| (782,727) |
|
| (708,205) | |
PROPERTY, PLANT AND EQUIPMENT, NET | | | 794,560 | | | 776,577 | | | 700,155 | |
TOTAL ASSETS | | | 4,078,639 | | | 4,017,797 | | | 3,696,789 | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | |
| | |
| | | |
CURRENT LIABILITIES: | | | |
| | |
| | | |
Accounts payable | | $ | 254,902 | | $ | 203,055 |
| $ | 277,989 | |
Accrued liabilities: | | | |
| | |
| | | |
Compensation and benefits | |
| 133,513 | |
| 232,331 |
|
| 142,603 | |
Income taxes | | | — | | | — | | | 1,855 | |
Other | |
| 66,032 | |
| 66,713 |
|
| 77,054 | |
Current portion of lease liability | | | 26,520 | | | 22,977 | | | 27,838 | |
Current portion of long-term debt | |
| 44,051 | |
| 42,900 |
|
| 3,020 | |
TOTAL CURRENT LIABILITIES | |
| 525,018 | |
| 567,976 |
|
| 530,359 | |
LONG-TERM DEBT | |
| 233,046 | |
| 233,534 |
|
| 275,002 | |
LEASE LIABILITY | | | 106,231 | | | 84,885 | | | 92,182 | |
DEFERRED INCOME TAXES | |
| 44,726 | |
| 45,248 |
|
| 51,254 | |
OTHER LIABILITIES | |
| 34,140 | |
| 35,934 |
|
| 35,550 | |
TOTAL LIABILITIES | |
| 943,161 | |
| 967,577 |
|
| 984,347 | |
TEMPORARY EQUITY: | | | | | | | | | | |
Redeemable noncontrolling interest | | $ | 19,383 | | $ | 20,030 | | $ | 6,801 | |
SHAREHOLDERS’ EQUITY: | | | |
| | |
| | | |
Controlling interest shareholders’ equity: | | | |
| | |
| | | |
Preferred stock, no par value; shares authorized 1,000,000; issued and outstanding, none | | $ | — | | $ | — |
| $ | — | |
Common stock, $1 par value; shares authorized 160,000,000; issued and outstanding, 61,753,899, 61,621,004, and 62,095,570 | |
| 61,754 | |
| 61,621 |
|
| 62,096 | |
Additional paid-in capital | |
| 362,231 | |
| 354,702 |
|
| 325,730 | |
Retained earnings | |
| 2,664,081 | |
| 2,582,332 |
|
| 2,293,025 | |
Accumulated other comprehensive loss | |
| (307) | |
| 1,106 |
|
| (5,074) | |
Total controlling interest shareholders’ equity | |
| 3,087,759 | |
| 2,999,761 |
|
| 2,675,777 | |
Noncontrolling interest | |
| 28,336 | |
| 30,429 |
|
| 29,864 | |
TOTAL SHAREHOLDERS’ EQUITY | |
| 3,116,095 | |
| 3,030,190 |
|
| 2,705,641 | |
TOTAL LIABILITIES, TEMPORARY EQUITY AND SHAREHOLDERS’ EQUITY | | $ | 4,078,639 | | $ | 4,017,797 |
| $ | 3,696,789 | |
See notes to consolidated condensed financial statements.statements.
3
CONDENSED CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
AND COMPREHENSIVE INCOME
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per share data) |
|
|
|
|
|
|
|
|
| ||||
|
| Three Months Ended |
| Nine Months Ended |
| ||||||||
|
| September 30, |
| September 24, |
| September 30, |
| September 24, |
| ||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
NET SALES |
| $ | 1,056,586 |
| $ | 826,665 |
| $ | 2,975,091 |
| $ | 2,380,909 |
|
COST OF GOODS SOLD |
|
| 911,899 |
|
| 708,611 |
|
| 2,561,424 |
|
| 2,028,629 |
|
GROSS PROFIT |
|
| 144,687 |
|
| 118,054 |
|
| 413,667 |
|
| 352,280 |
|
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES |
|
| 92,416 |
|
| 74,502 |
|
| 273,676 |
|
| 223,153 |
|
EARNINGS FROM OPERATIONS |
|
| 52,271 |
|
| 43,552 |
|
| 139,991 |
|
| 129,127 |
|
INTEREST EXPENSE |
|
| 1,481 |
|
| 1,096 |
|
| 4,825 |
|
| 3,274 |
|
INTEREST INCOME |
|
| (130) |
|
| (119) |
|
| (541) |
|
| (431) |
|
EQUITY IN EARNINGS OF INVESTEE |
|
| 1 |
|
| (50) |
|
| (25) |
|
| (241) |
|
|
|
| 1,352 |
|
| 927 |
|
| 4,259 |
|
| 2,602 |
|
EARNINGS BEFORE INCOME TAXES |
|
| 50,919 |
|
| 42,625 |
|
| 135,732 |
|
| 126,525 |
|
INCOME TAXES |
|
| 16,250 |
|
| 13,861 |
|
| 44,855 |
|
| 43,268 |
|
NET EARNINGS |
|
| 34,669 |
|
| 28,764 |
|
| 90,877 |
|
| 83,257 |
|
LESS NET EARNINGS ATTRIBUTABLE TO NONCONTROLLING INTEREST |
|
| (976) |
|
| (945) |
|
| (2,480) |
|
| (2,828) |
|
NET EARNINGS ATTRIBUTABLE TO CONTROLLING INTEREST |
| $ | 33,693 |
| $ | 27,819 |
| $ | 88,397 |
| $ | 80,429 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS PER SHARE - BASIC |
| $ | 1.65 |
| $ | 1.36 |
| $ | 4.32 |
| $ | 3.95 |
|
EARNINGS PER SHARE - DILUTED |
| $ | 1.64 |
| $ | 1.36 |
| $ | 4.31 |
| $ | 3.94 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE INCOME: |
|
|
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS |
|
| 34,669 |
|
| 28,764 |
|
| 90,877 |
|
| 83,257 |
|
OTHER COMPREHENSIVE GAIN (LOSS) |
|
| 1,719 |
|
| (1,156) |
|
| 6,141 |
|
| (1,521) |
|
COMPREHENSIVE INCOME |
|
| 36,388 |
|
| 27,608 |
|
| 97,018 |
|
| 81,736 |
|
LESS COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST |
|
| (975) |
|
| (495) |
|
| (3,862) |
|
| (1,576) |
|
COMPREHENSIVE INCOME ATTRIBUTABLE TO CONTROLLING INTEREST |
| $ | 35,413 |
| $ | 27,113 |
| $ | 93,156 |
| $ | 80,160 |
|
| | | | | | |
(in thousands, except per share data) | Three Months Ended | | ||||
| March 30, | | April 1, | | ||
| 2024 |
| 2023 |
| ||
NET SALES | $ | 1,638,966 |
| $ | 1,822,476 |
|
COST OF GOODS SOLD |
| 1,312,888 | |
| 1,464,147 | |
GROSS PROFIT |
| 326,078 | |
| 358,329 | |
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES |
| 192,059 | |
| 194,683 | |
OTHER LOSSES (GAINS), NET | | 196 | | | 1,938 | |
EARNINGS FROM OPERATIONS |
| 133,823 | |
| 161,708 | |
INTEREST EXPENSE |
| 3,136 | |
| 3,118 | |
INTEREST AND INVESTMENT INCOME |
| (16,493) | |
| (6,547) | |
EQUITY IN LOSS OF INVESTEE | | 594 | | | 588 | |
INTEREST AND OTHER |
| (12,763) | |
| (2,841) | |
EARNINGS BEFORE INCOME TAXES |
| 146,586 | |
| 164,549 | |
INCOME TAXES |
| 25,487 | |
| 38,971 | |
NET EARNINGS |
| 121,099 | |
| 125,578 | |
NET EARNINGS ATTRIBUTABLE TO NONCONTROLLING INTEREST |
| (308) | |
| 491 | |
NET EARNINGS ATTRIBUTABLE TO CONTROLLING INTEREST | $ | 120,791 | | $ | 126,069 | |
| | | | | | |
EARNINGS PER SHARE – BASIC | $ | 1.96 | | $ | 2.01 | |
EARNINGS PER SHARE – DILUTED | $ | 1.96 | | $ | 1.98 | |
| | | | | | |
OTHER COMPREHENSIVE INCOME: | | | | | | |
NET EARNINGS |
| 121,099 | |
| 125,578 | |
OTHER COMPREHENSIVE INCOME (LOSS) |
| (1,130) | |
| 6,252 | |
COMPREHENSIVE INCOME |
| 119,969 | |
| 131,830 | |
COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST |
| (591) | |
| (1,760) | |
COMPREHENSIVE INCOME ATTRIBUTABLE TO CONTROLLING INTEREST | $ | 119,378 | | $ | 130,070 | |
See notes to consolidated condensed financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | |
(in thousands, except share and per share data) | | Controlling Interest Shareholders’ Equity | | | | ||||||||||||||||
| | | | | Additional | | | | | Accumulated Other | | | | | | | | | | ||
| | Common | | Paid-In | | Retained | | Comprehensive | | Noncontrolling | | | | | Temporary | ||||||
|
| Stock |
| Capital |
| Earnings |
| Earnings |
| Interest (NCI) |
| Total |
| Equity | |||||||
Balance on December 30, 2023 | | $ | 61,621 | | $ | 354,702 |
| $ | 2,582,332 | | $ | 1,106 |
| $ | 30,429 |
| $ | 3,030,190 | | $ | 20,030 |
Net earnings (loss) | | | | | | | | | 120,791 | | | | | | 622 | | | 121,413 | |
| (314) |
Foreign currency translation adjustment | | | | | | | | | | | | (1,419) | | | 616 | | | (803) | |
| (333) |
Unrealized loss on debt securities | | | | | | | | | | | | 6 | | | — | | | 6 | |
| |
Distributions to NCI | | | | | | | | | | | | | | | (3,331) | | | (3,331) | |
| |
Cash dividends - $0.33 per share - quarterly | | | | | | | | | (20,411) | | | | | | | | | (20,411) | |
| |
Issuance of 6,251 shares under employee stock purchase plan | |
| 6 | | | 648 | | | | | | | | | | | | 654 | |
| |
Issuance of 369,012 shares under stock grant programs | |
| 369 | | | 5,829 | | | | | | | | | | | | 6,198 | |
| |
Issuance of 76,927 shares under deferred compensation plans | |
| 77 | | | (77) | | | | | | | | | | | | — | |
| |
Repurchase of 319,295 shares | |
| (319) | | | (17,686) | | | (18,631) | | | | | | | | | (36,636) | |
| |
Expense associated with share-based compensation arrangements | | | | | | 11,194 | | | | | | | | | | | | 11,194 | |
| |
Accrued expense under deferred compensation plans | | | | | | 7,621 | | | | | | | | | | | | 7,621 | |
| |
Balance on March 30, 2024 | | $ | 61,754 | | $ | 362,231 | | $ | 2,664,081 | | $ | (307) | | $ | 28,336 | | $ | 3,116,095 | | $ | 19,383 |
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except share and per share data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Controlling Interest Shareholders’ Equity | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
| |
|
|
|
|
| Additional |
|
|
|
| Other |
|
|
|
|
|
| ||
|
| Common |
| Paid-In |
| Retained |
| Comprehensive |
| Noncontrolling |
|
|
| |||||
|
| Stock |
| Capital |
| Earnings |
| Earnings |
| Interest |
| Total | ||||||
Balance at December 26, 2015 |
| $ | 20,142 |
| $ | 171,562 |
| $ | 565,636 |
| $ | (4,585) |
| $ | 13,654 |
| $ | 766,409 |
Net earnings |
|
|
|
|
|
|
|
| 80,429 |
|
|
|
|
| 2,828 |
|
| 83,257 |
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
| (620) |
|
| (1,252) |
|
| (1,872) |
Unrealized gain (loss) on investment & foreign currency |
|
|
|
|
|
|
|
|
|
|
| 351 |
|
|
|
|
| 351 |
Distributions to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (3,160) |
|
| (3,160) |
Purchases of noncontrolling interest |
|
|
|
|
| 855 |
|
|
|
|
|
|
|
| (1,955) |
|
| (1,100) |
Cash dividends $0.420 per share |
|
|
|
|
|
|
|
| (8,529) |
|
|
|
|
|
|
|
| (8,529) |
Issuance of 5,195 shares under employee stock plans |
|
| 5 |
|
| 390 |
|
|
|
|
|
|
|
|
|
|
| 395 |
Issuance of 133,293 shares under stock grant programs |
|
| 133 |
|
| 5,143 |
|
|
|
|
|
|
|
|
|
|
| 5,276 |
Issuance of 50,742 shares under deferred compensation plans |
|
| 51 |
|
| (51) |
|
|
|
|
|
|
|
|
|
|
| — |
Expense associated with share-based compensation arrangements |
|
|
|
|
| 1,568 |
|
|
|
|
|
|
|
|
|
|
| 1,568 |
Accrued expense under deferred compensation plans |
|
|
|
|
| 4,495 |
|
|
|
|
|
|
|
|
|
|
| 4,495 |
Balance at September 24, 2016 |
| $ | 20,331 |
| $ | 183,962 |
| $ | 637,536 |
| $ | (4,854) |
| $ | 10,115 |
| $ | 847,090 |
Balance at December 31, 2016 |
|
| 20,342 |
|
| 185,333 |
|
| 649,135 |
|
| (5,630) |
|
| 11,286 |
|
| 860,466 |
Net earnings |
|
|
|
|
|
|
|
| 88,397 |
|
|
|
|
| 2,480 |
|
| 90,877 |
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
| 4,325 |
|
| 1,382 |
|
| 5,707 |
Unrealized gain (loss) on investment & foreign currency |
|
|
|
|
|
|
|
|
|
|
| 434 |
|
|
|
|
| 434 |
Distributions to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (3,272) |
|
| (3,272) |
Additional purchases of noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2,409 |
|
| 2,409 |
Cash dividends - $0.450 per share |
|
|
|
|
|
|
|
| (9,208) |
|
|
|
|
|
|
|
| (9,208) |
Issuance of 5,975 shares under employee stock plans |
|
| 6 |
|
| 470 |
|
|
|
|
|
|
|
|
|
|
| 476 |
Issuance of 142,775 shares under stock grant programs |
|
| 143 |
|
| 7,037 |
|
|
|
|
|
|
|
|
|
|
| 7,180 |
Issuance of 49,160 shares under deferred compensation plans |
|
| 49 |
|
| (49) |
|
|
|
|
|
|
|
|
|
|
| — |
Repurchase of 148,580 shares |
|
| (149) |
|
|
|
|
| (12,827) |
|
|
|
|
|
|
|
| (12,976) |
Expense associated with share-based compensation arrangements |
|
|
|
|
| 1,978 |
|
|
|
|
|
|
|
|
|
|
| 1,978 |
Accrued expense under deferred compensation plans |
|
|
|
|
| 6,009 |
|
|
|
|
|
|
|
|
|
|
| 6,009 |
Balance at September 30, 2017 |
| $ | 20,391 |
| $ | 200,778 |
| $ | 715,497 |
| $ | (871) |
| $ | 14,285 |
| $ | 950,080 |
| | | | | | | | | | | | | | | | | | | | | |
(in thousands, except share and per share data) | | Controlling Interest Shareholders’ Equity | | | | ||||||||||||||||
| | | | | Additional | | | | | Accumulated Other | | | | | | | | | | ||
| | Common | | Paid-In | | Retained | | Comprehensive | | Noncontrolling | | | | | Temporary | ||||||
|
| Stock |
| Capital |
| Earnings |
| Earnings |
| Interest (NCI) |
| Total |
| Equity | |||||||
Balance on December 31, 2022 | | $ | 61,618 | | $ | 294,029 | | $ | 2,217,410 | | $ | (9,075) | | $ | 32,841 |
| $ | 2,596,823 | | $ | 6,880 |
Net earnings (loss) | | | | | | | | | 126,069 | | | | | | (313) |
|
| 125,756 | | | (178) |
Foreign currency translation adjustment | | | | | | | | | | | | 3,850 | | | 2,195 |
|
| 6,045 | | | 56 |
Unrealized loss on debt securities | | | | | | | | | | | | 151 | | | | |
| 151 | | | |
Distributions to NCI | | | | | | | | | | | | | | | (4,859) | |
| (4,859) | | | |
Other | | | | | | | | | | | | | | | | |
| — | | | 43 |
Cash dividends - $0.25 per share - quarterly | | | | | | | | | (15,642) | | | | | | |
|
| (15,642) | | | |
Issuance of 10,140 shares under employee stock purchase plan | |
| 10 | | | 675 | | | | | | | | | |
|
| 685 | | | |
Issuance of 824,669 shares under stock grant programs | |
| 825 | | | 14,356 | | | 6 | | | | | | |
|
| 15,187 | | | |
Issuance of 93,165 shares under deferred compensation plans | |
| 93 | | | (93) | | | | | | | | | | | | — | | | |
Repurchase of 450,597 shares | |
| (450) | | | | | | (34,818) | | | | | | | |
| (35,268) | | | |
Expense associated with share-based compensation arrangements | | | | | | 9,598 | | | | | | | | | | | | 9,598 | | | |
Accrued expense under deferred compensation plans | | | | | | 7,165 | | | | | | | | | | |
| 7,165 | | | |
Balance on April 1, 2023 | | $ | 62,096 | | $ | 325,730 |
| $ | 2,293,025 | | $ | (5,074) |
| $ | 29,864 |
| $ | 2,705,641 | | $ | 6,801 |
See notes to consolidated condensed financial statements.
5
CONDENSED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
| | | | | | |
(in thousands) | | Three Months Ended | ||||
| | March 30, | | April 1, | ||
|
| 2024 |
| 2023 | ||
CASH FLOWS USED IN OPERATING ACTIVITIES: | | | |
| | |
Net earnings | | $ | 121,099 |
| $ | 125,578 |
Adjustments to reconcile net earnings to net cash used in operating activities: | | | |
| | |
Depreciation | |
| 30,019 | |
| 25,774 |
Amortization of intangibles | |
| 5,882 | |
| 5,009 |
Expense associated with share-based and grant compensation arrangements | |
| 11,277 | |
| 9,637 |
Deferred income taxes | |
| 119 | |
| (242) |
Unrealized gain on investments and other | |
| (2,130) | |
| (149) |
Equity in loss of investee | | | 594 | | | 588 |
Net gain on sale and disposition of assets | |
| (231) | |
| (164) |
Changes in: | | | |
| | |
Accounts receivable | |
| (164,613) | |
| (191,064) |
Inventories | |
| (17,788) | |
| 14,674 |
Accounts payable and cash overdraft | |
| 52,264 | |
| 68,388 |
Accrued liabilities and other | |
| (53,290) | |
| (95,105) |
NET CASH USED IN OPERATING ACTIVITIES | |
| (16,798) | |
| (37,076) |
CASH FLOWS USED IN INVESTING ACTIVITIES: | | | |
| | |
Purchases of property, plant and equipment | |
| (49,148) | |
| (38,166) |
Proceeds from sale of property, plant and equipment | |
| 1,344 | |
| 319 |
Purchases of investments | |
| (9,352) | |
| (11,709) |
Proceeds from sale of investments | |
| 4,300 | |
| 8,849 |
Other | |
| (3,206) | |
| (1,151) |
NET CASH USED IN INVESTING ACTIVITIES | |
| (56,062) | |
| (41,858) |
CASH FLOWS USED IN FINANCING ACTIVITIES: | | | |
| | |
Borrowings under revolving credit facilities | |
| 5,100 | |
| 4,437 |
Repayments under revolving credit facilities | |
| (4,278) | |
| (4,518) |
Repayments of debt | | | — | | | (29) |
Repayment of debt on behalf of investee | | | (6,303) | | | — |
Contingent consideration payments and other | | | (3,779) | | | (6,179) |
Proceeds from issuance of common stock | |
| 654 | |
| 685 |
Dividends paid to shareholders | |
| (20,411) | |
| (15,642) |
Distributions to noncontrolling interest | | | (3,331) | | | (4,859) |
Payments to taxing authorities in connection with shares directly withheld from employees | | | (17,838) | | | — |
Repurchase of common stock | |
| (18,798) | |
| (33,288) |
Other | |
| 16 | |
| 25 |
NET CASH USED IN FINANCING ACTIVITIES | |
| (68,968) | |
| (59,368) |
Effect of exchange rate changes on cash | |
| 79 | |
| 2,739 |
NET CHANGE IN CASH AND CASH EQUIVALENTS | |
| (141,749) | |
| (135,563) |
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, BEGINNING OF YEAR | |
| 1,122,256 | |
| 559,623 |
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, END OF PERIOD | | $ | 980,507 | | $ | 424,060 |
| | | | | | |
RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH: | | | | | | |
Cash and cash equivalents, beginning of period | | $ | 1,118,329 | | $ | 559,397 |
Restricted cash, beginning of period | | | 3,927 | | | 226 |
Cash, cash equivalents, and restricted cash, beginning of period | | $ | 1,122,256 | | $ | 559,623 |
| | | | | | |
Cash and cash equivalents, end of period | | $ | 979,746 | | $ | 423,299 |
Restricted cash, end of period | | | 761 | | | 761 |
Cash, cash equivalents, and restricted cash, end of period | | $ | 980,507 | | $ | 424,060 |
| | | | | | |
SUPPLEMENTAL INFORMATION: | | | |
| | |
Interest paid | | $ | 3,099 | | $ | 3,309 |
Income taxes paid | |
| 1,778 | |
| 4,138 |
NON-CASH INVESTING ACTIVITIES | | | |
| | |
Capital expenditures included in accounts payable | |
| 3,351 | |
| 3,122 |
NON-CASH FINANCING ACTIVITIES: | | | | | | |
Common stock issued under deferred compensation plans | | $ | 8,616 | | $ | 7,950 |
(Unaudited)
|
|
|
|
|
|
|
|
(in thousands) |
| Nine Months Ended |
| ||||
|
| September 30, |
| September 24, |
| ||
|
| 2017 |
| 2016 |
| ||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
Net earnings |
| $ | 90,877 |
| $ | 83,257 |
|
Adjustments to reconcile net earnings to net cash from operating activities: |
|
|
|
|
|
|
|
Depreciation |
|
| 36,010 |
|
| 29,014 |
|
Amortization of intangibles |
|
| 3,549 |
|
| 1,868 |
|
Expense associated with share-based compensation arrangements |
|
| 1,978 |
|
| 1,568 |
|
Expense associated with stock grant plans |
|
| 144 |
|
| 105 |
|
Deferred income taxes (credits) |
|
| 117 |
|
| (53) |
|
Equity in earnings of investee |
|
| (25) |
|
| (241) |
|
Net (gain) loss on disposition and impairment of assets |
|
| (437) |
|
| 94 |
|
Changes in: |
|
|
|
|
|
|
|
Accounts receivable |
|
| (121,688) |
|
| (69,357) |
|
Inventories |
|
| (820) |
|
| 21,683 |
|
Accounts payable and cash overdraft |
|
| 53,424 |
|
| 35,026 |
|
Accrued liabilities and other |
|
| 34,221 |
|
| 33,413 |
|
NET CASH FROM OPERATING ACTIVITIES |
|
| 97,350 |
|
| 136,377 |
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
Purchases of property, plant and equipment |
|
| (57,189) |
|
| (35,723) |
|
Proceeds from sale of property, plant and equipment |
|
| 2,121 |
|
| 516 |
|
Acquisitions, net of cash received |
|
| (59,859) |
|
| (66,615) |
|
Repayments of debt of acquiree |
|
| — |
|
| (92,830) |
|
Purchase of remaining noncontrolling interest, net of cash received |
|
| — |
|
| (1,100) |
|
Cash contributed from noncontrolling interest |
|
| 464 |
|
| — |
|
Advances of notes receivable |
|
| (234) |
|
| (5,400) |
|
Collections on notes receivable |
|
| 1,334 |
|
| 5,819 |
|
Purchases of investments |
|
| (12,155) |
|
| (4,468) |
|
Proceeds from sale of investments |
|
| 4,227 |
|
| 1,395 |
|
Other |
|
| (84) |
|
| (1,733) |
|
NET CASH USED IN INVESTING ACTIVITIES |
|
| (121,375) |
|
| (200,139) |
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
Borrowings under revolving credit facilities |
|
| 610,038 |
|
| 52,479 |
|
Repayments under revolving credit facilities |
|
| (573,829) |
|
| (27,177) |
|
Proceeds from issuance of common stock |
|
| 476 |
|
| 396 |
|
Dividends paid to shareholders |
|
| (9,207) |
|
| (8,529) |
|
Distributions to noncontrolling interest |
|
| (3,272) |
|
| (3,160) |
|
Repurchase of common stock |
|
| (12,976) |
|
| — |
|
Other |
|
| — |
|
| (28) |
|
NET CASH FROM (USED IN) FINANCING ACTIVITIES |
|
| 11,230 |
|
| 13,981 |
|
Effect of exchange rate changes on cash |
|
| 1,255 |
|
| (969) |
|
NET CHANGE IN CASH AND CASH EQUIVALENTS |
|
| (11,540) |
|
| (50,750) |
|
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, BEGINNING OF YEAR |
|
| 34,489 |
|
| 88,342 |
|
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, END OF PERIOD |
| $ | 22,949 |
| $ | 37,592 |
|
|
|
|
|
|
|
|
|
RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH: |
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period |
| $ | 34,091 |
| $ | 87,756 |
|
Restricted cash, beginning of period |
|
| 398 |
|
| 586 |
|
Cash, cash equivalents, and restricted cash, beginning of period |
| $ | 34,489 |
| $ | 88,342 |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
| $ | 22,044 |
| $ | 36,683 |
|
Restricted cash, end of period |
|
| 905 |
|
| 909 |
|
Cash, cash equivalents, and restricted cash, end of period |
| $ | 22,949 |
| $ | 37,592 |
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL INFORMATION: |
|
|
|
|
|
|
|
Interest paid |
| $ | 3,910 |
| $ | 2,587 |
|
Income taxes paid |
|
| 34,108 |
|
| 43,384 |
|
NON-CASH FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
Common stock issued under deferred compensation plans |
|
| 4,673 |
|
| 3,657 |
|
See notes to consolidated condensed financial statements.
6
CONDENSED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION
The accompanying unaudited interim consolidated condensed financial statements (the “Financial Statements”) include our accounts and those of our wholly-owned and majority-owned subsidiaries and partnerships, and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, the Financial Statements do not include all of the information and footnotes normally included in the annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States.States of America. All significant intercompany transactionsbalances and balancestransactions have been eliminated.eliminated in consolidation.
We consolidate entities in which we have a controlling financial interest. In determining whether we have a controlling financial interest in a partially owned entity and the requirement to consolidate the accounts of that entity, we consider factors such as ownership interest, board representation, management representation, authority to make decisions, and contractual and substantive participating rights of the partners/members as well as whether the entity is a variable interest entity (“VIE”) and whether we are the primary beneficiary. The primary beneficiary of a VIE is the entity that has (i) the power to direct the activities that most significantly impact the entity's economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could be significant to the VIE. The primary beneficiary is required to consolidate the VIE. We account for unconsolidated VIEs using the equity method of accounting.
As a result of the investment in Dempsey on June 27, 2022, we own 50% of the issued equity of that entity, and the remaining 50% of the issued equity is owned by the previous owners (“Sellers”). The investment in Dempsey is an unconsolidated variable interest entity and we have accounted for it using the equity method of accounting because we do not have a controlling financial interest in the entity. Per the contracts, the Sellers have a put right to sell their equity interest to us for $50 million and we have a call right to purchase the Seller’s equity interest for $70 million, which are both first exercisable in June 2025 and expire in June 2030. As of March 30, 2024, the carrying value of our investment in Dempsey is $60.3 million and is recorded in Other Assets. Our maximum exposure to loss consists of our investment amount and any contingent loss that may occur in the future as a result of a change in the fair value of Dempsey relative to the strike price of the put option.
In our opinion, the Financial Statements contain all material adjustments necessary to present fairly our consolidated financial position, results of operations and cash flows for the interim periods presented. All such adjustments are of a normal recurring nature. These Financial Statements should be read in conjunction with the annual consolidated financial statements, and footnotes thereto, included in our Annual Report to Shareholders on Form 10‑K10-K for the fiscal year ended December 31, 2016.30, 2023.
Seasonality has a significant impact on our working capital from March to August, which historically results in negative or modest cash flows from operations in our first and second quarters. Conversely, we experience a substantial decrease in working capital from September to February which typically results in significant cash flow from operations in our third and fourth quarters. For comparative purposes, we have included the September 24, 2016April 1, 2023 balances in the accompanying unaudited condensed consolidated condensed balance sheets.
7
In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures," which is intended to enhance the transparency, decision usefulness and effectiveness of income tax disclosures. The amendments in this ASU require a public entity to disclose a tabular tax rate reconciliation, using both percentages and currency, with specific categories. A public entity is also required to provide a qualitative description of the states and local jurisdictions that make up the majority of the effect of the state and local income tax category and the net amount of income taxes paid, disaggregated by federal, state and foreign taxes and also disaggregated by individual jurisdictions. The amendments also remove certain disclosures that are no longer considered cost beneficial. The amendments are effective prospectively for annual periods beginning after December 15, 2024, and early adoption and retrospective application are permitted. Although the ASU only modifies our required income tax disclosures, we are currently evaluating the impact of adopting this guidance on the consolidated financial statements.
In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures," which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses, allowing financial statement users to better understand the components of a segment's profit or loss to assess potential future cash flows for each reportable segment and the entity as a whole. The amendments expand a public entity's segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker ("CODM"), clarifying when an entity may report one or more additional measures to assess segment performance, requiring enhanced interim disclosures, providing new disclosure requirements for entities with a single reportable segment, and requiring other new disclosures. The amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and early adoption is permitted. Although the ASU only requires additional disclosures about the Company's operating segments, we are currently evaluating the impact of adopting this guidance on the consolidated financial statements.
8
B. FAIR VALUE
We apply the provisions of ASC 820, Fair Value Measurements and Disclosures, to assets and liabilities measured at fair value. Assets measured at fair value are as follows:follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, 2017 |
| September 24, 2016 | ||||||||||||||
|
| Quoted |
| Prices with |
|
|
|
| Quoted |
| Prices with |
|
|
| ||||
|
| Prices in |
| Other |
|
|
|
| Prices in |
| Other |
|
|
| ||||
|
| Active |
| Observable |
|
|
|
| Active |
| Observable |
|
|
| ||||
|
| Markets |
| Inputs |
|
|
|
| Markets |
| Inputs |
|
|
| ||||
(in thousands) |
| (Level 1) |
| (Level 2) |
| Total |
| (Level 1) |
| (Level 2) |
| Total | ||||||
Money market funds |
| $ | 64 |
| $ | 413 |
| $ | 477 |
| $ | 64 |
| $ | 132 |
| $ | 196 |
Fixed income funds |
|
| 1,299 |
|
| 6,905 |
|
| 8,204 |
|
| 2,049 |
|
| 2,335 |
|
| 4,384 |
Equity securities |
|
| 10,194 |
|
| — |
|
| 10,194 |
|
| 5,592 |
|
| — |
|
| 5,592 |
Mutual funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic stock funds |
|
| 335 |
|
| — |
|
| 335 |
|
| 760 |
|
| — |
|
| 760 |
International stock funds |
|
| 87 |
|
| — |
|
| 87 |
|
| 70 |
|
| — |
|
| 70 |
Target funds |
|
| 260 |
|
| — |
|
| 260 |
|
| 234 |
|
| — |
|
| 234 |
Bond funds |
|
| 208 |
|
| — |
|
| 208 |
|
| 203 |
|
| — |
|
| 203 |
Total mutual funds |
|
| 890 |
|
| — |
|
| 890 |
|
| 1,267 |
|
| — |
|
| 1,267 |
Total |
| $ | 12,447 |
| $ | 7,318 |
| $ | 19,765 |
| $ | 8,972 |
| $ | 2,467 |
| $ | 11,439 |
Assets at fair value |
| $ | 12,447 |
| $ | 7,318 |
| $ | 19,765 |
| $ | 8,972 |
| $ | 2,467 |
| $ | 11,439 |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | March 30, 2024 | | December 30, 2023 | ||||||||||||||||||||
| | Quoted | | Prices with | | | | | | | | Quoted | | Prices with | | | | | | | ||||
| | Prices in | | Other | | | Prices with | | | | | Prices in | | Other | | | Prices with | | | | ||||
| | Active | | Observable | | | Unobservable | | | | | Active | | Observable | | | Unobservable | | | | ||||
| | Markets | | Inputs | | | Inputs | | | | | Markets | | Inputs | | | Inputs | | | | ||||
|
| (Level 1) |
| (Level 2) |
| | (Level 3) | | Total |
| (Level 1) |
| (Level 2) |
| | (Level 3) |
| Total | ||||||
Money market funds | | $ | 179,400 | | $ | 7,036 | | $ | — |
| $ | 186,436 |
| $ | 492,800 |
| $ | 6,133 | | $ | — |
| $ | 498,933 |
Fixed income funds | |
| 5,159 | | | 21,724 | | | — |
|
| 26,883 | |
| 5,112 | |
| 18,976 | | | — |
|
| 24,088 |
Treasury securities | | | 344 | | | — | | | — | | | 344 | | | 344 | | | — | | | — | | | 344 |
Equity securities | |
| 17,439 | | | — | | | 15,000 |
|
| 32,439 | |
| 16,411 | |
| — | | | 10,500 |
|
| 26,911 |
Alternative investments | | | — | | | — | | | 4,030 | | | 4,030 | | | — | | | — | | | 4,052 | | | 4,052 |
Mutual funds: | | | | | | | | | |
| | |
| | |
| | | | | |
| | |
Domestic stock funds | |
| 14,514 | | | — | | | — |
|
| 14,514 | |
| 13,330 | |
| — | | | — |
|
| 13,330 |
International stock funds | |
| 540 | | | — | | | — |
|
| 540 | |
| 509 | |
| — | | | — |
|
| 509 |
Target funds | |
| 9 | | | — | | | — |
|
| 9 | |
| 9 | |
| — | | | — |
|
| 9 |
Bond funds | |
| 5 | | | — | | | — |
|
| 5 | |
| 5 | |
| — | | | — |
|
| 5 |
Alternative funds | | | 489 | | | — | | | — | | | 489 | | | 474 | | | — | | | — | | | 474 |
Total mutual funds | |
| 15,557 | |
| — | | | — |
|
| 15,557 | |
| 14,327 | |
| — | | | — |
|
| 14,327 |
Total | | $ | 217,899 | | $ | 28,760 | | $ | 19,030 | | $ | 265,689 | | $ | 528,994 | | $ | 25,109 | | $ | 14,552 | | $ | 568,655 |
From the assets measured at fair value as of March 30, 2024, listed in the table above, $184.6 million of money market funds are held in Cash and Cash Equivalents, $37.0 million of mutual funds, equity securities, and alternative investments are held in Investments, $15.0 million of equity securities are held in Other Assets, $0.1 million of money market and mutual funds are held in Other Assets for our deferred compensation plan, and $27.2 million of fixed income funds and $1.8 million of money market funds are held in Restricted Investments. As of December 30, 2023, $498.5 million of money market funds were held in Cash and Cash Equivalents, $34.8 million of mutual funds, equity securities, and alternative investments were held in Investments, $10.5 million of equity securities were held in Other Assets, $0.1 million of money market and mutual funds were held in Other Assets for our deferred compensation plan, and $24.4 million of fixed income funds and $0.4 million of money market funds were held in Restricted Investments.
We maintain money market, mutual funds, bonds, and/or stocksequity securities in our non-qualified deferred compensation plan, and our wholly owned licensed captive insurance company.company, and assets held in financial institutions. These funds are valued at prices quoted in an active
7
UNIVERSAL FOREST PRODUCTS, INC.
exchange market and are included in “Cash and Cash Equivalents”, “Investments”, “Restricted Cash”“Other Assets”, and “Restricted Investments”. We have elected not to apply the fair value option under ASC 825, Financial Instruments, to any of our financial instruments except for those expressly required by U.S. GAAP.
We did not maintain any Level 3 assets or liabilities at September 30, 2017 or September 24, 2016.
In November 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) No. 2016-18, “Statement of Cash Flows (Topic 230)” (ASU 2016-18). Under ASU 2016-18, an entity will be required to explain changes in the statement of cash flows during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this update should be applied using retrospective transition method to each period presented. Companies are required to adopt the new standard for fiscal years beginning after December 15, 2017. Early adoption of ASU 2016-18 is permitted, including adoption in an interim period. The Company has early adopted this standard during the first quarter of 2017.
In the first nine months of 2017, our wholly-owned captive, Ardellis Insurance Ltd. (“Ardellis”) transferred $4.1 million in fixed income securities from its Investment Account and purchased an additional $3.8 million in fixed income securities which are held in a newly formed collateral trust account in line with regulatory requirements in the State of Michigan to allow Ardellis to act as an admitted carrier in the State. These funds are intended to safeguard the insureds of the Michigan Branch of Ardellis. The funds are classified as “Restricted Investments”.
In accordance with our investment policy, our wholly-owned captive, Ardellis Insurance Ltd. (“Ardellis”), maintains an investment portfolio, totaling $18.4$64.2 million and $59.2 million as of SeptemberMarch 30, 2017, consisting2024 and December 30, 2023, respectively, which has been included in the aforementioned table of total investments. This portfolio consists of domestic and international stocks,equity securities, alternative investments, and fixed income bonds.
9
Ardellis’ available for sale investment portfolio, including funds held with the State of Michigan, consists of the following:following (in thousands):
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
|
|
|
|
| Unrealized |
|
|
| |||||||||||||||||||
|
| Cost |
| Gain/(Loss) |
| Fair Value | |||||||||||||||||||||
Fixed Income |
| $ | 8,170 |
| $ | 34 |
| $ | 8,204 | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | |||||||||
| | March 30, 2024 | | December 30, 2023 | |||||||||||||||||||||||
| | | | Unrealized | | | | | | Unrealized | | | | ||||||||||||||
|
| Cost |
| Gain (Loss) |
| Fair Value |
| Cost |
| Gain (Loss) |
| Fair Value | |||||||||||||||
Fixed income | | $ | 28,266 |
| $ | (1,383) |
| $ | 26,883 | | $ | 25,514 | | $ | (1,426) |
| $ | 24,088 | |||||||||
Treasury securities | | | 344 | | | — | | | 344 | | | 344 | | | — | | | 344 | |||||||||
Equity |
|
| 9,123 |
|
| 1,071 |
|
| 10,194 | |
| 13,605 | |
| 3,834 |
|
| 17,439 | |
| 13,523 | |
| 2,888 |
| | 16,411 |
Mutual funds | | | 12,626 | | | 2,883 |
| | 15,509 | | | 12,348 | | | 1,934 |
| | 14,282 | |||||||||
Alternative investments | | | 3,239 | | | 791 |
| | 4,030 | | | 3,211 | | | 841 |
| | 4,052 | |||||||||
Total |
| $ | 17,293 |
| $ | 1,105 |
| $ | 18,398 | | $ | 58,080 | | $ | 6,125 |
| $ | 64,205 | | $ | 54,940 | | $ | 4,237 |
| $ | 59,177 |
Our Fixed Incomefixed income investments consist of short, intermediate, and long term bonds, as well as fixeda blend bonds. Within the fixed income investments, we maintain a specific mixture of US treasury notes, US agency mortgage backed securities, private label mortgage backed securities,Government and variousAgency bonds and investment grade corporate securities.bonds with varying maturities. Our equity investments consist of small, mid, and large cap growth and value funds, as well as international equity. Our mutual fund investments consist of domestic and international stock. Our alternative investments consist of a private real estate income trust which is valued as a Level 3 asset. The net pre-tax effected unrealized gain of the portfolio was $1.1 million.$6.1 million and $4.2 million as of March 30, 2024 and December 30, 2023, respectively. Carrying amounts above are recorded in the investmentsInvestments and restricted investmentsRestricted Investments line items within the balance sheet as of SeptemberMarch 30, 2017. During the first nine months of 2017, Ardellis investments reported a net realized gain of $185 thousand, which was recorded in interest income on the statement of earnings.
8
UNIVERSAL FOREST PRODUCTS, INC.
2024 and December 30, 2023.
C. REVENUE RECOGNITION
RevenueWithin the three primary segments, UFP Retail Solutions (“Retail”), UFP Packaging (“Packaging” and formerly known as UFP Industrial) and UFP Construction (“Construction”), that the Company operates, there are a variety of written agreements governing the sale of our products and services. The transaction price is stated at the purchase order level, which includes shipping and/or freight costs and any applicable governmental authority taxes. The majority of our contracts have a single performance obligation concentrated around the delivery of goods to the carrier, Free On Board (FOB) shipping point. Therefore, revenue is recognized at the time the productwhen this performance obligation is shipped to the customer.satisfied. Generally, title and control passes at the time of shipment. In certain circumstances, the customer takes title when the shipment arrives at the destination. However, our shipping process is typically completed the same day.
On May 28, 2014,Certain customer products that we provide require installation by the FASB issued ASU No. 2014-09 (Accounting Standard Codification 606), Revenue from Contracts with Customers, whichCompany or a third party. Installation revenue is recognized upon completion. If we use a third party for installation, the party will replace most existing revenue recognition guidance in U.S. GAAP. The core principle of the ASU is thatact as an entity should recognize revenue for the transfer of goods or services equalagent to the amount that it expects to be entitled to receive for those goods or services. The ASU requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments. The Company plans to adopt the guidance in the first quarter of fiscal 2018 and apply the modified retrospective method. The Company is in the process of finalizing contract reviews and theus until completion of the new standard’s impactinstallation. Installation revenue represents an immaterial share of our total net sales.
We utilize rebates, credits, discounts and/or cash-based incentives with certain customers which are accounted for as variable consideration. We estimate these amounts based on its Consolidated Financial Statements.the expected amount to be provided to customers and reduce revenues recognized. We believe that there will not be significant changes to our estimates of variable consideration. The allocation of these costs are applied at the invoice level and recognized in conjunction with revenue. Additionally, returns and refunds are estimated on a historical and expected basis which is a reduction of revenue recognized.
Earnings on construction contracts are reflected in operations using percentage-of-completionover time accounting, under either cost to cost or units of delivery methods, depending on the nature of the business at individual operations.operations, which is in accordance with ASC 606 as revenue is recognized when certain performance obligations are performed. Under percentage-of-completionover time accounting using the cost to cost method, revenues and related earnings on construction contracts are measured by the relationships of actual costs incurred relatedrelative to the total estimated costs. Under percentage-of-completionover time accounting using the units of delivery method, revenues and related earnings on construction contracts are measured by the relationships of actual units produced relatedrelative to the total number of units. Revisions in earnings estimates on the construction contracts are recorded in the accounting period in which the basis for such revisions becomes known. Projected losses on individual contracts are charged to operations in their entirety when such losses become apparent. Construction contract revenue increased to approximately $36.6 million, during the third quarter
10
Our construction contracts are generally entered into with a fixed price, and completion of the projects can range from 6 to 18 months in duration. Therefore, our operating results are impacted by, among many other things, labor rates and commodity costs. During the year, we update our estimated costs to complete our projects using current labor and commodity costs and recognize losses to the extent that they exist.
The following table presents our net sales disaggregated by revenue source (in thousands):
| | | | | | | | | |
| | Three Months Ended | | ||||||
|
| March 30, |
| April 1, |
| | | ||
| | 2024 | | 2023 | | % Change | | ||
Point in Time Revenue | | $ | 1,604,835 | | $ | 1,784,456 |
| (10.1)% | |
Over Time Revenue | |
| 34,131 | | | 38,020 |
| (10.2)% | |
Total Net Sales | |
| 1,638,966 | | | 1,822,476 |
| (10.1)% | |
The Construction segment comprises the construction contract revenue shown above. Construction contract revenue is primarily made up of site-built and framing customers.
The following table presents the balances of percentage-of-completionover time accounting accounts which are included in “Other current assets” and “Accrued liabilities: Other”, respectively (in thousands):
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
| September 30, |
| December 31, |
| September 24, |
| |||||||||||||
|
| 2017 |
| 2016 |
| 2016 |
| |||||||||||||
| | | | | | | | | | | ||||||||||
| | March 30, | | December 30, | | April 1, | | |||||||||||||
|
| 2024 |
| 2023 |
| 2023 |
| |||||||||||||
Cost and Earnings in Excess of Billings |
| $ | 2,594 |
| $ | 2,573 |
| $ | 2,788 |
| | $ | 6,592 |
| $ | 3,572 |
| $ | 5,415 |
|
Billings in Excess of Cost and Earnings |
|
| 4,802 |
|
| 4,748 |
|
| 6,222 |
| |
| 10,122 | |
| 9,487 |
|
| 10,797 | |
911
D. EARNINGS PER SHARE
The computation of earnings per share (“EPS”) is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
| Three Months Ended |
| Nine Months Ended |
| ||||||||||||||
|
| September 30, |
| September 24, |
| September 30, |
| September 24, |
| ||||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||||||||
| | | | | | | |||||||||||||
| Three Months Ended | | |||||||||||||||||
| March 30, |
| April 1, |
| |||||||||||||||
| 2024 | | 2023 | | |||||||||||||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
|
|
Net earnings attributable to controlling interest |
| $ | 33,693 |
| $ | 27,819 |
| $ | 88,397 |
| $ | 80,429 |
| $ | 120,791 | | $ | 126,069 | |
Adjustment for earnings allocated to non-vested restricted common stock |
|
| (656) |
|
| (463) |
|
| (1,633) |
|
| (1,281) |
| ||||||
Adjustment for earnings allocated to non-vested restricted common stock equivalents |
| (4,901) | |
| (5,581) | | |||||||||||||
Net earnings for calculating EPS |
| $ | 33,037 |
| $ | 27,356 |
| $ | 86,764 |
| $ | 79,148 |
| $ | 115,890 | | $ | 120,488 | |
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
Weighted average shares outstanding |
|
| 20,474 |
|
| 20,402 |
|
| 20,481 |
|
| 20,360 |
|
| 61,985 | |
| 62,725 | |
Adjustment for non-vested restricted common stock |
|
| (399) |
|
| (340) |
|
| (378) |
|
| (324) |
| ||||||
Adjustment for non-vested restricted common stock equivalents |
| (2,809) | |
| (2,777) | | |||||||||||||
Shares for calculating basic EPS |
|
| 20,075 |
|
| 20,062 |
|
| 20,103 |
|
| 20,036 |
|
| 59,176 | |
| 59,948 | |
Effect of dilutive stock options |
|
| 41 |
|
| 33 |
|
| 37 |
|
| 32 |
| ||||||
Effect of dilutive restricted common stock equivalents |
| 86 | |
| 855 | | |||||||||||||
Shares for calculating diluted EPS |
|
| 20,116 |
|
| 20,095 |
|
| 20,140 |
|
| 20,068 |
|
| 59,262 | |
| 60,803 | |
Net earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
Basic |
| $ | 1.65 |
| $ | 1.36 |
| $ | 4.32 |
| $ | 3.95 |
| $ | 1.96 | | $ | 2.01 | |
Diluted |
| $ | 1.64 |
| $ | 1.36 |
| $ | 4.31 |
| $ | 3.94 |
| $ | 1.96 | | $ | 1.98 | |
No options were excluded from the computation of diluted EPS for the quarters ended September 30, 2017 or September 24, 2016.
On October 17, 2017, our Board of Directors declared a three-for-one stock split effected in the form of a stock dividend. The record date of the stock split will be October 31, 2017, and the eventual stock distribution to shareholders will occur November 14, 2017. All references made to share or earnings per share amounts in the accompanying unaudited consolidated financial statements and applicable disclosures are presented on a pre-split basis. As a result of the stock split, all historical per share data and number of shares outstanding presented in future financial statements will be retroactively adjusted.
The following table provides pro forma earnings per share, giving retroactive effect to the stock split:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Nine Months Ended |
| ||||||||
|
| September 30, |
| September 24, |
| September 30, |
| September 24, |
| ||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
Shares for calculating basic EPS - Post stock split basis |
|
| 60,225 |
|
| 60,186 |
|
| 60,309 |
|
| 60,108 |
|
Shares for calculating diluted EPS - Post stock split basis |
|
| 60,348 |
|
| 60,285 |
|
| 60,420 |
|
| 60,204 |
|
Net earnings per share (post stock split): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 0.55 |
| $ | 0.45 |
| $ | 1.44 |
| $ | 1.32 |
|
Diluted |
| $ | 0.55 |
| $ | 0.45 |
| $ | 1.44 |
| $ | 1.31 |
|
E. COMMITMENTS, CONTINGENCIES, AND GUARANTEES
We are self-insured for environmental impairment liability, including certain liabilities which are insured through a wholly owned subsidiary, Ardellis Insurance Ltd., a licensed captive insurance company.
10
UNIVERSAL FOREST PRODUCTS, INC.
We own and operate a number of facilities throughout the United States that chemically treat lumber products. In connection with the ownership and operation of these and other real properties, and the disposal or treatment of hazardous or toxic substances, we may, under various federal, state, and local environmental laws, ordinances, and regulations, be potentially liable for removal and remediation costs, as well as other potential costs, damages, and expenses. Environmental reserves, calculated with no discount rate, have been established to cover remediation activities at wood preservation facilities in Stockertown, PA; Elizabeth City, NC; Auburndale, FL; and Medley, FL. In addition, a reserve was established for our facility in Thornton, CA to remove certain lead containing materials which existed on the property at the time of purchase.
On a consolidated basis, we have reserved approximately $3.6 million and $3.4 million on September 30, 2017, and September 24, 2016, respectively, representing the estimated costs to complete future remediation efforts. These amounts have not been reduced by an insurance receivable.
Many of our wood treating operations utilize “Subpart W” drip pads, defined as hazardous waste management units by the Environmental Protection Agency. The rules regulating drip pads require that a pad be “closed” at the point that it is no longer intended to be used for wood treating operations or to manage hazardous waste. Closure involves identification and disposal of contaminants which are required to be removed from the facility. The cost of closure is dependent upon a number of factors including, but not limited to, identification and removal of contaminants, cleanup standards that vary from state to state, and the time period over which the cleanup would be completed. Based on our present knowledge of existing circumstances, it is considered probable that these costs will approximate $0.2 million. As a result, this amount is recorded in other long-term liabilities on September 30, 2017.
In February 2014, one of our operations was served with a federal grand jury subpoena from the Southern District of New York. The subpoena was issued in connection with an investigation being conducted by the US Attorney’s Office for the Southern District of New York. The subpoena requested documents relating to a developer and construction projects for which our operation had provided materials and labor. Following receipt of the subpoena, the Audit Committee of the Company’s Board of Directors retained outside counsel to conduct an internal investigation and respond to the subpoena. The Company cooperated in all respects with the US Attorney’s Office, complied with this subpoena and voluntarily provided additional information. As a result of the internal investigation, in 2014, two Company employees were terminated for violating the Company’s Code of Business Conduct and Ethics. In May 2015, those ex-employees were indicted by the grand jury. In April 2016, one of the two former employees pled guilty to four of the charges included in the indictment. In May 2016, the other former employee was found guilty by a jury on four of the charges included in the indictment. The Company has not been named as a target and continues to cooperate with the US Attorney’s Office in this matter. Based upon prior communications with the US Attorney’s Office, we do not believe that the resolution of this matter will have a material adverse impact on our financial condition or the results of our operations.
In addition, on SeptemberMarch 30, 2017,2024, we were parties either as plaintiff or defendant to a number of lawsuits and claims arising through the normal course of our business. In the opinion of management, our consolidated financial statements will not be materially affected by the outcome of these contingencies and claims.
On SeptemberMarch 30, 2017,2024, we had outstanding purchase commitments on commenced capital projects of approximately $26.1$88.7 million.
We provide a variety of warranties for products we manufacture. Historically, warranty claims have not been material. We also distribute products manufactured by other companies, some of which are no longer in business.companies. While we do not warrant these products, we have received claims as a distributor of these products when the manufacturer no longer exists or has the ability to pay. Historically, these costs have not had a material effect on our consolidated financial statements.
11
UNIVERSAL FOREST PRODUCTS, INC.
As part of our operations, we supply building materials and labor to site-built construction projects or we jointly bid on contracts with framing companies for such projects. In some instances, we are required to post payment and performance bonds to insure the project owner thatensure the products and installation services are completed in accordance with our contractual obligations. We have agreed to indemnify the surety for claims properly made against thethese bonds. As of SeptemberMarch 30, 20172024, we had approximately $8.8$23.4 million in outstanding payment and performance bonds for open projects. We had approximately $1.7$6.9 million in payment and performance bonds outstanding for completed projects which are still under warranty.
On SeptemberMarch 30, 2017,2024, we had outstanding letters of credit totaling $26.5$47.8 million, primarily related to certain insurance contracts, and industrial development revenue bonds, and other debt agreements described further below.
12
In lieu of cash deposits, we provide irrevocable letters of credit in favor of our insurers and other third parties to guarantee our performance under certain insurance contracts. We currentlycontracts and other legal agreements. As of March 30, 2024, we have irrevocable letters of credit outstanding totaling approximately $16.7$44.5 million for these types of insurance arrangements. We have reserves recorded on our balance sheet, in accrued liabilities, that reflect our expected future liabilities under thesethose insurance arrangements.
We are required to provide irrevocable letters of credit in favor of the bond trustees for all industrial development revenue bonds that have been issued. These letters of credit guarantee principal and interest payments to the bondholders. We currently have irrevocable letters of credit outstanding totaling approximately $9.8$3.3 million related to our outstanding industrial development revenue bonds. These letters of credit have varying terms but may be renewed at the option of the issuing banks.
Certain wholly owned domestic subsidiaries have guaranteed the indebtedness of Universal Forest Products,UFP Industries, Inc. in certain debt agreements, including the Series 2012, 2018 and 2020 Senior Notes and our revolving credit facility. The maximum exposure of these guarantees is limited to the indebtedness outstanding under these debt arrangements and this exposure will expire concurrent with the expiration of the debt agreements.
We did not enter into any new guarantee arrangements during the thirdfirst quarter of 20172024 which would require us to recognize a liability on our balance sheet.
F. BUSINESS COMBINATIONS
We completed the following acquisitions in nine months ended 2017 and 2016business combinations since the end of the first quarter of 2023, which were accounted for using the purchase methodmethod. Dollars below are in thousands unless otherwise noted:
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| Net |
| |
Company | Acquisition |
| Intangible | Tangible | Operating | ||
Name | Date | Purchase Price | Assets | Assets | Segment | ||
| May 26, 2017 | $5,042 | $ | 4,880 | $ | 162 | South |
Go Boy Pallets, LLC ("Go Boy") | A manufacturer and distributor of industrial pallets and packaging in Georgia and North Carolina. Go Boy has annual sales of approximately $8 million. The acquisition of Go Boy enabled us to expand our industrial packaging product offering and lumber sourcing in this region. | ||||||
| March 6, 2017 | $31,818 | $ | 7,533 | $ | 24,285 | South |
Robbins Manufacturing Co. ("Robbins") | A manufacturer of treated wood products with facilities in Florida, Georgia, and North Carolina. Robbins has annual sales of approximately $86 million. The acquisition of Robbins allowed us to expand our presence in this region and serve customers more cost effectively. | ||||||
| March 6, 2017 | $22,789 | $ | 14,266 | $ | 8,523 | North |
| | | | | | | |
| | | | Net | | ||
Company | Acquisition | | Intangible | Tangible | Operating | ||
Name | Date | Purchase Price | Assets | Assets | Segment | ||
| September 20, 2023 | $52,841 | $ | 43,785 | $ | 9,056 | International |
UFP Palets y Embalajes SL (UFP Palets) | Headquartered in Castellón, Spain, UFP Palets (formerly known as Palets Suller Group) is the market leader in machine-built wood pallets, serving the region's large ceramic tile industry. The company had trailing 12-month sales of approximately $38 million through August 2023. |
12
TableThe purchase accounting valuation of Contents
UNIVERSAL FOREST PRODUCTS, INC.
Quality Hardwood Sales, LLC ("Quality") | A manufacturer and supplier of hardwood products, including components of cabinets used in homes and recreational vehicles. Quality has annual sales of approximately $30 million. The acquisition of Quality enabled us to expand our product offering to include hardwood-based products. | ||||||
| November 29, 2016 | $9,455 | $ | 7,314 | $ | 2,141 | All Other |
The UBEECO Group Pty. Ltd. ("Ubeeco") | A manufacturer and distributor of a variety of wood packaging and alternative material products, including boxes, crates, pallets, skids, protective packaging, packaging accessories and loose lumber. Ubeeco has annual sales of approximately $20 million. The acquisition of Ubeeco allows us to make progress on our goal of becoming a global provider of packaging solutions. | ||||||
| September 16, 2016 | $66,691 | $ | 17,455 | $ | 49,236 | All Other |
idX Holdings, Inc. ("idX") | A designer, producer, and installer of customized interior fixtures and related products used in a variety of commercial structures. idX has annual sales of $300 million. The acquisition of idX enables us to enhance our design, product and service offering to become a tier 1 supplier of interior fixtures to retail customers, and continue to use idX's capabilities to continue to develop new markets for growth. Our goal is to achieve long-term synergies, including: | ||||||
| a. | Eliminating redundant administrative support costs. | |||||
| b. | Using the scale advantage of the Company to reduce material costs of common raw materials. | |||||
| c. | Utilizing manufacturing capacity of certain existing locations to supply idX. | |||||
| d. | Utilizing idX’s international footprint to identify sourcing opportunities for certain products. | |||||
| e. | Cross selling one another’s products and services with our respective customers. | |||||
| f. | Collaborating on new product development. | |||||
| July 29, 2016 | $1,246 | $ | 405 | $ | 841 | North |
Seven D Truss, L.P. | A manufacturer and distributor of roof and floor trusses. 7D had annual sales of approximately $4.0 million. The acquisition of 7D gave us the opportunity to consolidate operations with our Gordon, Pennsylvania location. |
The intangible assets for each acquisition were finalized and allocatedthe UFP Palets investment is yet to their respective identifiable intangible asset and goodwill accounts during 2017, excluding Go Boy.be finalized. In aggregate, acquisitionsinvestments completed since Septemberthe end of 2016the first quarter of 2023 and not consolidated with other operations contributed approximately $292.1$5.7 million in revenuenet sales and $5.3$0.5 million in operating profitlosses during 2017.the first three months of 2024.
The business combination mentioned above was not significant to our operating results and thus pro forma results for 2024 and 2023 are not presented.
G. SEGMENT REPORTING
ASC 280, Segment Reporting (“ASC 280”), defines operating segments as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.
13
UNIVERSAL FOREST PRODUCTS, INC.
The Company operatesWe operate manufacturing, treating and distribution facilities throughout North America,internationally, but primarily in the United States. TheOur business segments consist of UFP Retail Solutions, UFP Packaging and UFP Construction and align with the end markets we serve. This segment structure allows for a specialized and consistent sales approach among Company managesoperations, efficient use of resources and capital, and quicker introduction of new products and services. We manage the operations of itsour individual locations primarily through a geographicmarket-centered reporting structure under which each location is included in a regionbusiness unit and regionsbusiness units are included in our North, South,Retail, Packaging, and West divisions. Construction segments. In the case of locations that serve multiple segments, results are allocated and accounted for by segment.
13
The exceptionsexception to this geographicmarket-centered reporting and management structure are (a)is our International segment, which comprises our packaging operations in Mexico, Canada, Spain, India, and Australia and sales and buying offices in other parts of the Company’s Alternative Materials Division,world and our Ardellis segment, which offers a portfolio of non-wood products and distributes those products nation-wide (b) the Company’s distribution unit (referred to as UFPD) which distributes a variety of products to the manufactured housing industry nation-wide and is accounted for as a reporting unit within the North segment, and (c) the idX division, which designs, produces, and installs customized in-store environments, for customers world-wide.
With respect to the facilitiesrepresents our wholly owned fully licensed captive insurance company based in the north, south, and west segments, these facilities generally supply the three markets the Company serves nationally - Retail, Industrial, and Construction. Also, substantially all of our facilities support customers in the immediate geographical region surrounding the facility.
Bermuda. Our Alternative Materials, International and idX divisionArdellis segments do not meet the quantitative thresholds in order to be separately reported and accordingly, the International and Ardellis segments have been includedaggregated in the “All Other” segment for reporting purposes.
“Corporate” includes purchasing, transportation, corporate ventures, and administrative functions that serve our operating segments. Operating results of Corporate primarily consist of net sales to external customers initiated by UFP Purchasing and UFP Transportation and over (under) allocated costs. The operating results of UFP Real Estate, Inc., which owns and leases real estate, and UFP Transportation Ltd., which owns, leases and operates transportation equipment, are also included in the Corporate column. Inter-company lease and service charges are assessed to our operating segments for the use of these assets and services at fair market value rates. Total assets in the Corporate column include unallocated cash and cash equivalents, certain prepaid assets, certain property, equipment and other assets pertaining to the centralized activities of Corporate, UFP Real Estate, Inc., UFP Transportation, Inc., UFP Purchasing, Inc., and UFP RMS, LLC. The tables below are presented in thousands:
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 30, 2024 | ||||||||||||||||
|
| Retail |
| Packaging |
| Construction |
| All Other |
| Corporate |
| Total | ||||||
Net sales to outside customers | | $ | 628,765 |
| $ | 424,418 | | $ | 517,896 | | $ | 66,947 | | $ | 940 | | $ | 1,638,966 |
Intersegment net sales | |
| 59,346 | | | 20,926 | | | 20,035 | | | 71,257 | | | (171,564) | |
| — |
Earnings from operations | | | 45,980 | | | 31,246 | | | 45,342 | | | 3,873 | | | 7,382 | | | 133,823 |
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended April 1, 2023 | ||||||||||||||||
|
| Retail |
| Packaging |
| Construction |
| All Other |
| Corporate |
| Total | ||||||
Net sales to outside customers | | $ | 761,294 |
| $ | 486,561 | | $ | 515,593 | | $ | 55,795 | | $ | 3,233 | | $ | 1,822,476 |
Intersegment net sales | |
| 223,325 | | | 20,050 | | | 25,836 | | | 77,487 | | | (346,698) | |
| — |
Earnings from operations | | | 40,258 | | | 54,732 | | | 54,248 | | | 4,832 | | | 7,638 | | | 161,708 |
Note: As of December 31, 2023, our Pinelli Universal entity was transferred to our Retail segment from our International segment (grouped in All Other) due to changes in our management structure. Prior year figures have been updated to reflect the change for comparability purposes in every applicable table below. in this filing.
The “Corporate” column includes unallocated administrative costsfollowing table presents goodwill by segment as of March 30, 2024, and certain incentive compensation expense.
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|
|
| Three Months Ended September 30, 2017 | |||||||||||||||||
|
| North |
| South |
| West |
| All Other |
| Corporate |
| Total |
| ||||||
Net sales to outside customers |
| $ | 310,384 |
| $ | 206,050 |
| $ | 378,714 |
| $ | 161,438 |
| $ | — |
| $ | 1,056,586 |
|
Intersegment net sales |
|
| 18,897 |
|
| 18,817 |
|
| 21,384 |
|
| 47,539 |
|
| — |
|
| 106,637 |
|
Segment operating profit |
|
| 16,697 |
|
| 10,234 |
|
| 22,538 |
|
| 6,882 |
|
| (4,080) |
|
| 52,271 |
|
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|
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|
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|
|
| Three Months Ended September 24, 2016 | |||||||||||||||||
|
| North |
| South |
| West |
| All Other |
| Corporate |
| Total |
| ||||||
Net sales to outside customers |
| $ | 267,156 |
| $ | 173,715 |
| $ | 335,981 |
| $ | 49,813 |
| $ | — |
| $ | 826,665 |
|
Intersegment net sales |
|
| 14,318 |
|
| 9,642 |
|
| 22,054 |
|
| 4,574 |
|
| — |
|
| 50,588 |
|
Segment operating profit |
|
| 14,630 |
|
| 9,900 |
|
| 19,962 |
|
| 2,959 |
|
| (3,899) |
|
| 43,552 |
|
December 30, 2023 (in thousands):
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|
|
|
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|
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|
|
|
|
|
|
| Nine Months Ended September 30, 2017 | ||||||||||||||||
|
| North |
| South |
| West |
| All Other |
| Corporate |
| Total | ||||||
Net sales to outside customers |
| $ | 857,858 |
| $ | 616,376 |
| $ | 1,088,744 |
| $ | 412,113 |
| $ | — |
| $ | 2,975,091 |
Intersegment net sales |
|
| 51,859 |
|
| 55,472 |
|
| 65,466 |
|
| 116,743 |
|
| — |
|
| 289,540 |
Segment operating profit (loss) |
|
| 42,921 |
|
| 31,152 |
|
| 65,547 |
|
| 13,285 |
|
| (12,914) |
|
| 139,991 |
| | | | | | | | | | | | | | | | | | |
|
| Retail |
| Packaging |
| Construction |
| All Other |
| Corporate |
| Total | ||||||
Balance as of December 30, 2023 |
| $ | 84,204 |
| $ | 141,042 |
| $ | 87,805 |
| $ | 23,262 | | $ | — |
| $ | 336,313 |
Foreign Exchange, Net |
| | 11 | | | — | | | (113) | | | (615) | | | — |
| | (717) |
Balance as of March 30, 2024 | | $ | 84,215 |
| $ | 141,042 | | $ | 87,692 | | $ | 22,647 | | $ | — | | $ | 335,596 |
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|
|
| Nine Months Ended September 24, 2016 | ||||||||||||||||
|
| North |
| South |
| West |
| All Other |
| Corporate |
| Total | ||||||
Net sales to outside customers |
| $ | 758,066 |
| $ | 533,239 |
| $ | 940,188 |
| $ | 149,416 |
| $ | — |
| $ | 2,380,909 |
Intersegment net sales |
|
| 42,071 |
|
| 28,693 |
|
| 65,325 |
|
| 16,559 |
|
| — |
|
| 152,648 |
Segment operating profit |
|
| 43,054 |
|
| 35,830 |
|
| 58,434 |
|
| 11,542 |
|
| (19,733) |
|
| 129,127 |
The following table presents total assets by segment as of March 30, 2024, and December 30, 2023 (in thousands).
| | | | | | | | |
| Total Assets by Segment | |||||||
| March 30, |
| December 30, |
| | | ||
Segment Classification | 2024 | | 2023 | | % Change | |||
Retail | $ | 966,544 | | $ | 828,798 |
| 16.6 | % |
Packaging |
| 794,418 | |
| 798,623 |
| (0.5) | |
Construction |
| 655,972 | |
| 621,762 |
| 5.5 | |
All Other | | 310,360 | | | 316,481 | | (1.9) | |
Corporate | | 1,351,345 | | | 1,452,133 | | (6.9) | |
Total Assets | $ | 4,078,639 | | $ | 4,017,797 |
| 1.5 | % |
14
The following table presents our disaggregated net sales (in thousands) by business unit for each segment for the three months ended March 30, 2024, and April 1, 2023 (in thousands).
| | | | | | | |
| | Three Months Ended | | ||||
| | March 30, | | April 1, | | ||
| | 2024 |
| 2023 | | ||
Retail | | | | | | | |
Deckorators | | $ | 74,135 | | $ | 77,463 | |
ProWood | |
| 525,961 | |
| 651,000 | |
UFP Edge | |
| 27,284 | |
| 32,552 | |
Other | |
| 1,385 | |
| 279 | |
Total Retail | | $ | 628,765 | | $ | 761,294 | |
| | | | | | | |
Packaging | | | | | | | |
Structural Packaging | | $ | 274,150 | | $ | 328,250 | |
PalletOne | | | 132,490 | | | 137,570 | |
Protective Packaging | | | 17,778 | | | 20,741 | |
Total Packaging | | $ | 424,418 | | $ | 486,561 | |
| | | | | | | |
Construction | | | | | | | |
Factory Built | | $ | 191,834 | | $ | 167,613 | |
Site Built | |
| 221,559 | |
| 221,116 | |
Commercial | | | 61,384 | | | 72,345 | |
Concrete Forming | |
| 43,119 | |
| 54,519 | |
Total Construction | | $ | 517,896 | | $ | 515,593 | |
| | | | | | | |
All Other | | $ | 66,947 | | $ | 55,795 | |
| | | | | | | |
Corporate | | $ | 940 | | $ | 3,233 | |
| | | | | | | |
Total Net Sales | | $ | 1,638,966 | | $ | 1,822,476 | |
H. INCOME TAXES
Effective tax rates differ from statutory federal income tax rates, primarily due to provisions for foreign, state and local income taxes and permanent tax differences. Our effective tax rate was 31.9%17.4% in the thirdfirst quarter of 20172024 compared to 32.5% for23.7% in the same period of 2023.The decrease in 2016. Our our overall effective tax rate was 33.0% in the first nine months of 2017 compared to 34.2% in 2016, primarily due to recording aan increase in our tax deduction from stock-based compensation accounted for certain share-based compensation and fees at fair market value.as a permanent difference.
1415
I. COMMON STOCK
Below is a summary of common stock issuances for the first three months of 2024 and 2023 (in thousands, except average share price):
| | | | | |
|
| March 30, 2024 | |||
Share Issuance Activity |
| Common Stock | | | Average Share Price |
Shares issued under the employee stock purchase plan | | 6 | | $ | 123.01 |
| | | | | |
Shares issued under the employee stock gift program | | 1 | | | 117.78 |
Shares issued under the director compensation plan | | 1 | | | 116.27 |
Shares issued under the LTSIP | | 306 | | | 113.49 |
Shares issued under the executive stock match plan | | 64 | | | 111.35 |
Forfeitures | | (3) | | | |
Total shares issued under stock grant programs | | 369 | | $ | 113.13 |
| | | | | |
Shares issued under the deferred compensation plans | | 77 | | $ | 112.00 |
During the first three months of 2024, we repurchased 319,295 shares of our common stock at an average share price of $114.74.
| | | | | |
|
| April 1, 2023 | |||
Share Issuance Activity |
| Common Stock | | | Average Share Price |
Shares issued under the employee stock purchase plan | | 10 | | $ | 79.47 |
| | | | | |
Shares issued under the employee stock gift program | | 1 | | | 90.30 |
Shares issued under the director retainer stock program | | 1 | | | 96.33 |
Shares issued under the LTSIP | | 756 | | | 86.14 |
Shares issued under the executive stock grants plan | | 75 | | | 85.89 |
Forfeitures | | (8) | | | |
Total shares issued under stock grant programs | | 825 | | $ | 86.12 |
| | | | | |
Shares issued under the deferred compensation plans | | 93 | | $ | 85.33 |
During the first three months of 2023, we repurchased approximately 450,597 shares of our common stock at an average share price of $78.27.
J. INVENTORIES
Inventories are stated at the lower of cost or net realizable value. The cost of inventories includes raw materials, direct labor, and manufacturing overhead and is determined using the weighted average cost method. Raw materials consist primarily of unfinished wood products and other materials expected to be manufactured or treated prior to sale, while finished goods represent various manufactured and treated wood products ready for sale.
16
We write down the value of inventory, the impact of which is reflected in cost of goods sold in the Condensed Consolidated Statement of Earnings and Comprehensive Income, if the cost of specific inventory items on hand exceeds the amount we expect to realize from the ultimate sale or disposal of the inventory. These estimates are based on management's judgment regarding future demand and market conditions and analysis of historical experience. There was no lower of cost or net realizable value adjustment to inventory as of March 30, 2024 and a $0.7 million adjustment as of April 1, 2023.
K. SUBSEQUENT EVENTS
Subsequent to our reporting date, we repurchased 351,294 shares for $40.2 million, at an average share price of $114.15.
17
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Universal Forest Products,UFP Industries, Inc. is a holding company with subsidiaries throughoutin North America, Europe, Asia, and in Australia that design, manufacture, and supply products made from wood, wood compositeand non-wood composites, and other productsmaterials to three robust markets:segments: retail, industrial,packaging, and construction. Our business segments are functionally interdependent and are supported by common corporate services, such as accounting and finance, information technology, human resources, marketing, purchasing, transportation, legal and compliance, among others. We regularly invest in automation and implement best practices to improve the efficiency of our manufacturing facilities across each of the segments. The Company isresults and improvements from these investments are shared among the segments. This exchange of ideas drives faster innovation for new products, processes, and product improvements. While the majority of our facilities serve only one business segment, many of our larger facilities serve two or more segments.
We believe that our operating structure allows us to better evaluate market conditions and opportunities and more effectively allocate capital and resources to the appropriate segments and business units. Also, we believe our diversification and manner in which we operate our business provide an inherent hedge against the business cycles our end markets experience and over which we have limited control. Accordingly, we have the ability to provide more stable earnings and cash flows to our shareholders. Our diversification and operating practices also mitigate the impact that more volatile lumber market conditions have on traditional lumber companies. We are headquartered in Grand Rapids, Mich. For more information about Universal Forest Products,UFP Industries, Inc., or its affiliated operations, go to www.ufpi.com.www.ufpi.com.
This report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act, as amended, that are based on management’s beliefs, assumptions, current expectations, estimates and projections about the markets we serve, the economy and the Company itself. Words like “anticipates,” “believes,” “confident,” “estimates,” “expects,” “forecasts,” “likely,” “plans,” “projects,” “should,” variations of such words, and similar expressions identify such forward-looking statements. These statements do not guarantee future performance and involve certain risks, uncertainties and assumptions that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. The Company doesWe do not undertake to update forward-looking statements to reflect facts, circumstances, events, or assumptions that occur after the date the forward-looking statements are made. Actual results could differ materially from those included in such forward-looking statements. Investors are cautioned that all forward-looking statements involve risks and uncertainty. Among the factors that could cause actual results to differ materially from forward-looking statements are the following: fluctuations in currency and inflation; fluctuations in the price of lumber; adverse or unusual weather conditions; adverse economic conditions in the markets we serve; concentration of sales to customers; vertical integration strategies; excess capacity or supply chain challenges; our ability to make successful business acquisitions; government regulations, particularly involving environmental and safety regulations; adverse or unusual weather conditions; inbound and our abilityoutbound transportation costs; alternatives to make successful business acquisitions.replace treated wood products; cybersecurity breaches; tariffs on import and export sales; and potential pandemics. Certain of these risk factors as well as other risk factors and additional information are included in the Company'sour reports on Form 10-K and 10-Q on file with the Securities and Exchange Commission. We are pleased to present this overview of 2017.the first quarter of 2024.
OVERVIEW
Our results for the thirdfirst quarter of 2017 were impacted by2024 include the following:following highlights:
● |
| Our |
18
● | Our gross profits decreased by $32 million, or 9.0%, compared to the same period of the prior year. By segment, gross profits decreased by $35 million in Packaging and $7 million in Construction, while Retail experienced a $6 million increase in gross profits. The overall decrease in our gross profits is primarily due to the decline in unit sales and resulting unfavorable cost variances as a |
● | Our operating profits decreased $28 million, or 17.2%, compared to the first quarter of 2023. The overall decrease is a result of the decline in gross profits mentioned above offset by a decrease in selling, |
|
|
● | Our cash flows used in operations was $17 million in the first three months of 2024 compared to $37 million during the first three months of 2023. The $20 million improvement is primarily due to |
● | Our Cash and cash equivalents at the |
15
UNIVERSAL FOREST PRODUCTS, INC.
HISTORICAL LUMBER PRICES
We experience significant fluctuations in the cost of commodity lumber products from primary producers (“Lumber Market”). The following table presents the Random Lengths framing lumber composite price:
| | | | | | | |
| | Random Lengths Composite |
| ||||
| | Average $/MBF |
| ||||
|
| 2024 |
| 2023 |
| ||
January | | $ | 398 | | $ | 386 | |
February | |
| 389 | |
| 437 | |
March | |
| 416 | |
| 411 | |
| | | | | | | |
First quarter average | | $ | 401 | | $ | 411 | |
| | | | | | | |
First quarter percentage change | |
| (2.4) | % |
| | |
|
|
|
|
|
|
|
|
|
| Random Lengths Composite |
| ||||
|
| Average $/MBF |
| ||||
|
| 2017 |
| 2016 |
| ||
January |
| $ | 356 |
| $ | 316 |
|
February |
|
| 393 |
|
| 310 |
|
March |
|
| 401 |
|
| 321 |
|
April |
|
| 424 |
|
| 345 |
|
May |
|
| 416 |
|
| 356 |
|
June |
|
| 399 |
|
| 353 |
|
July |
|
| 411 |
|
| 351 |
|
August |
|
| 417 |
|
| 367 |
|
September |
|
| 416 |
|
| 354 |
|
|
|
|
|
|
|
|
|
Third quarter average |
| $ | 415 |
| $ | 357 |
|
Year-to-date average |
| $ | 404 |
| $ | 341 |
|
|
|
|
|
|
|
|
|
Third quarter percentage change |
|
| 16.2 | % |
|
|
|
Year-to-date percentage change |
|
| 18.5 | % |
|
|
|
19
In addition, a Southern Yellow Pine (“SYP”) composite price, which we prepare and use, is presented below. Our purchases of this species comprised approximately 44% and 42%comprise almost two-thirds of our total lumber purchases throughpurchases.
| | | | | | | |
| | Southern Yellow Pine |
| ||||
| | Average $/MBF |
| ||||
|
| 2024 |
| 2023 |
| ||
January | | $ | 380 | | $ | 406 | |
February | |
| 371 | |
| 452 | |
March | |
| 394 | |
| 464 | |
| | | | | | | |
First quarter average | | $ | 382 | | $ | 441 | |
| | | | | | | |
First quarter percentage change | | | (13.4) | % | | | |
Lower overall lumber prices in 2024 compared to 2023 is primarily due to increased supply of SYP lumber in the first nine monthsU.S. while end market demand has remained soft. A change in lumber prices impacts profitability of 2017products sold with fixed and 2016, respectively.
|
|
|
|
|
|
|
|
|
| Random Lengths SYP |
| ||||
|
| Average $/MBF |
| ||||
|
| 2017 |
| 2016 |
| ||
January |
| $ | 397 |
| $ | 358 |
|
February |
|
| 420 |
|
| 357 |
|
March |
|
| 433 |
|
| 366 |
|
April |
|
| 438 |
|
| 389 |
|
May |
|
| 416 |
|
| 397 |
|
June |
|
| 399 |
|
| 382 |
|
July |
|
| 381 |
|
| 380 |
|
August |
|
| 383 |
|
| 391 |
|
September |
|
| 387 |
|
| 375 |
|
|
|
|
|
|
|
|
|
Third quarter average |
| $ | 384 |
| $ | 382 |
|
Year-to-date average |
| $ | 406 |
| $ | 377 |
|
|
|
|
|
|
|
|
|
Third quarter percentage change |
|
| 0.5 | % |
|
|
|
Year-to-date percentage change |
|
| 7.7 | % |
|
|
|
16
UNIVERSAL FOREST PRODUCTS, INC.
variable prices, as discussed below.
IMPACT OF THE LUMBER MARKET ON OUR OPERATING RESULTS
We generally price our products to pass lumber costs through to our customers so that our profitability is based on the value-added manufacturing, distribution, engineering, and other services we provide. As a result, our dollar sales levels (and working capital requirements) are impacted by the lumber costs of our products. Lumber costs were 48.2%39.8% and 48.4%40.3% of our sales in the first ninethree months of 20172024 and 2016,2023, respectively.
Our gross margins are impacted by (1) the relative level of the Lumber Market (i.e. whether prices are higher or lower from comparative periods), and (2) the trend in the market price of lumber (i.e. whether the price of lumber is increasing or decreasing within a period or from period to period). Moreover,Additionally, as explained below, our products areproduct categories can be priced differently. Some of our products have fixed selling prices, while the selling prices of other products are indexed to the reported Lumber Market with a fixed dollar adder to cover conversion costs and profits. Consequently, the level and trend of the Lumber Market impact our products differently.
Below is a general description of the primary ways in which our products are priced.
● |
| Products with fixed selling prices. These products include value-added products, such as |
● |
| Products with selling prices indexed to the reported Lumber Market with a fixed dollar “adder” to cover conversion costs and |
For each of the product pricing categories above, our margins are exposed to changes in the trend of lumber prices. As a result of the balance in our net sales to each of our end markets, we believe our gross profits are more stable than those of our competitors who are less diversified.
20
The greatest risk associated with changes in the trend of lumber prices is on the following products:products:
● |
| Products with significant inventory levels with low turnover rates, whose selling prices are indexed to the Lumber Market. In other words, the longer the period of time these products remain in inventory, the greater the exposure to changes in the price of lumber. This |
● |
| Products with fixed selling prices sold under long-term supply arrangements, particularly those involving multi-family construction projects. We attempt to mitigate this risk through our purchasing practices |
During the first nine months of 2017, volatility in the lumber market has impacted our gross profits on products sold under each of the general pricing methods described above. For example, the dramatic rise in lumber prices, which peaked in April, resulted in a decline in gross profit per unit on products sold with fixed prices primarily in the second
17
UNIVERSAL FOREST PRODUCTS, INC.
quarter. Additionally, the subsequent decline in lumber prices in May, June, and July resulted in a decline in gross profit per unit on products sold with a variable price indexed to the lumber market. We anticipate these trends may continue to impact our results into the fourth quarter until we reach a point of re-pricing products sold via a fixed price with our customers and selling through higher cost material sold on a variable price which is mitigated to some degree by stability of the SYP market.
Finally, hurricane Harvey and Irma as well as recent wildfires in British Columbia have resulted in sharp increases in lumber prices in the third quarter of 2017.
In addition to the impact of the Lumber Market trends on gross margins, changes in the level of the market cause fluctuations in gross margins when comparing operating results from period to period. This is explained in the following example, which assumes the price of lumber has increased from period one to period two, with no changes in the trend within each period.
|
|
|
|
|
|
|
| |||||||
|
| Period 1 |
| Period 2 |
| |||||||||
| | | | | | | | |||||||
|
| Period 1 | | Period 2 |
| |||||||||
Lumber cost |
| $ | 300 |
| $ | 400 |
| | $ | 300 | | $ | 400 | |
Conversion cost |
|
| 50 |
|
| 50 |
| |
| 50 | |
| 50 | |
= Product cost |
|
| 350 |
|
| 450 |
| |
| 350 | |
| 450 | |
Adder |
|
| 50 |
|
| 50 |
| |
| 50 | |
| 50 | |
= Sell price |
| $ | 400 |
| $ | 500 |
| | $ | 400 | | $ | 500 | |
Gross margin |
|
| 12.5 | % |
| 10.0 | % | |
| 12.5 | % |
| 10.0 | % |
As is apparent from the preceding example, the level of lumber prices does not impact our overall profits but does impact our margins. Gross margins and operating margins are negatively impacted during periods of high lumber prices; conversely, we experience margin improvement when lumber prices are relatively low. In order to more effectively evaluate our profitability in such periods, we believe it is useful to compare our change in units shipped with our changes in costs and profits.
BUSINESS COMBINATIONS AND ASSET PURCHASES
We completed threeone business acquisitions during the first nine months of 2017 and six during all of 2016.acquisition in fiscal 2023. The annual historical sales attributable to acquisitions completed in 2017 and 2016this acquisition is approximately $38 million. This business combination was approximately $124 million and $324 million, respectively. These business combinations were not significant to our quarterly or year-to-date operating results individually or in aggregate and thus pro forma results for 2017 or 20162024 and 2023 are not presented.
See Notes to the Unaudited Condensed Consolidated Financial Statements, Note F, “Business Combinations” for additional information.
1821
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, the components of our Unaudited Condensed Consolidated Statements of Earnings as a percentage of net sales.
|
|
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|
|
|
|
|
|
|
| ||||
|
| Three Months Ended |
| Nine Months Ended |
|
| ||||||||
|
| September 30, |
| September 24, |
| September 30, |
| September 24, |
|
| ||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
|
| ||||
| | | | | ||||||||||
| Three Months Ended | |||||||||||||
| March 30, |
| April 1, |
| ||||||||||
| 2024 |
| 2023 |
| ||||||||||
Net sales |
| 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
| 100.0 | % | 100.0 | % |
Cost of goods sold |
| 86.3 |
| 85.7 |
| 86.1 |
| 85.2 |
|
| 80.1 |
| 80.3 |
|
Gross profit |
| 13.7 |
| 14.3 |
| 13.9 |
| 14.8 |
|
| 19.9 |
| 19.7 |
|
Selling, general, and administrative expenses |
| 8.8 |
| 9.1 |
| 9.2 |
| 9.3 |
|
| 11.7 |
| 10.7 |
|
Other losses (gains), net | — |
| 0.1 |
| ||||||||||
Earnings from operations |
| 4.9 |
| 5.3 |
| 4.7 |
| 5.4 |
|
| 8.2 |
| 8.9 |
|
Other expense (income), net |
| 0.1 |
| 0.1 |
| 0.1 |
| 0.1 |
|
| ||||
Other (income) expense, net | (0.8) |
| (0.2) |
| ||||||||||
Earnings before income taxes |
| 4.8 |
| 5.2 |
| 4.6 |
| 5.3 |
|
| 8.9 |
| 9.0 |
|
Income taxes |
| 1.5 |
| 1.7 |
| 1.5 |
| 1.8 |
|
| 1.6 |
| 2.1 |
|
Net earnings |
| 3.3 |
| 3.5 |
| 3.1 |
| 3.5 |
|
| 7.4 |
| 6.9 |
|
Less net earnings attributable to noncontrolling interest |
| (0.1) |
| (0.1) |
| (0.1) |
| (0.1) |
|
| — |
| — |
|
Net earnings attributable to controlling interest |
| 3.2 | % | 3.4 | % | 3.0 | % | 3.4 | % |
| 7.4 | % | 6.9 | % |
Note: Actual percentages are calculated and may not sum to total due to rounding.
GROSSAs a result of the impact of the level of lumber prices on the percentages displayed in the table above (see Impact of the Lumber Market on Our Operating Results), we believe it is useful to compare our change in units sold with our change in gross profits, selling, general, and administrative expenses, and operating profits as presented in the following table.
| | | | | | |
| | | | | | |
| | Percentage Change | ||||
| | Three Months Ended | ||||
|
| March 30, | | April 1, | ||
|
| 2024 |
| 2023 | ||
Units sold |
| (1.0) | % | | (7.0) | % |
Gross profit | | (9.0) | | | (25.1) | |
Selling, general, and administrative expenses | | (1.3) | | | (11.6) | |
Earnings from operations | | (17.2) | | | (37.6) | |
The following table presents, for the periods indicated, our selling, general, and administrative (SG&A) costs as a percentage of gross profit. We believe this ratio provides an enhanced view of our effectiveness in managing these costs given our strategies to enhance our capabilities and improve our value-added product offering and recognizing the higher relative level of SG&A these strategies require. This ratio also mitigates the impact of changing lumber prices.
| | | | | | |
| | | | | | |
| Three Months Ended | | ||||
|
| March 30, | |
| April 1, | |
|
| 2024 | |
| 2023 | |
Gross profit | $ | 326,078 | | $ | 358,329 | |
Selling, general, and administrative expenses | $ | 192,059 | | $ | 194,683 | |
SG&A as percentage of gross profit |
| 58.9% | |
| 54.3% | |
22
Operating Results by Segment:
Our business segments consist of UFP Retail Solutions (“Retail”), UFP Packaging (“Packaging”) and UFP Construction (“Construction”), and align with the end markets we serve. Among other advantages, this structure allows for a more specialized and consistent sales approach, more efficient use of resources and capital, and quicker introduction of new products and services. We manage the operations of our individual locations primarily through a market-centered reporting structure under which each location is included in a business unit, and business units are included in our Retail, Packaging, and Construction segments. The exception to this market-centered reporting and management structure is our International segment, which comprises our packaging operations in Mexico, Canada, Spain, India, and Australia and sales and buying offices in other parts of the world. Our International segment and Ardellis (our insurance captive) are included in the “All Other” column of the table below. The “Corporate” column includes purchasing, transportation, corporate ventures, and administrative functions that serve our operating segments. Operating results of Corporate primarily consists of over (under) allocated costs. The operating results of UFP Real Estate, Inc., which owns and leases real estate, and UFP Transportation Ltd., which owns, leases, and operates transportation equipment, are also included in the Corporate column. Inter-company lease and services charges are assessed to our operating segments for the use of these assets and services at fair market value rates.
The following tables present our operating results, for the periods indicated, by segment (in thousands).
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 30, 2024 | ||||||||||||||||
|
| |
| |
| | | | | | |
| | |||||
| | Retail | | Packaging | | Construction | | All Other | | Corporate | | Total | ||||||
Net sales | | $ | 628,765 | | | 424,418 | | | 517,896 | | | 66,947 | | | 940 | | $ | 1,638,966 |
Cost of goods sold | |
| 527,641 | |
| 338,978 | |
| 403,561 | |
| 49,002 | | | (6,294) | | | 1,312,888 |
Gross profit | | | 101,124 | | | 85,440 | | | 114,335 | | | 17,945 | | | 7,234 | | | 326,078 |
Selling, general, administrative expenses | | | 55,610 | | | 53,941 | | | 69,150 | | | 13,391 | | | (33) | | | 192,059 |
Other | |
| (466) | | | 253 | | | (157) | | | 681 | | | (115) | | | 196 |
Earnings from operations | | $ | 45,980 | | $ | 31,246 | | $ | 45,342 | | $ | 3,873 | | $ | 7,382 | | $ | 133,823 |
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended April 1, 2023 | ||||||||||||||||
|
| |
| |
| | | | | | | |
| | ||||
| | Retail | | Packaging | | Construction | | All Other | | Corporate | | Total | ||||||
Net sales | | $ | 761,294 |
| $ | 486,561 | | $ | 515,593 | | $ | 55,795 | | $ | 3,233 | | $ | 1,822,476 |
Cost of goods sold | |
| 665,990 | |
| 365,663 | |
| 393,934 | |
| 37,025 | | | 1,535 | | | 1,464,147 |
Gross profit | | | 95,304 | | | 120,898 | | | 121,659 | | | 18,770 | | | 1,698 | | | 358,329 |
Selling, general, administrative expenses | | | 53,913 | | | 66,252 | | | 67,338 | | | 12,964 | | | (5,784) | | | 194,683 |
Other | |
| 1,133 | | | (86) | | | 73 | | | 974 | | | (156) | | | 1,938 |
Earnings from operations | | $ | 40,258 | | $ | 54,732 | | $ | 54,248 | | $ | 4,832 | | $ | 7,638 | | $ | 161,708 |
23
The following tables present the components of our operating results, for the periods indicated, as a percentage of net sales by segment.
| | | | | | | | | | | | | |
| | Three Months Ended March 30, 2024 | | ||||||||||
|
| |
| |
| | | | | | | |
|
| | Retail | | Packaging | | Construction | | All Other | | Corporate | | Total | |
Net sales | | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | N/A | | 100.0 | % |
Cost of goods sold | | 83.9 | | 79.9 | | 77.9 | | 73.2 | | — | | 80.1 | |
Gross profit | | 16.1 | | 20.1 | | 22.1 | | 26.8 | | — | | 19.9 | |
Selling, general, administrative expenses | | 8.8 | | 12.7 | | 13.4 | | 20.0 | | — | | 11.7 | |
Other | | — | | — | | — | | 1.0 | | — | | 0.0 | |
Earnings from operations | | 7.3 | % | 7.4 | % | 8.8 | % | 5.8 | % | — | | 8.2 | % |
Note: Actual percentages are calculated and may not sum to total due to rounding.
| | | | | | | | | | | | | |
| | Three Months Ended April 1, 2023 | | ||||||||||
|
| |
| |
| | | | | | | |
|
| | Retail | | Packaging | | Construction | | All Other | | Corporate | | Total | |
Net sales | | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | N/A | | 100.0 | % |
Cost of goods sold | | 87.5 | | 75.2 | | 76.4 | | 66.4 | | — | | 80.3 | |
Gross profit | | 12.5 | | 24.8 | | 23.6 | | 33.6 | | — | | 19.7 | |
Selling, general, administrative expenses | | 7.1 | | 13.6 | | 13.1 | | 23.2 | | — | | 10.7 | |
Other | | — | | — | | — | | 1.7 | | — | | 0.1 | |
Earnings from operations | | 5.3 | % | 11.2 | % | 10.5 | % | 8.7 | % | — | | 8.9 | % |
Note: Actual percentages are calculated and may not sum to total due to rounding.
NET SALES
We design, manufacture and market wood and wood-alternative products, primarily used to enhance outdoor living environments; for national home centers and other retailers,retailers; for engineered wood components, structural lumber, and other products for the manufactured housing industry, engineered wood components forfactory-built and site-built residential and commercial construction, specialty wood packaging, components and packing materials for various industries, andconstruction; customized interior fixtures used in a variety of retail stores, commercial, and other structures.structures; and structural wood packaging, components and packing materials for various industries. Our strategic long-term sales objectives include:
● |
|
|
| | | | | | | | | | | |
| | % Change | |||||||||
|
| in Sales |
| in Selling |
| in Units |
| Acquisition Unit Change |
| Organic Unit Change |
|
First quarter 2024 versus first quarter 2023 | | (10.1) | % | (9.1) | % | (1.0) | % | 12.0 | % | (13.0) | % |
● |
| Expanding geographically in our core businesses, domestically and internationally. |
24
● |
| Increasing our sales of |
|
|
|
|
19
UNIVERSAL FOREST PRODUCTS, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| New Product Sales by Market |
| New Product Sales by Market | ||||||||||||
|
| Three Months Ended |
| Nine Months Ended | ||||||||||||
(in thousands) |
| September 30, |
| September 24, |
|
|
| September 30, |
| September 24, |
|
| ||||
Market Classification |
| 2017 |
| 2016 |
| % Change |
| 2017 |
| 2016 |
| % Change | ||||
Retail |
| $ | 65,383 |
|
| 53,252 |
| 22.78% |
| $ | 192,194 |
| $ | 153,966 |
| 24.83% |
Industrial |
|
| 26,738 |
|
| 23,374 |
| 14.39% |
|
| 76,125 |
|
| 65,642 |
| 15.97% |
Construction |
|
| 15,577 |
|
| 11,911 |
| 30.78% |
|
| 45,321 |
|
| 35,717 |
| 26.89% |
Total New Product Sales |
|
| 107,698 |
|
| 88,537 |
| 21.64% |
|
| 313,640 |
|
| 255,325 |
| 22.84% |
Note: Certain prior year product reclassifications and the change in designation of certain products as “new” resulted in a change in prior year’s sales.
The following table presents, for the periods indicated, our gross sales and percentage change in gross sales by market classification.
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|
|
| Three Months Ended |
| Nine Months Ended | ||||||||||||||
(in thousands) |
| September 30, |
| September 24, |
|
|
|
| September 30, |
| September 24, |
|
|
| ||||
Market Classification |
| 2017 |
| 2016 |
| % Change |
| 2017 |
| 2016 |
| % Change | ||||||
Retail |
| $ | 391,895 |
| $ | 339,275 |
| 15.5 | % |
| $ | 1,162,785 |
| $ | 1,018,203 |
| 14.2 | % |
Industrial |
|
| 369,506 |
|
| 232,017 |
| 59.3 | % |
|
| 982,675 |
|
| 661,718 |
| 48.5 | % |
Construction |
|
| 310,026 |
|
| 267,772 |
| 15.8 | % |
|
| 872,997 |
|
| 740,393 |
| 17.9 | % |
Total Gross Sales |
|
| 1,071,427 |
|
| 839,064 |
| 27.7 | % |
|
| 3,018,457 |
|
| 2,420,314 |
| 24.7 | % |
Sales Allowances |
|
| (14,841) |
|
| (12,399) |
| 19.7 | % |
|
| (43,366) |
|
| (39,405) |
| 10.1 | % |
Total Net Sales |
| $ | 1,056,586 |
| $ | 826,665 |
| 27.8 | % |
| $ | 2,975,091 |
| $ | 2,380,909 |
| 25.0 | % |
Note: During 2017, certain customers were reclassified to a different market. Prior year information has been restated to reflect these changes.
Gross sales in the third quarter of 2017 increased 28% compared to the same period of 2016, due to a 22% increase in unit sales and a 6% increase in selling prices primarily due to the Lumber Market. Acquired operations contributed 15% to our unit sales growth, and our organic unit sales growth was 7%.
Changes in our gross sales by market are discussed below.
Retail:
Gross sales to the retail market increased almost 16% in the third quarter of 2017 compared to the same period of 2016, due to a 12% increase in unit sales and a 4% increase in selling prices. Within this market, sales to our big box customers increased almost 13%, and sales to other independent retailers increased over 20%. Businesses we acquired contributed 7% to our growth in unit sales, primarily to independent retail customers. Our organic unit growth was 5% for the quarter. By comparison, “big box” same store sales growth during the third quarter has been reported at approximately 6.3%.
Gross sales to the retail market increased over 14% in the first nine months of 2017 compared to the same period of 2016, due to a 9% increase in unit sales and a 5% increase in selling prices. Within this market, sales to our big box customers increased almost 15%, and sales to other independent retailers increased almost 14%. Businesses we acquired contributed 6% to our growth in unit sales, primarily to independent retail customers. Our organic unit growth was 3% in the first nine months of 2017. By comparison, “big box” same store sales growth in the first nine months of 2017 has been reported at approximately 6.0%.
Industrial:
Gross sales to the industrial market increased over 59% in the third quarter of 2017 compared to the same period of 2016, resulting from a 54% increase in unit sales and a 5% increase in selling prices. Businesses we acquired contributed
20
UNIVERSAL FOREST PRODUCTS, INC.
43% to our growth in unit sales. Our organic growth in unit sales of 11% was primarily due to new operations, adding 578 new customers, and share gains with several existing customers.
Gross sales to the industrial market increased almost 49% in the first nine months of 2017 compared to the same period of 2016, resulting from a 43% increase in unit sales and a 6% increase in selling prices. Businesses we acquired contributed 34% to our growth in unit sales. Our organic growth in unit sales of 9% was primarily due to same factors discussed above.
Construction:
Gross sales to the construction market increased almost 16% in the third quarter of 2017 compared to 2016. The increase was due to an 8% increase in unit sales and an 8% increase in our selling prices. Our increase in unit sales was driven by a 12% increase to manufactured housing customers, and an 8% increase to residential construction customers, offset by a 5% decrease to commercial construction customers.
By comparison (and based upon various industry publications):
|
|
|
|
|
|
Gross sales to the construction market increased almost 18% in the first nine months of 2017 compared to 2016. The increase was due to a 9% increase in unit sales and a 9% increase in our selling prices. Our increase in unit sales was driven by an 11% increase to manufactured housing customers, an 11% increase to residential construction customers, and a 1% increase to commercial construction customers due to the same factors discussed above.
Value-Added and Commodity-Based Sales:
The following table presents, for the periods indicated, our percentage of value-added and commodity-based sales to total sales. Value-added products generally carry higher gross margins thansales by our commodity-based products.segments:
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|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Nine Months Ended | ||||||||
|
| September 30, |
| September 24, |
| September 30, |
| September 24, | ||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
Value-Added |
| 63.9 | % |
| 61.1 | % |
| 62.9 | % |
| 61.5 | % |
Commodity-Based |
| 36.1 | % |
| 38.9 | % |
| 37.1 | % |
| 38.5 | % |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | Three Months Ended March 30, 2024 | | Three Months Ended April 1, 2023 | | ||||||||
|
| Value-Added |
| Commodity-Based | | Value-Added |
| Commodity-Based |
| ||||
Retail |
| 52.0 | % | | 48.0 | % | | 50.9 | % | | 49.1 | % | |
Packaging | | 75.7 | % | | 24.3 | % | | 77.0 | % | | 23.0 | % | |
Construction | | 82.1 | % | | 17.9 | % | | 83.3 | % | | 16.7 | % | |
All Other | | 77.7 | % | | 22.3 | % | | 73.1 | % | | 26.9 | % | |
Corporate | | 82.9 | % | | 17.1 | % | | 61.6 | % | | 38.4 | % | |
Total Sales | | 68.5 | % | | 31.5 | % | | 67.5 | % | | 32.5 | % | |
| | | | | | | | | | | | | |
Note: Certain prior year product reclassifications and the change in designation of certain products as "value-added" resulted in a change in prior year's sales. |
COST OF GOODS SOLD AND GROSS PROFIT
Our gross margin decreased to 13.7% from 14.3% comparingoverall unit sales of value-added products increased approximately 2% in the thirdfirst quarter of 20172024 compared to 2023. Our overall unit sales of commodity-based products decreased approximately 6% in the first quarter of 2024 compared to the same period last year.
● | Developing new products. We define new products as those that will generate sales of at least $1 million per year within 4 years of launch and are still growing and gaining market penetration and meet our internal definition of value-added products. New product sales in the first quarter of 2024 decreased 9% primarily due to a decline in unit sales in our structural packaging business unit. Approximately $46.9 million of new product sales for the first three months of 2023, while still sold, were sunset in 2024 and excluded from the table below because they no longer meet the definition above. Our goal is to achieve annual new product sales of at least $510 million in 2024. |
25
The table below presents new product sales in thousands:
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | New Product Sales by Segment | | | ||||||||||||
| | Three Months Ended | | | ||||||||||||
|
| March 30, | | % of Segment |
| April 1, | | % of Segment |
| % Change | | |||||
| | 2024 | | Net Sales | | 2023 | | Net Sales | | in Sales | | |||||
Retail | | $ | 54,068 | | 8.6 | % | | $ | 51,672 | | 6.8 | % |
| 4.6 | % | |
Packaging | |
| 48,158 | | 11.3 | % | | | 65,268 | | 13.4 | % |
| (26.2) | % | |
Construction | | | 21,162 | | 4.1 | % | | | 18,640 | | 3.6 | % | | 13.5 | % | |
All Other and Corporate | |
| 659 | | 1.0 | % | | | 39 | | 0.1 | % |
| 1,589.7 | % | |
Total New Product Sales | |
| 124,047 | | 7.6 | % | | | 135,619 | | 7.4 | % |
| (8.5) | % | |
| | | | | | | | | | | | | | | | |
Note: Certain prior year product reclassifications and the change in designation of certain products as "new" resulted in a change in prior year's sales. |
Retail Segment
Net sales in the first quarter of 2024 decreased by 17% compared to the same period of 20162023 due to a 6% decline in selling prices, a 3% decrease due to the higher leveltransfer of certain sales to the Construction and Packaging segments, and an 8% decline in organic units. Organic unit changes within this segment consisted of decreases of 2% in Deckorators, 2% in UFP Edge, and 9% in ProWood. Our selling prices of variable-priced products declined due to lower lumber prices. Our 22.6% increase in gross profit dollars compares favorably withThe selling prices of these products are indexed to the lumber market at the time they are shipped. Additionally, our 22% increase in unit sales during the same period. Acquired operations contributed $19.9 millionto big box customers, which we believe are more closely correlated with repair and remodel activity, decreased approximately 9%, while unit sales to independent retailers, which we believe are more closely correlated to new housing starts, decreased approximately 7%.Within our Deckorators business unit, our sales of gross profit in the third quarter of 2017. Excluding acquisitions,wood-plastic composite decking, mineral-based-composite decking (sold under our grossnew Surestone tradename) and railing systems increased 10%.
Gross profits increased by $6.7$5.8 million, or 5.7%, over the same period last year as follows:
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21
UNIVERSAL FOREST PRODUCTS, INC.
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Our gross margin decreased6.1% to 13.9% from 14.8% comparing$101.1 million for the first nine monthsquarter of 2017 to the same period of 2016. Our 17.4% increase in gross profit dollars compares unfavorably with our 19% increase in unit sales in the first nine months of 20172024 compared to the same period last year. The increase in our gross profit dollars was primarily dueattributable to acquired operations which contributed $45.6 million ofthe following:
● | The gross profit of our ProWood business unit increased by $6.6 million, in spite of the transfer of certain sales to the Construction and Packaging segments. The products sold by this business unit consist primarily of pressure treated lumber sold at a variable price indexed to the lumber market at the time they are shipped. The improvement in profitability is primarily due to better inventory management, SKU rationalization, and various operational improvements. |
● | The gross profit of our Deckorators business unit increased by $1.8 million due to operational improvements. |
● | The gross profit of our UFP Edge business unit increased by $1.1 million, in spite of the transfer of certain sales to the Construction segment. The improvement in profitability is primarily due to operational improvements. |
SG&A increased by approximately $1.7 million, or 3.1%, in the first nine months of 2017. Excluding acquisitions, our gross profits increased by $15.8 million over the same period last year as follows:
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative (“SG&A”) expenses increased by approximately $17.9 million, or 24.0%, in the third quarter of 20172024 compared to the same period of 2016, while we reported a 22% increase in unit sales.2023. Accrued bonus expense, which varies with ourthe overall profitability of the segment and return on investment, increased approximately $2.6 million from the first quarter of 2023 and totaled $12.4approximately $14.0 million for the quarter. This increase was partially offset by several small decreases in several accounts.
Earnings from operations for the Retail reportable segment increased in the thirdfirst quarter of 20172024 compared to $12.02023 by $5.7 million, or 14.2%, as a result of the factors mentioned above.
26
Packaging Segment
Net sales in 2016. Acquired operations contributedthe first quarter of 2024 decreased 13% compared to the same period of 2023, due to an 11% decrease in selling prices, a 4% increase due to the transfer of sales from the Retail segment, and a 6% decrease in organic unit sales. Organic unit changes consisted of decreases of 11% in structural packaging and 14% in protective packaging, primarily due to a decline in demand from existing customers. These declines were partially offset by 9% organic unit growth in PalletOne, which sells machine-built pallets, due to market share gains. The decline in prices is due to competitive price pressure as well as lower lumber costs.
Gross profits decreased by $35.5 million, or 29.3%, for the first quarter of 2024 compared to the same period last year. The decrease in gross profit was attributable to the following:
● | The gross profit of our structural packaging business unit decreased by a total of $25.5 million, in spite of the transfer of certain sales from the Retail segment. The decline in gross profit is attributable to competitive price pressure due to lower demand as well as lower unit sales and resulting unfavorable cost variances due to fixed manufacturing costs. |
● | The gross profit of our PalletOne business unit decreased by $9.2 million primarily due to competitive price pressure which more than offset profit from unit sales growth. |
● | The gross profit of our protective packaging business unit decreased by $0.8 million due to a decline in unit sales. |
SG&A decreased by approximately $15$12.3 million, or 18.6%, in the first quarter of 2024 compared to our year over year increase.the same period of 2023. Accrued bonus expense, which varies with the overall profitability of the segment and return on investment, decreased approximately $5.1 million relative to the first quarter of 2023, and totaled $10.7 million for the quarter. The remaining decrease was primarily due to decreases in earnout compensation expense of $3.7 million, sales incentive compensation of $2.3 million, and professional fees of $1.4 million.
Earnings from operations for the Packaging reportable segment decreased in the first quarter of 2024 compared to 2023 by $23.5 million, or 42.9%, due to the factors discussed above.
Construction Segment
Net sales in the first quarter of 2024 were flat compared to the same period of 2023 and consisted of a 10% decrease in selling prices, a 2% increase wasdue to the transfer of certain sales from the Retail segment, and an organic unit increase of 8%. Organic unit changes within this segment consist of increases of 13% in factory-built housing, primarily due to an increase in compensationindustry production, and benefit costs. 18% in site-built construction, primarily due to a combination of increased housing starts, capacity expansion, growth of our light gauge metal component plants and aluminum balcony products. These increases were partially offset by organic unit declines of 13% in concrete forming and 15% in commercial construction. The organic unit decline in commercial construction is primarily due to a decline in market demand. As of March 30, 2024 and April 1, 2023, we estimate that our backlog of orders in our site-built construction business unit were $79 million and $91 million, respectively. The decline in pricing was primarily due to competitive price pressure.
Selling, general and administrative (“SG&A”) expenses increased
Gross profits decreased by approximately $50.5$7.3 million, or 22.6%6.0%, in the first nine monthsquarter of 20172024 compared to the same period of 2016, while we reported a 19% increase2023. The decrease in unit sales. Accrued bonus expense totaled $32.6our gross profit was comprised of the following:
● | The gross profit in our factory-built housing increased by $2.3 million as a result of increased unit sales and the transfer of sales from the Retail segment. |
27
● | The gross profit of our site-built construction business unit decreased by $3.4 million primarily due to competitive price pressure and a decline in margins on multi-family construction projects. This decrease was partially offset by an increase in gross profit at our light gauge metal facility. |
● | The gross profit of our concrete forming business unit decreased by $2.7 million due to lower unit sales and a decline in selling prices in spite of the transfer of sales from the Retail segment. |
● | The gross profit of our commercial construction business unit decreased $1.7 million as a result of lower unit sales. |
SG&A increased by approximately $1.8 million, or 2.7%, in the nine months of 2017 compared to $33.9 million in 2016. Acquired operations contributed approximately $41 million to our year over year increase. The remaining increase was primarily due to an increase in compensation and benefit costs and foreign currency exchange losses.
INTEREST, NET
Net interest costs were higher in the thirdfirst quarter of 20172024 compared to the same period of 20162023. The increase was due to carryingincreases in professional fees of $1.7 million and wages and benefits of $1.3 million. These increases were partially offset by a higher amountdecrease in sales incentive compensation of debt$1.1 million and a slight increasedecrease of $0.5 million in short-term borrowing rates.accrued bonus expense, which totaled $14.2 million for the quarter.
Earnings from operations for the Construction reportable segment decreased in the first quarter of 2024 compared to 2023 by $8.9 million, or 16.4%, due to the factors mentioned above.
All Other Segment
Our All Other reportable segment consists of our International and Ardellis (our insurance captive) segments that are not significant.
Corporate
The corporate segment consists of over (under) allocated costs that are not significant.
INCOME TAXES
Effective tax rates differ from statutory federal income tax rates, primarily due to provisions for foreign, state and local income taxes and permanent tax differences. Our effective tax rate was 31.9%17.4% in the thirdfirst quarter of 20172024 compared to 32.5% for23.7% in the same period of 2023.The decrease in 2016. Our our overall effective tax rate was 33.0% in the first nine months of 2017 compared to 34.2% in 2016. The decrease in our effective tax rate is primarily due to recording a tax deduction for certain share-based compensation at fair market value.
22
UNIVERSAL FOREST PRODUCTS, INC.
SEGMENT REPORTING
The following table presents, for the periods indicated, our net sales and earnings from operations by reportable segment.
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| Net Sales |
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| Earnings from Operations | ||||||||||||||||||||
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| Three Months Ended |
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| Three Months Ended | ||||||||||||||||||||
|
| September 30, |
| September 24, |
| $ |
| % |
|
| September 30, |
| September 24, |
| $ |
| % | ||||||||
(in thousands) |
| 2017 |
| 2016 |
| Change |
| Change |
|
| 2017 |
| 2016 |
| Change |
| Change | ||||||||
North |
| $ | 310,384 |
| $ | 267,156 |
| $ | 43,228 |
| 16.2 | % |
|
| $ | 16,697 |
| $ | 14,630 |
| $ | 2,067 |
| 14.1 | % |
South |
|
| 206,050 |
|
| 173,715 |
|
| 32,335 |
| 18.6 | % |
|
|
| 10,234 |
|
| 9,900 |
|
| 334 |
| 3.4 | % |
West |
|
| 378,714 |
|
| 335,981 |
|
| 42,733 |
| 12.7 | % |
|
|
| 22,538 |
|
| 19,962 |
|
| 2,576 |
| 12.9 | % |
All Other |
|
| 161,438 |
|
| 49,813 |
|
| 111,625 |
| 224.1 | % |
|
|
| 6,882 |
|
| 2,959 |
|
| 3,923 |
| 132.6 | % |
Corporate |
|
| — |
|
| — |
|
| — |
| — |
|
|
|
| (4,080) |
|
| (3,899) |
|
| (181) |
| 4.6 | % |
Total |
| $ | 1,056,586 |
| $ | 826,665 |
| $ | 229,921 |
| 27.8 | % |
|
| $ | 52,271 |
| $ | 43,552 |
| $ | 8,719 |
| 20.0 | % |
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| Net Sales |
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| Earnings from Operations | ||||||||||||||||||||
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| Nine Months Ended |
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| Nine Months Ended | ||||||||||||||||||||
|
| September 30, |
| September 24, |
| $ |
| % |
|
| September 30, |
| September 24, |
| $ |
| % |
| |||||||
(in thousands) |
| 2017 |
| 2016 |
| Change |
| Change |
|
| 2017 |
| 2016 |
| Change |
| Change | ||||||||
North |
| $ | 857,858 |
| $ | 758,066 |
| $ | 99,792 |
| 13.2 | % |
|
| $ | 42,921 |
| $ | 43,054 |
| $ | (133) |
| (0.3) | % |
South |
|
| 616,376 |
|
| 533,239 |
|
| 83,137 |
| 15.6 | % |
|
|
| 31,152 |
|
| 35,830 |
|
| (4,678) |
| (13.1) | % |
West |
|
| 1,088,744 |
|
| 940,188 |
|
| 148,556 |
| 15.8 | % |
|
|
| 65,547 |
|
| 58,434 |
|
| 7,113 |
| 12.2 | % |
All Other |
|
| 412,113 |
|
| 149,416 |
|
| 262,697 |
| 175.8 | % |
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|
| 13,285 |
|
| 11,542 |
|
| 1,743 |
| 15.1 | % |
Corporate |
|
| — |
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| — |
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| — |
| — |
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|
|
| (12,914) |
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| (19,733) |
|
| 6,819 |
| 34.6 | % |
Total |
| $ | 2,975,091 |
| $ | 2,380,909 |
| $ | 594,182 |
| 25.0 | % |
|
| $ | 139,991 |
| $ | 129,127 |
| $ | 10,864 |
| 8.4 | % |
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North
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| Net Sales |
| Net Sales | ||||||||||||||
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| North Segment by Market |
| North Segment by Market | ||||||||||||||
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| Three Months Ended |
| Nine Months Ended | ||||||||||||||
(in thousands) |
| September 30, |
| September 24, |
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|
|
| September 30, |
| September 24, |
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| ||||
Market Classification |
| 2017 |
| 2016 |
| % Change |
| 2017 |
| 2016 |
| % Change | ||||||
Retail |
| $ | 139,284 |
| $ | 131,333 |
| 6.1 | % |
| $ | 387,925 |
| $ | 369,699 |
| 4.9 | % |
Industrial |
|
| 40,192 |
|
| 27,524 |
| 46.0 | % |
|
| 114,533 |
|
| 87,287 |
| 31.2 | % |
Construction |
|
| 137,616 |
|
| 113,897 |
| 20.8 | % |
|
| 373,838 |
|
| 316,204 |
| 18.2 | % |
Total Gross Sales |
|
| 317,092 |
|
| 272,754 |
| 16.3 | % |
|
| 876,296 |
|
| 773,190 |
| 13.3 | % |
Sales Allowances |
|
| (6,708) |
|
| (5,598) |
| 19.8 | % |
|
| (18,438) |
|
| (15,124) |
| 21.9 | % |
Total Net Sales |
| $ | 310,384 |
| $ | 267,156 |
| 16.2 | % |
| $ | 857,858 |
| $ | 758,066 |
| 13.2 | % |
Note: During 2017, certain customers were reclassified to a different market. Prior year information has been restated to reflect these changes.
Net sales attributable to the North reportable segment increased in the third quarter of 2017 compared to 2016 as a result of increased sales to each of our markets primarily due to the same factors previously discussed. Acquired operations contributed $8.7 million to our industrial sales increase.
Earnings from operations for the North reportable segment increased in the third quarter of 2017 by $2.1 million, or 14.1%, due to an increase in gross profit of $2.7 million, offset byour tax deduction from stock-based compensation accounted for as a $0.6 million increase in SG&A expenses compared to last year. Acquired operations contributed $0.4 million to our operating profits in the third quarter. permanent difference.
23
UNIVERSAL FOREST PRODUCTS, INC.
Net sales attributable to the North reportable segment increased in the first nine months of 2017 compared to 2016 due to an increase in sales to each of our markets primarily due to the same factors previously discussed. Acquired operations contributed $21.0 million to our industrial sales increase.
Earnings from operations for the North reportable segment decreased in the first nine months of 2017 by $0.1 million, or 0.3%, due to an increase in gross profit of $4.5 million offset by a $4.6 million increase in SG&A expenses compared to last year. Acquired operations contributed $1.4 million to our operating profits in the first nine months of 2017.
South
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| Net Sales |
| Net Sales | ||||||||||||||
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| South Segment by Market |
| South Segment by Market | ||||||||||||||
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| Three Months Ended |
| Nine Months Ended | ||||||||||||||
(in thousands) |
| September 30, |
| September 24, |
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|
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| September 30, |
| September 24, |
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| ||||
Market Classification |
| 2017 |
| 2016 |
| % Change |
| 2017 |
| 2016 |
| % Change | ||||||
Retail |
| $ | 92,146 |
| $ | 75,130 |
| 22.6 | % |
| $ | 282,809 |
| $ | 240,175 |
| 17.8 | % |
Industrial |
|
| 69,390 |
|
| 61,749 |
| 12.4 | % |
|
| 201,928 |
|
| 185,529 |
| 8.8 | % |
Construction |
|
| 49,054 |
|
| 40,385 |
| 21.5 | % |
|
| 145,387 |
|
| 118,223 |
| 23.0 | % |
Total Gross Sales |
|
| 210,590 |
|
| 177,264 |
| 18.8 | % |
|
| 630,124 |
|
| 543,927 |
| 15.8 | % |
Sales Allowances |
|
| (4,540) |
|
| (3,549) |
| 27.9 | % |
|
| (13,748) |
|
| (10,688) |
| 28.6 | % |
Total Net Sales |
| $ | 206,050 |
| $ | 173,715 |
| 18.6 | % |
| $ | 616,376 |
| $ | 533,239 |
| 15.6 | % |
Note: During 2017, certain customers were reclassified to a different market. Prior year information has been restated to reflect these changes.
Net sales attributable to the South reportable segment increased in the third quarter of 2017 compared to 2016 due to increased sales to all markets primarily due to the same factors previously discussed. Acquired operations contributed $24.4 million and $1.8 million to our growth in sales to the retail and industrial market, respectively.
Earnings from operations for the South reportable segment increased in the third quarter of 2017 by $0.3 million, or 3.4%, due to a increase in gross profit of $0.7 million offset by a $0.4 million increase in SG&A expenses. Acquired operations contributed $0.6 million to our operating profits in the third quarter.
Net sales attributable to the South reportable segment increased in the first nine months of 2017 compared to 2016 due to increased sales to all markets primarily due to the factors previously discussed. Acquired operations contributed $59.9 million of sales growth to our retail market.
Earnings from operations for the South reportable segment decreased in the first nine months of 2017 by $4.7 million, or 13.1%, due to a decrease in gross profit of $3.1 million and an increase of $1.6 million in SG&A expenses. The decrease in gross profit was primarily due to the impact of the volatility in lumber prices. Acquired operations contributed $2.0 million to our operating profits in the first nine months of 2017.
24
UNIVERSAL FOREST PRODUCTS, INC.
West
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| Net Sales |
| Net Sales |
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| West Segment by Market |
| West Segment by Market |
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| Three Months Ended |
| Nine Months Ended |
| ||||||||||||||
(in thousands) |
| September 30, |
| September 24, |
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| September 30, |
| September 24, |
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| ||||
Market Classification |
| 2017 |
| 2016 |
| % Change |
| 2017 |
| 2016 |
| % Change |
| ||||||
Retail |
| $ | 115,069 |
| $ | 99,762 |
| 15.3 | % |
| $ | 347,270 |
| $ | 298,723 |
| 16.3 | % |
|
Industrial |
|
| 145,132 |
|
| 126,836 |
| 14.4 | % |
|
| 401,850 |
|
| 347,902 |
| 15.5 | % |
|
Construction |
|
| 123,026 |
|
| 113,488 |
| 8.4 | % |
|
| 353,238 |
|
| 305,962 |
| 15.5 | % |
|
Total Gross Sales |
|
| 383,227 |
|
| 340,086 |
| 12.7 | % |
|
| 1,102,358 |
|
| 952,587 |
| 15.7 | % |
|
Sales Allowances |
|
| (4,513) |
|
| (4,105) |
| 9.9 | % |
|
| (13,614) |
|
| (12,399) |
| 9.8 | % |
|
Total Net Sales |
| $ | 378,714 |
| $ | 335,981 |
| 12.7 | % |
| $ | 1,088,744 |
| $ | 940,188 |
| 15.8 | % |
|
Note: During 2017, certain customers were reclassified to a different market. Prior year information has been restated to reflect these changes.
Net sales attributable to the West reportable segment increased in the third quarter of 2017 compared to 2016 due to increases in sales to all markets primarily due to factors previously discussed.
Earnings from operations for the West reportable segment increased in the third quarter of 2017 by $2.6 million, or 12.9%, compared to the same period in 2016 due to a $2.5 million increase in gross profit combined with a $0.1 million decrease in SG&A expenses.
Net sales attributable to the West reportable segment increased in the first nine months of 2017 compared to 2016 due to an increase in sales to all markets due to the same factors previously discussed.
Earnings from operations for the West reportable segment increased in the first nine months of 2017 by $7.1 million, or 12.2%, compared to the same period in 2016 due to a $10.8 million increase in gross profit, offset by a $3.7 million increase in SG&A expenses.
All Other
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| Net Sales |
| Net Sales |
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| ||||||||||||||
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| All Other Segment by Market |
| All Other Segment by Market |
|
| ||||||||||||||
|
| Three Months Ended |
| Nine Months Ended |
|
| ||||||||||||||
(in thousands) |
| September 30, |
| September 24, |
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|
|
| September 30, |
| September 24, |
|
|
|
|
| ||||
Market Classification |
| 2017 |
| 2016 |
| % Change |
| 2017 |
| 2016 |
| % Change |
|
| ||||||
Retail |
| $ | 45,396 |
| $ | 33,049 |
| 37.4 | % |
| $ | 144,782 |
| $ | 109,606 |
| 32.1 | % |
|
|
Industrial |
|
| 114,792 |
|
| 15,907 |
| 621.6 | % |
|
| 264,364 |
|
| 41,000 |
| 544.8 | % |
|
|
Construction |
|
| 331 |
|
| 4 |
| 8,175.0 | % |
|
| 533 |
|
| 4 |
| 13,225.0 | % |
|
|
Total Gross Sales |
|
| 160,519 |
|
| 48,960 |
| 227.9 | % |
|
| 409,679 |
|
| 150,610 |
| 172.0 | % |
|
|
Sales Allowances & Other |
|
| 919 |
|
| 853 |
| 7.7 | % |
|
| 2,434 |
|
| (1,194) |
| (303.9) | % |
|
|
Total Net Sales |
| $ | 161,438 |
| $ | 49,813 |
| 224.1 | % |
| $ | 412,113 |
| $ | 149,416 |
| 175.8 | % |
|
|
Our All Other reportable segment consists of our Alternative Materials, International, idX, and certain other segments which are not significant.
Net sales attributable to All Other reportable segments increased in the third quarter of 2017 compared to 2016 due to increases in sales to the retail and industrial markets. Our increase in sales to the industrial market was primarily due to an $89.3 million increase from businesses we acquired since September of 2016.
25
UNIVERSAL FOREST PRODUCTS, INC.
Earnings from operations for All Other reportable segments increased during the third quarter of 2017 by $3.9 million, or 132.6%, compared to the same period of 2016. During the third quarter of 2017, gross profit dollars increased $20.6 million, offset by an increase in SG&A expenses of $16.1 million compared to the same period of 2016. Businesses we acquired contributed $3.7 million to our earnings from operations during the third quarter of 2017.
Net sales attributable to All Other reportable segments increased in the first nine months of 2017 compared to 2016 due to increases in sales to the retail and industrial markets. Our increase in sales to the industrial market was primarily due to a $203.1 million increase from businesses we acquired since September of 2016.
Earnings from operations for All Other reportable segments increased during the first nine months of 2017 by $1.7 million, or 15.1%, compared to the same period of 2016. During the first nine months of 2017, gross profit dollars increased $48.4 million, offset by an increase in SG&A expenses of $46.7 million compared to the same period of 2016. Businesses we acquired since September of 2016 contributed $1.1 million to the earnings from operations increase in the first nine months of 2017.
OFF-BALANCE SHEET TRANSACTIONS
We have no significant off-balance sheet transactions other than operating leases.transactions.
28
LIQUIDITY AND CAPITAL RESOURCES
The table below presents, for the periods indicated, a summary of our cash flow statement (in thousands):
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| Nine Months Ended | ||||||||||
|
| September 30, |
| September 24, | ||||||||
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| 2017 |
| 2016 | ||||||||
Cash from operating activities |
| $ | 97,350 |
| $ | 136,377 | ||||||
| | | | | | | ||||||
| | Three Months Ended | ||||||||||
|
| March 30, |
| April 1, | ||||||||
| | 2024 | | 2023 | ||||||||
Cash used in operating activities | | $ | (16,798) | | $ | (37,076) | ||||||
Cash used in investing activities |
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| (121,375) |
|
| (200,139) | |
| (56,062) | |
| (41,858) |
Cash from (used in) financing activities |
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| 11,230 |
|
| 13,981 | ||||||
Cash used in financing activities | |
| (68,968) | |
| (59,368) | ||||||
Effect of exchange rate changes on cash |
|
| 1,255 |
|
| (969) | |
| 79 | |
| 2,739 |
Net change in all cash and cash equivalents |
|
| (11,540) |
|
| (50,750) | |
| (141,749) | |
| (135,563) |
Cash, cash equivalents, and restricted cash, beginning of period |
|
| 34,489 |
|
| 88,342 | |
| 1,122,256 | |
| 559,623 |
Cash, cash equivalents, and restricted cash, end of period |
| $ | 22,949 |
| $ | 37,592 | | $ | 980,507 | | $ | 424,060 |
In general, we fundedfund our growth in the past through a combination of operating cash flows, our revolving credit facility, industrial development bonds (when circumstances permit), and issuance of long-term notes payable at times when interest rates are favorable. We have not issued equity to finance growth except in the case of a large acquisition.acquisition that occurred many years ago. We manage our capital structure by attempting to maintain a targeted ratio of debt to equity and debt to earnings before interest, taxes, depreciation and amortization. We believe this is one of many important factors to maintaining a strong credit profile, which in turn helps ensure timely access to capital when needed.
Seasonality has a significant impact on our working capital due to our primary selling season which occurs during the period from March to August.September. Consequently, our working capital typically increases during our first and second quarters resulting in negative or modest cash flows from operations during those periods. Conversely, we tend to experience a substantial decrease in working capital once we move beyond our peak selling season which typically results in significant cash flows from operations in our third and fourth quarters.
Due to the seasonality of our business and the effects of the Lumber Market, we believe our cash cycle (days of sales outstanding plus days supply of inventory less days of payables outstanding) is a good indicator of our working capital management. As indicated in the table below, our cash cycle increaseddecreased to 4962 days from 4471 days during the thirdfirst quarter and increased to 52 days from 47 in the first nine months of 20172024 compared to the prior periods,year period.
| | | | | | | |
| | Three Months Ended | | ||||
| | March 30, | | April 1, | | ||
| | 2024 | | 2023 | | ||
Days of sales outstanding |
| | 34 |
| | 36 |
|
Days supply of inventory | |
| 41 | |
| 48 | |
Days of payables outstanding | |
| (13) | |
| (13) | |
Days in cash cycle | |
| 62 | |
| 71 | |
The decrease in our days supply of inventory for the quarter is in part due to improvements in inventory turns in our Construction segment. These improvements were partially offset by a seasonal increase in inventory in our Retail segment due to carrying higher levels of safety stock. The decrease in our days of sales outstanding for the impactquarter is primarily due to receiving more timely payments from customers in our Construction segment. We continue to focus on past due account balances with customers, and the percentage of our accounts receivable that are current was 95% and 93% at the end of the first quarter of 2024 and 2023, respectively.
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acquired operations which carry comparatively higher investments in inventory than our other operations. Excluding acquired operations our cash cycle was 44 days in the third quarter of 2017 and 47 days in the first nine months of 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Nine Months Ended |
| ||||||||
|
| September 30, |
| September 24, |
| September 30, |
| September 24, |
| ||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
Days of sales outstanding |
|
| 31 |
|
| 31 |
|
| 31 |
|
| 31 |
|
Days supply of inventory |
|
| 38 |
|
| 34 |
|
| 41 |
|
| 37 |
|
Days payables outstanding |
|
| (20) |
|
| (21) |
|
| (20) |
|
| (21) |
|
Days in cash cycle |
|
| 49 |
|
| 44 |
|
| 52 |
|
| 47 |
|
In the first ninethree months of 2017,2024, our cash from operating activities was $97.3flows used in operations were $17 million which wasand were comprised of net earnings of $90.9$121 million, and $41.3$45 million of non-cash expenses, offset byand a $34.9$183 million increase in cash invested in working capital since the end of December 20162023. Our cash flows used in operations decreased by $20 million compared to the same period of last year primarily due to the strong sales growth and higher lumber prices. Comparatively, cash from operating activities was $136.4a $20 million in the first nine months of 2016, which was comprised of net earnings of $83.3 million and $32.3 million of non-cash expenses, offset by a $20.8 million seasonal decrease in working capital since the end of 2015. The increaseour investment in net working capital compared to the same period lastprior year period. The decrease in our net working capital was primarily due to significant increaseslower volumes and lumber prices and an improvement in inventory and accounts receivable offsetour working capital management as evidenced by increases in accounts payable which can be attributed to sales growth and higher lumber prices.our cash cycle above.
Acquisitions and purchasesPurchases of property, plant, and equipment of $49 million comprised most of our cash used in investing activities during the first ninethree months of 2017 and totaled $59.9 million and $57.2 million, respectively.2024. Outstanding purchase commitments on existing capital projects totaled approximately $26.1$89 million on SeptemberMarch 30, 2017. We currently plan2024. Capital spending primarily consists of several projects to spend $70 million for the yearexpand capacity to manufacture new and value-added products, primarily in 2017 on capital expenditures.our Packaging segment and Site-Built, Deckorators and ProWood business units, achieve efficiencies through automation in all segments, make improvements to a number of facilities, and increase our transportation capacity (tractors, trailers). We intend to fund capital expenditures and purchase commitments through our operating cash flows for the balance of the year. Comparatively, capital expenditures were $35.7 million during the first nine months of 2016. The increase in our capital expenditures in 2017 is primarily due to the additional requirements of our recently acquired operations and an increase in our “expansionary and efficiency” capital expenditures tied to initiatives including new products, value-added product capacity expansion, and automation. The sale and purchase of investments totaling $12.2 million and $4.2 million, respectively, are due to investment activity in our captive insurance subsidiary.
Cash flows fromused in financing activities primarily consisted of net borrowings under our revolving credit facility of approximately $36.2 million, primarily to finance the $59.9 million of acquisitions we completed in the first nine months of 2017. Additionally,of:
● | We repurchased 319,295 shares of our common stock for $36.6 million during the quarter at an average price of $114.74 per share. Of this amount, 154,196 shares were repurchased in order to settle tax withholding obligations of long-term stock incentive plan participants’ awards which vested in February. The shares were purchased at an average price of $115.69 per share, totaling $17.8 million. |
● | Dividends paid during the first three months of 2024 were $20 million ($0.33 per share). |
● | Contingent consideration payments of $4 million. |
● | Distributions to noncontrolling interests of $3 million. |
● | Debt repayment on behalf of an investee of $6.3 million. |
On March 30, 2024, we had $9.2 million in dividend payments and $13.0 million in payments for stock repurchases.
On September 30, 2017, we had $70.8$3.5 million outstanding on our $295$750 million revolving credit facility. The outstanding revolving credit facility, also includes letters of credit totalingand we had approximately $9.8 million on September 30, 2017; as a result, we have approximately $224.2$709 million in remaining availability on our revolver after considering $37 million in outstanding letters of credit. Additionally, we have $150 million in availability under a “shelf agreement” for long term debt with a current lender. Financial covenants on the unsecured revolving credit facility and unsecured notes include minimum interest tests and a maximum leverage ratio. The agreements also restrict the amount of additional indebtedness we may incur and the amount of assets which may be sold. We were in compliance with all our covenant requirements on SeptemberMarch 30, 2017.2024.
At the end of the first quarter of 2024, we have approximately $2.2 billion in total liquidity, consisting of our cash, remaining availability under our revolving credit facility, and a shelf agreement with certain lenders providing up to $535 million in remaining borrowing capacity.
ENVIRONMENTAL CONSIDERATIONS AND REGULATIONS
See Notes to Unaudited Consolidated Condensed Financial Statements, Note E, “Commitments, Contingencies, and Guarantees.”
CRITICAL ACCOUNTING POLICIES
In preparing our consolidated financial statements, we follow accounting principles generally accepted in the United States. These principles require us to make certain estimates and apply judgments that affect our financial position and
27
UNIVERSAL FOREST PRODUCTS, INC.
results of operations. We continually review our accounting policies and financial information disclosures. There have been no material changes in our policies or estimates since December 31, 2016.30, 2023.
30
FORWARD OUTLOOK
Our long-term financial goals include:
● | Growing our annual unit sales by 7-10%. We anticipate smaller tuck in acquisitions will continue to contribute toward this goal; |
● | Achieving and sustaining a 12.5% adjusted EBITDA margin by continuing to enhance our capabilities and grow our portfolio and sales of value-added products and by achieving operating improvements; |
● | Earning an incremental return on new investment over our cost of capital; and |
● | Maintaining a conservative capital structure. |
We believe effectively executing our strategies will allow us to achieve long-term goals in the future. However, demand in the markets we serve has contracted, which will impact our results and vary depending on the severity and duration of this cycle. The following factors should be considered when evaluating our future results:
● | Lumber prices, which impact our cost of goods sold and selling prices, have normalized due to additional capacity added by sawmills and demand falling from peak levels. We anticipate lumber prices will remain at lower levels until there is a substantial change in the balance of supply and demand. |
● | Retail sales accounted for 38% of our net sales for the first three months of 2024. When evaluating future demand for the segment, we analyze data such as the same-store sales growth of national home improvement retailers and forecasts of home remodeling activity. Based on this data, we currently anticipate market demand for our products to be down mid-single digits in 2024. |
● | Packaging sales accounted for 26% of our net sales for the first three months of 2024. When evaluating future demand, we consider a number of metrics, including the Purchasing Managers Index (PMI), durable goods manufacturing, and U.S. real GDP. We currently believe overall demand for our products in the markets we serve to be down mid-single digits in 2024. |
● | Construction sales accounted for 32% of our net sales for the first three months of 2024. |
- | The site-built business unit accounted for approximately 14% of our net sales for the first three months of 2024. Approximately one-third of site-built customers are multifamily builders. Independent forecasts of housing starts generally range from slightly up to slightly down in 2024. |
- | The factory-built housing business unit accounted for 12% of our net sales for the first three months of 2024. When evaluating future demand, we analyze data from production and shipments of manufactured housing. The National Association of Home Builders and John Burns Real Estate Consulting forecast the manufactured home shipments in 2024 to be flat to slightly up. |
- | The commercial construction and concrete forming business units accounted for approximately 6% of our net sales for the first three months of 2024. When evaluating future demand, we analyze data from non-residential construction spending. We anticipate overall demand in this business unit to be flat to slightly up for the balance of 2024. |
Capital Allocation:
We believe the strength of our cash flow generation and conservative capital structure provide us with sufficient resources to grow our business and also fund returns to our shareholders. We plan to continue to pursue a balanced and return-driven approach to capital allocation across dividends, share buybacks, capital investments and acquisitions. Specifically:
31
● | On April 24, 2024, our board approved a quarterly cash dividend of $0.33 per share, which represents a 32% increase from the prior year. This dividend will be payable on June 15, 2024, to shareholders of record on June 1, 2024. We continue to consider our payout ratio and yield when determining the appropriate dividend rate and have a long-term objective of increasing our dividend in line with our earnings growth. |
● | On July 26, 2023, our board authorized the repurchase of up to $200 million worth of shares of outstanding stock through July 31, 2024. For the first three months of 2024, we repurchased 319,295 shares of our common stock at an average share price of $114.74. This share authorization supersedes and replaces our prior share repurchase authorizations. As of March 30, 2024, we had remaining authorization to repurchase up to $137 million through July 31, 2024. From March 31, 2024, through April 30, 2024, we have repurchased 351,924 shares for $40.2 million, at an average share price of $114.15. Our objective is to repurchase our stock at sufficient amounts to offset issuances under our share-based compensation plans. In addition, we will opportunistically buy shares when the price trades at pre-determined levels. |
● | Our targeted range for capital expenditures for 2024 is $250-$300 million, which will continue to be impacted by extended lead times required for most equipment and rolling stock. Priority continues to be given to projects that enhance the working environments of our plants and take advantage of automation opportunities, expand our transportation capacity, and drive strategies that have strong long-term growth potential for new and value-added products. |
● | We continue to pursue a healthy pipeline of acquisition opportunities of companies that are a strong strategic fit and enhance our capabilities while providing higher margin, return, and growth potential. |
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
We are exposed to market risks related to fluctuations in interest rates on our variable rate debt, which consists of a revolving credit facility and industrial development revenue bonds. We do not currently useenter into any material interest rate swaps, futures contracts or options on futures, or other types of derivative financial instruments to mitigate this risk.
For fixed rate debt, changes in interest rates generally affect the fair market value, but not earnings or cash flows. Conversely, for variable rate debt, changes in interest rates generally do not influence fair market value, but do affect future earnings and cash flows. We do not have an obligation to prepay fixed rate debt prior to maturity, and as a result, interest rate risk and changes in fair market value should not have a significant impact on such debt until we would beare required to refinance it.
We are subject to fluctuations in the price of lumber. We experience significant fluctuations in the cost of commodity lumber products from primary producers (the “Lumber Market”). A variety of factors over which we have no control, including government regulations, transportation, environmental regulations, weather conditions, economic conditions, and natural disasters, impact the cost of lumber products and our selling prices. While we attempt to minimize our risk from severe price fluctuations, substantial, prolonged trends in lumber prices can affect our sales volume, our gross margins, and our profitability. We anticipate that these fluctuations will continue in the future. (See “Impact of the Lumber Market on Our Operating Results.”)
Our international operations have exposure to foreign currency rate risks, primarily due to fluctuations in their local currency, which is their functional currency, compared to the U.S. dollar.Dollar. Additionally, certain of our operations enter into transactions that will be settled in a currency other than the U.S. Dollar. We have enteredmay enter into forward foreign exchange rate contracts in 2017 and may enter into further forward contracts in the future associated with mitigating theto mitigate foreign currency exchange risk. Historically, our hedge contracts are deemedhave been immaterial to the financial statements, however any material hedge contract in the future will be disclosed.statements.
32
Item 4. Controls and Procedures.
(a) |
| Evaluation of Disclosure Controls and Procedures. With the participation of management, our chief executive officer and chief financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a – 15e and 15d – 15e) as of the quarter ended |
(b) |
| Changes in Internal Controls. During the quarter ended |
28
UNIVERSAL FOREST PRODUCTS, INC.
PART II. OTHER INFORMATION
Item 1A. Risk Factors.
None
None.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
(a) |
| None. |
(b) |
| None. |
(c) |
| Issuer purchases of equity securities. |
| | | | | | | | | |
Fiscal Month |
| (1) |
| (2) |
| (3) |
| (4) | |
December 31, 2023 - February 3, 2024 |
| — | | — |
| — |
| $ | 173,335,471 |
February 4 - March 2, 2024 |
| 154,196 | | 115.69 |
| 154,196 |
| | 155,497,017 |
March 3 - 30, 2024 |
| 165,099 | | 113.85 |
| 165,099 |
| | 136,699,725 |
Note: February consists of 154,196 shares tendered by certain employees of the Company (and repurchased by the Company) in order to satisfy their respective tax withholding obligations resulting from the vesting of restricted stock awards.
|
|
|
|
|
|
|
|
|
Fiscal Month |
| (a) |
| (b) |
| (c) |
| (d) |
July 2 - August 5, 2017 |
| 2,800 |
| 84.01 |
| — |
| 2,755,923 |
August 6 - September 2, 2017 |
| 34,900 |
| 80.40 |
| — |
| 2,721,023 |
September 3 - September 30, 2017 |
| — |
| — |
| — |
| 2,721,023 |
(1) |
| Total number of shares purchased. |
(2) |
| Average price paid per share. |
(3) |
| Total number of shares purchased as part of publicly announced plans or programs. |
(4) |
|
|
On November 14, 2001,and effective as of July 26, 2023, our board authorized the Boardrepurchase of Directors approved a share repurchase program (which succeeded a previous program) allowing us to repurchase up to 2.5$200 million worth of shares of our common stock. On October 14, 2011, our Board authorized an additional 2 million shares to be repurchased under our share repurchase program. The total number of remaining shares that may be repurchased understock through the program is approximately 2.8 million.period ending July 31, 2024, which supersedes and replaces prior authorizations.
None.During the quarter ended March 30, 2024, no director or officer adopted or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
2933
PART II. OTHER INFORMATION
The following exhibits (listed by number corresponding to the Exhibit Table as Item 601 in Regulation S-K) are filed with this report:
| | |
3 | Articles of Incorporation and Bylaws | |
| | |
| (a) | Restated Articles of Incorporation, as amended through April 24, 2024. |
| | |
31 | Certifications. | |
| | |
| (a) | |
| | |
| (b) | |
| | |
32 | Certifications. | |
| | |
| (a) | |
| | |
| (b) | |
| | |
101 | Interactive Data | |
| | |
| (INS) |
|
| | |
| (SCH) |
|
| | |
| (CAL) |
|
| | |
| (LAB) |
|
| | |
| (PRE) |
|
| | |
| (DEF) |
|
| | |
104 | Cover Page Interactive Data File (the cover page XBRL tags are embedded in the Inline XBRL document). |
3034
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
| |
| | |
Date: | By: | /s/ Matthew J. Missad |
| Matthew J. Missad, | |
| Chairman of the Board, Chief Executive Officer and | |
| Principal Executive Officer | |
| | |
Date: | By: | /s/ Michael R. Cole |
| Michael R. Cole, | |
| Chief Financial Officer, | |
| Principal Financial Officer and | |
| Principal Accounting Officer |
3135