UFP Industries, Inc.

and thank you for standing by. Welcome to the UFPs Industries Inc. Q2 2022 Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mr. Dick Gossier, Vice President of Communications and Investor Relations. Please go ahead, sir.

Welcome to the second quarter 2022 conference call for UFP Industries. Holding the call today are CEO Matt Massad and CFO Mike Cole. Matt and Mike will offer prepared remarks, and then the call will be open for questions. This conference call is available simultaneously in its entirety to all interested investors and news media through our webcast at ufpi.com. A replay will also be available at that website. Before I turn the call over to Matt Massad, let me remind you that today's press release and presentation include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from the company's expectations and projections. These risks and uncertainties include but are not limited to those factors identified in the press release and the filings with the Securities and Exchange Commission. Now I would like to turn the call over to Matt Massas.

Thank you, Dick. It's a beautiful day at USP, and we are keeping the sunny side up. Many pundits are turning the music off, but our team says, don't stop the party. The team has been working day and night to post more incredible results and continues to turn on the record machine with new sales and profit records for the quarter. Net sales for Q2 were 2.9 billion, with units up a modest 3%. Net earnings were $203 million for the quarter and diluted EPS was $3.23 a share. These results were delivered in a rapidly falling lumber market, which in the past would have impacted overall performance much more negatively. Instead, these results demonstrate the resilience of our diversified business model, as well as the skill, experience, and dedication of our teammates in the UFP family of companies. I want to thank them all for this spectacular performance and congratulate them on their achievements. At the same time, some of you are telling us, don't look back, just tell us about the future. I'll cue up that song in a bit, but first let's review the performance and outlook by segment. We'll start with construction. The site-built business unit has strong order files through the balance of 22 in most of the markets we supply components. The Northeast market has softened somewhat due in part to out migration from that state. The site-built group benefited in Q2 from market tailwinds which resulted from strong demand and lack of available supply. Looking ahead, multifamily orders are still strong in the markets we serve as owners and developers are bullish on the outlook for the balance of 22 and 23 and are taking advantage of the softened market pricing for materials. Our forward outlook in SiteBuilt is based in part on the latest predictions of actions by the Federal Reserve, which show increasing rates through Q1 of 2023 and, surprisingly enough, rate declines in Q3 or Q4 of 2023. While we favor a patient wait-and-see approach for three to six months after each rate change to allow the impact of the moves to be absorbed, the current dialogue does not exhibit patience or acumen. As a result, we expect single-digit percentage declines in housing starts over the next two years. With our business model and our geographic locations, which tend to be in areas where long-term growth is expected, this level of activity will still result in very good performance in our site-built business. Factory-built is strong, and the affordability that factory-built homes provide makes it an attractive option in a rising interest rate and inflationary environment. People still need homes, and mobile and modular are great entry-level options as well as move-up options. RV has seen a significant slowdown, although it is not a large percentage of our factory-built business. Factory-built did suffer some margin erosion in Q2 as certain variable-priced items declined during the quarter. The outlook remains positive, though, as manufacturers look to expand production of lower-priced units. In the concrete forming area, we continue to expand our geographic presence and move to convert sticks and panel sales to designed, manufactured, and assembled form sales. Variable price products saw margin compression in the concrete forming market as well during the quarter and should normalize during Q3. And we have not yet seen any significant activity from infrastructure spending Commercial construction has worked very hard to improve, and they are heading on a good path towards our overall return targets. While there still remain some supply issues domestically with highly custom products, the supply chain for imports from Asia has improved from earlier this year. They have additional opportunities for improvement, too, as they rationalize product mix and ensure that they receive the appropriate value for the services they provide. They plan to operate at functional capacity during Q3 to meet their customer orders. Moving to retail solutions, our retail customers continue to see solid demand after a slow start to the spring in the northern markets. Year-over-year comparables were generally better in June as the professional contractors remain busy. The decorators' business units have seen lead times for wood plastic composite return to normal pre-pandemic levels and inventories throughout the channel are back to normal levels as well. We are operating the wood plastic composite operations at approximately 70 to 75 percent of capacity, which in total still is above the 2019 levels. On the other hand, we continue to experience lengthy lead times and unmet demand for our mineral-based composite products, such as Decorators Voyage. We increased our capacity by approximately 66 percent on an annualized basis compared to last year, and are still operating at a full capacity today. We expect to complete our equipment installations and ramp up for our goal of 100% capacity increase over 2020 by year-end 2022. And we continue to see buyers moving away from traditional higher-end wood products, primarily cedar and redwood, and making the jump into our mineral-based composites. Our certified professional installers continue to be our best brand advocates as they have become a primary driver of increased demand that we continue to see here. And we are also excited to see the continued growth and the impact from our ultra-aluminum and cedar poly acquisitions earlier this year. In outdoor essentials, the customer inventories have normalized seasonally after being higher than needed in most of Q2 due to customers' concerns of freight and supply chain issues. Our Haven line of lawn and garden products is gaining momentum, too, and will be followed by several other new products as we expand our tool-free offering. We have had to increase prices in this market to reflect the higher input costs, and have been working with our customers to better communicate our value proposition to the consumers. In the handprint business unit, our craft stores and mass merchandise customers dramatically slowed their orders in Q2. Some customers are down as much as 80% due to excess inventory in the channel. Most of the large craft customers have a 60-day lead time, so we have started to see order volume improvement. In ProWood, lead times have also decreased as demand for our products has normalized to pre-pandemic levels, and supply has been able to catch up. We faced a falling lumber market the majority of the quarter with inventory needed for the traditional seasonal buildup. Our fire retardant product, ProWood FR, continues to expand distribution and is picking up share in the market. We expect a lower price level for the consumer and a solid backlog of outdoor projects will favor ProWood performance compared to Q3 2021. Situation is similar at Sunbelt. The rapid decline in the market, while similar in scope to 2021, did not impact Sunbelt as badly as a year ago. Nevertheless, Sunbelt had approximately $9 million of lower cost for market adjustments in Q2. The continued improvement of their purchasing programs as well as a more dynamic pricing model will improve bottom line performance. It also may be necessary to eliminate business which does not meet our return targets as we try to improve our overall performance. The industrial segment continues to perform well. as Pallet 1 executes its strategy to improve sourcing, manufacturing, and is expanding geographically within the UFP footprint. The recent combination with Dempsey Forest products provides additional opportunity to create efficiencies in the supply chain. In structural packaging, our national sales team continues to gain business and drive more sales with national accounts. We also continue to convert more commodity business to value-added, including design, engineered, and mixed materials manufacturing. Enhancing our proprietary strip pack product is a good example of unique solutions that we provide for our customers. Our agriculture business is also gaining share as the cost of alternative petroleum-based products increases. Looking ahead, some customers' businesses have slowed somewhat while others remain strong. We are gaining customers as well as gaining efficiencies in manufacturing. The supply chain overall is improving, which helps reduce lead times. But our outlook remains positive given our very diverse end markets in the industrial space, which provide great stability. In UFP packaging, we have also seen a slight weakening in demand as these end markets generally mirror our overall customer mix in industrial. We still see strong growth opportunities in this business unit, and will continue our search to grow new products and opportunities. In the international group, our operations in Australia and India are improving nicely coming out of the pandemic. Mexico has continued to perform well with the parts of the business tied to housing related products facing similar challenges going forward. Europe and the Middle East performance are lagging and not up to our standards. On the sourcing side, our international team continues to battle shipping costs while finding valuable resources in other parts of the world. As we look at purchasing and transportation, we expect a more stable and normal lumber and panel market in the back half of 2022. Our internal transportation costs have increased due to fuel and labor cost increases, and third-party trucking availability is improving, but potential rate decreases are being offset by higher fuel prices. We expect trucking availability to remain good, but we also do not expect significant rate reductions. As we look at our inventories overall, they are higher than we would like, and we will be reducing them during the back half of the year as supply and transportation concerns are expected to be alleviated. However, rail has been and will likely continue to be a concern through the third quarter and through year end. Labor and equipment shortages have plagued the carriers which have created pressure for users like UFP and have caused us to pay higher freight costs by using trucks rather than rail cars. On new products, the new product sales for the quarter were 180.1 million and are 347.7 million year to date. In our continuing effort to innovate, we are seeing new products come through the innovation accelerator and we are exploring intellectual property, technology, and process improvement acquisitions and ventures through our new innovation fund, which is designed to get new products at an earlier stage of development and enable faster commercialization and scaling. Because of our commitment to continue to find better products and processes and ensure a stronger piece of the value chain, we have to continue to develop intellectual property and disrupt our businesses before others do. As a result, we expect to invest up to $100 million over the next several years to find more new and unique products and develop a long-term robust pipeline, which will deliver results over a three to seven year period from the time of investment. Labor has and continues to be an issue for our industry. In some markets, it remains very tight, while in others, it has loosened somewhat. However, with more reasonable takeaway, we have generally been able to manage this better internally than in previous quarters. Wages and benefits have increased significantly, and we intend to continue our fall and spring bonus programs for our hourly teammates. Regardless of the hurdles we face over the next few years, we will face them head on and keep our focus on protecting and enhancing long-term shareholder value. Effective allocation of capital is a cornerstone. We prioritize capital on growth, creating long-term value and providing a solid return to our shareholders. Our growth capital is directed to strategic acquisitions, new products and services, expansionary and efficiency capital expenditures. We have plenty of acquisition targets in the pipeline, but we'll keep our disciplined approach and adjust our model consistent with our view of the future. We have a great supply of dry powder and a strong balance sheet, which enables us to take advantage of opportunistic situations as they occur in the targeted runways. In addition to new products and services in all business units, we see opportunities with our industrial growth as we pursue our goal of being the global packaging solution provider. We will continue to scale our recent acquisitions across our network, as well as finding new products in M&A throughout our business unit footprint. Our return on capital to shareholders takes three forms, share repurchases, cash dividends, and increase in share value. In addition to the share repurchases during the quarter, we believe that consistent and growing dividends adds value to our shareholders and are pleased to report that the Board again authorized a dividend of 25 cents per share payable on September 15 to shareholders of record on September 1st. And while the demand for capital is high throughout the organization, we will remain thoughtful in our approach and stay true to our return on investment focus. Now we'll turn it over to Mike Cole to share more information.