UFP Industries, Inc.

Good day and welcome to the Q1 2023 USP Industries, Inc. earnings conference call and webcast. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Dick Gauthier, Vice President of Investor Relations. Your line is open, sir.

Welcome to the first quarter 2023 conference call for UFB Industries. Hosting 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 Mitigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from the company's expectations and projections. These risks and uncertainties include, but are not limited to, those factors identified in the press release and in the filings with the Securities and Exchange Commission. I will now turn the call over to Matt Massad.

Thank you, David, and good afternoon. Thank you for joining the first quarter 2023 conference call. Going into the conference, it's like a party. Something unpredictable would happen, but in the end, everything happens. Okay. Chaperoning through a tricky quarter, and we were able to report earnings per share of $1.98, which exceeded our analyst consensus estimate. The first quarter results were generally in line with our expectations, although some unanticipated things happened. As an example, January was in line with expectations, February was below, and March was above. We will review the results by segment, but the overarching theme is that challenges will continue as the economy is affected by interest rate changes, reactions to unsustainable federal debt levels, and the resiliency of consumers. We plan to anticipate and meet the challenges head on. As we discussed in February, the year 2023 will not likely be smooth, but we expect it to be more in line with pre-COVID economies plus normal growth. Our team is focused on executing our plans and taking advantage of opportunities if others stumble. We have accumulated a significant amount of capital and will stay operationally aggressive and fiscally conservative using our balance sheet to support our growth and value creation. Our unique business model allows decisions on cost containment, staffing, and inventory levels to be handled by those closest to the action, and we don't wait for events to make decisions. Our growth hasn't affected our agility, and we intend to keep it that way. Now let's review segment performance and outlook. In retail solutions, as a value-added manufacturer, seller, and self-distributor, our products provide solutions for the DIY consumer as well as the professional contractor. Our strategy in this segment is simple. Provide innovative new products and solutions. Find, harness, and expand opportunities. select and build the right brands, and utilize our national reach, purchasing expertise, and distribution network to provide the best customer value. Overall, retail unit sales were only down 2% versus 2022, a better than expected result. The leading indicators of remodeling activity published by the Joint Center for Housing predict a modest 2.8% decline in remodeling activity over the period ending in Q1 of 2024. Our big box customers are executing their strategies to capture business from the professional contractor, and they appear to be taking share. We too will work hard to make sure we can capture additional market share while enhancing our return on investment. In the first quarter, Prowood and Sunbelt unit sales were up double digits from 2022. The growth can be attributed to favorable market where prices are comparable to pre-pandemic levels. Outdoor projects using lumber are much more affordable now than in the previous few years. Most of the total revenue shortfall was due to a lower level of lumber market. And as we predicted, margins were lower in Q1 of 2022 as the buying opportunities did not materialize in 2023 like they did a year ago. On a positive note, you may recall in Q2 the declining market hurt margins in ProWood and Sunbelt. Thankfully, we don't expect a similar lumber market decline in 2023, and I am encouraged by the words of Paul, who said, you cannot fall off the floor. Decorators had a solid first quarter. They have invested in more innovation capacity and will be driving new products to market using our patented mineral-based technology, which has considerable opportunities for growth. Its durability, ease of use, and enhanced strength to weight ratio make it a contractor favorite. The launch of our rapid rail has exceeded our expectations, helping us achieve our goal of increasing share while achieving better sales attachments of railing to decking sales. In our USP Edge business unit, we named a new leader. Chris Hain will bring a renewed focus on driving efficiency and implementing the growth strategy set forth by Will Schwartz and the retail team. While edge was slow in the first quarter, market demand has started to pick up. Edge sales were particularly affected by weather, including key markets on the West Coast. Inventories in the channel are also better balanced, which will allow edge to better manage demand with the ability to react quickly. Share gains are a critical piece of the edge strategy. As we analyze the next manufacturing location in the U.S. for this great product lineup, We will utilize our partnership with Piniella Universal in Mexico to produce products in one of the best facilities in North America. Moving to the construction segment, factory built is trending according to plan and is well below year-ago levels. The RV industry is down by as much as 80% in some areas, while the MH industry is down 29% based on February shipments. The current forecast for shipments of manufactured housing units in 2023 is 71,000. We have adjusted our business accordingly and are investing in more technology to provide options for affordable homes. Our sales into RV are a small percentage of total sales, but there continue to be opportunities to innovate and create more value in that space. Site-built has been a pleasant surprise thus far, even with February actual new home sales being down from 2022. March showed a rebound, and current order files have improved as well. We are adding a second shift in many locations as we ramp up to shift customer orders. The outlook for our site-built business is more positive than it was two months ago, as the annual starts forecast ranges between 1.2 and 1.4 million for 2023. At that level of activity, we have a good sustainable business unit for site-built. Commercial had a positive Q1. As we have seen in this business, when economic times are uncertain, there's a tendency to push back projects. They eventually come through, but it creates a much greater cost for us to service. While the order files are strong, our ability to hit plan for the year hinges on our customers moving forward on their remodeling and construction plans. Our team has done a very good job of refocusing for profitability and return, and we will need to continue to drive that improvement in order to compete for capital with our other business units. Concrete Forming Solutions is making investments in growth by opening new facilities and adding sales talent in selected markets. Our new locations in Long Island, New York, and Colorado are up and running. These will increase SG&A costs in the near term, but will serve as a catalyst for their target of $500 million in revenue and beyond. UFP construction will rely on our experienced management team to guide the business through any uncertainty and to produce strong results for the balance of 2023. UFP packaging continues to strengthen its structure to bring greater efficiency on the design and manufacturing sides of the business, while better serving the customers. Our use of our investments in mixed materials allows us to make better solutions at better values. We expect these improvements to yield greater market share in each of our runways. The packaging industry is fragmented and our modest market share leaves tremendous opportunity for growth in packaging. Pallet 1 performed well in Q1 and has been using the combination with other UFP facilities to serve national customers and grow their presence and importance with national, regional, and local customers. Pallet 1 continues to look for opportunities to expand its network to get closer to the customers nationwide. In structural packaging, demand for this business unit was unexpectedly soft in Q1. The purchasing managers index indicates a lack of strength with March's indicator of 46.3, a 19% drop from a year ago. However, as lumber and other input costs have normalized, the value of our product remains relatively better due to our focus on capacity and solution-based designs. We are growing capacity without adding additional facilities by consolidating production of certain items in key regional locations. We need to convert customers to more value-added products and services as well as increase our market share to reach our targets. Increasing our design, engineering, testing and analytical capabilities will help this effort, as will adding increased capacity in our steel and mixed material solutions. Productive Packaging is growing revenues and looking to scale its recent acquisitions in corrugates and labels. The unit is executing its scale and synergy plans with designs to add 50% more capacity to the label production and to add a second corrugate conversion facility. Our international team is focused heavily on extending our packaging solutions to multinational customers. The recently acquired online timber trading platform, Timberbase, is expected to drive sales growth and create efficiency in the supply chain for our foreign to foreign sales. Some other areas of interest are new product sales. New product sales for the first quarter were 166.6 million. Our annual target for 2023 is $795 million, so we have work to do to achieve that target. We are building out the framework to support achieving the target. Our Innovate Fund has a robust pipeline of new targets, which we will select from to ensure the best results three to five years from the date of our investment in these companies. Acquisition growth is another area of focus. We continue to drive our growth strategy, including acquisitions. Currently, our acquisition team is reviewing several potential transactions. One of the challenges is determining the new normal for financial results after a few years of outsized performance. Again, we look for companies with a good cultural fit who bring clear new product capabilities or expansion of existing product lines, which we can scale through our network. Purchasing. The lumber market has been trading in a relatively narrow band thus far in 2023. For example, with Southern Yellow Pine in week one of 2023, random lengths was $459 per thousand board feet. And at quarter end in week 13, the market was $533 per thousand board feet. Contrast that with week one of 2022 at $922 per thousand board feet and week 13 of 2022 at $1,235 per thousand board feet. We expect that as new production comes online, mills will curtail other production to manage against excess supply. And unless there is unexpectedly high demand, we don't anticipate the same price levels of the lumber market we saw in 2022 or 2021, which may result in lower revenues per unit. Transportation. The availability of drivers is improving while the cost of labor, equipment, fuel, and insurance are elevated. We are implementing our new transportation management system in the second quarter, which will serve as a springboard to improve transportation management overall. Human capital. While the typical unemployment numbers remain low, the UCU6 index was 6.7% in March. The workforce participation rate was 62.6%, still well below historical averages. We are receiving more applicants yet finding those motivated to grow a career is still a challenge. We have enhanced our training programs to allow more of our internal candidates to obtain the skills and training they need to move up in the organization. And we have implemented our new human capital management software in most of our facilities and will be integrating the most recent acquisitions over the next year. In an uncertain economy, our goal is to retain our key employees and to help them grow with our company. We will also try to bring outside skills and talents to our organization when other companies falter. Since our growth will be fueled by the talent of our team, we will keep training, recruiting, and making ourselves better for the future. All who want to work hard to create a better life for themselves and their families are welcome and encouraged at UFP, and the best performers will win. Capital allocation. As you know, we are focused on prudently and profitably investing capital in our business. Growth capital is a priority via greenfield and technology investments, as well as targeted acquisitions that expand our product offerings or our reach for both. We also will provide capital for replacement and maintenance needs. In Q1, return capital shareholders through share repurchases, buying back 151,000 shares, And our board declared a 25 cent per share dividend for payment in June. And for the forward outlook, as I try to predict what will happen over the next three quarters, I am reminded of MGK's lyrics. All I know is I don't know nothing. People talk and they don't say nothing. Although lyrics may disappoint an English teacher, they create a simple reminder that there are hundreds of forecasts published and equally as many predictions as to what the Fed might do or whether Congress will rein in spending or increase the debt. From what we can glean today, we are still on track for our annual targets, and the current market indicators support us achieving those targets. Only time will tell if, quote, I don't know nothing at all, end quote. Now I'd like to turn it over to Mike Cole to review the financial information.