UFP Industries, Inc.

Good day, and welcome to the Q1 2025 UFP Industries, Inc. 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 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, 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. Stanley Elliott, Director of Investor Relations. Please go ahead.

Good morning, everyone, and thank you for joining us to discuss our first quarter results. Joining me on the call today are Will Schwartz, our Chief Executive Officer, and Mike Cole, our Chief Financial Officer. Will and Mike will offer prepared remarks, and then we will open the call to questions. This conference call is available simultaneously to all interest investors and news media through the investor relations section of our website, UFPI.com. A replay of the call will be posted to our website as well. Before I turn the call over, let me remind you that today's press release and presentation include forward-looking statements as defined by 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 expectations. These risks and uncertainties also include, but are not limited to, those factors identified in the press release and in the company's filings with the Securities and Exchange Commission. I will now turn the call over to Will.

Thank you. Good morning, everyone, and thank you for joining us to discuss our first quarter 2025 earnings results. The challenging trends we discussed with you on our last call in February have continued and the macro environment has become increasingly uncertain. Operations remain challenging, and we are focused on multiple levers under our control to improve results going forward. Despite a slower start in January and February, we are more encouraged by recent business trends. Business activity improves sequentially in each month during the quarter, with March trends continuing into the first three weeks of April. While we are encouraged by these recent trends, we would also note that visibility remains limited in this current environment. Regardless of the backdrop, we have a sound strategy in place and the right people to execute on our strategies. We will continue to focus on things under our control to deliver improved results going forward. We are on track with our cost-out programs and have leverage to pull should a market recovery fail to materialize. Our portfolio is more diversified and better positioned than at any point in our 70-year history to win in the marketplace. Lastly, we finished the quarter with $905 million in cash, giving us ample flexibility to continue investing in our future while maintaining our conservative capital structure. We believe this positions us well in any environment. Turning to the quarter, first quarter sales generally matched our expectations for low single-digit sales declines despite the slower start to the year. Total sales declined 3% from year-ago levels. Business improvement from January through the end of the quarter allowed us to recover many of the volumes lost early, but manufacturing variances and higher material costs couldn't be overcome. Pricing remains competitive across most markets given the lack of forward visibility. All of this contributed to our earnings per share of $1.30 and adjusted EBITDA of $142 million for the quarter. Margins remain pressured from unfavorable manufacturing variances, competitive pricing, higher input and transportation costs, and unfavorable mixed shifts. We believe some of this shortfall is timing, and we remain on track to realize $60 million of structural cost savings from our cost-out and capacity reductions by 2026. We also stand ready to further adjust our cost structure, depending on what the market environment dictates. Despite ongoing market volatility, our go-forward strategy remains unchanged, and we will continue to focus on what is under our control and invest in the strategies that have made UFP's industry so successful over the long term. We will continue targeting markets that we believe can deliver higher growth rates and make the necessary organic and inorganic investments to drive these results. We will continue to focus on expanding more value-add products and innovation across the portfolio with a focus on expanding our margins while de-emphasizing underperforming products and operations. We will continue to closely monitor our expenses and our plant network as well. And finally, all of this will be underpinned by our commitment to maintaining our strong return on capital profile and conservative capital structure, which will remain at the center in guiding our strategy. New product sales totaled $106 million in the quarter, or 6.7% of sales. We continue to see a pathway for these new products to become 10% of sales over time. We are seeing momentum across the portfolio and are excited about these products' growth potential and margin opportunities over time. A good example of this is our proprietary mineral-based SureStone technology. At the recent IBS trade show in Las Vegas, we launched a new line of decking boards featuring SureStone technology. We also introduced our SureStone-based trim offerings, which will be released in late 2025. Last quarter, we shared that we have secured 1,500 new retail locations for 2025, and we are also actively adding stocking relationships with traditional two-step building products distributors. The new products are shipping to retailers and distributors as we speak. To meet this demand, we continue to invest in our existing manufacturing capabilities to drive increased productivity and throughput. We are also actively expanding the geographic reach of our manufacturing capacity. In the quarter, we announced plans for a new decorators facility in the Northeast. All of this is part of our capital expansion plan for decorators, which provides the foundation for our plans to double market share over time. In addition to our investments in decorators and retail more broadly, we have identified growth runways across each of our other business units that meet our high return threshold. We remain committed to our plan to invest $1 billion in growth capital investments over the next five years, but also maintain the flexibility to pivot some of that capital earmarked for Greenfield operations to M&A should the right opportunities arise. We would prefer M&A to Greenfield expansion in most cases, only when valuations are in line with our expectations for return. Our goal with all investments is to expand our growth runways in new and value-add products, strengthen our core portfolio, and improve our cost position and become more efficient across all layers of the organization. All of these projects will be accretive to margins, either by improving product mix or by lowering our manufacturing cost. We will continue to invest heavily in automation, technology, new product development, and capacity expansion that will leave us better positioned to drive margins and create shareholder value. In all cases, any investments are expected to meet our internal return on capital threshold. M&A has always been an important part of U of P's history and a key part of our growth strategy. And as I mentioned a moment ago, we are willing to pivot more towards acquisition growth versus greenfield growth should the right opportunity arise. Our M&A team continues to be extremely active, and we would say our pipeline is better today than at any point over the past few years. I think some of this is that the expectations between what buyers want and what sellers are willing to pay has rationalized as earnings are normalizing post-COVID. Some of the recent macro uncertainties have likely contributed to this uptick in activity as well, given the fragmented nature in many of our markets. Regardless, we want to grow sales aggressively, but we will be mindful in that we are growing the right sales that drive higher margins and support our strong return profile. We also view share repurchases as an attractive way to return capital to shareholders and have been very active through April. With the additional $100 million authorization provided by our board, we anticipate remaining active throughout Q2 as long as the price is below our target. Turning quickly to our segments. Retail sales declined 3% in the quarter compared to a year ago. Results were largely driven by 4% decline in volume with 1% positive pricing helping offset. Much of the quarter decline was due to a customer shift within our decorators business, which will become less impactful as the year progresses. With new product placement and recent distribution wins taking place throughout the spring season, we expect this business will help offset soft demand. We expect the decorator's business will build momentum through the rest of the year as more stores begin to stock our surestone decking. Profitability should improve also as our capital investments not only expand our capacity but allow us to produce more efficiently. On the pro wood side, recent price increases should help offset material cost increases. Packaging unit sales declined 2% in total and 3% excluding the acquisition of pallet manufacturer C&L Wood Products this past December. Weaker sales in our structural packaging and pallet one businesses drove the declines. Pricing remains competitive, and recent increases in material costs have pressured margins further. We've said on calls in the past that if we aren't at a bottom, we continue to think we're getting close. Construction sales were largely unchanged from year-ago levels. A 3% boost in volumes for the business unit was offset by a similar decline in price in the quarter. Strength in our factory-built business was largely offset by softness in our site-built business. This trend has shown up in our results for the past several quarters, and with a downgraded housing outlook and many home builders lowering their full-year forecast, we expect this dynamic will remain through the balance of the year. Turning to our outlook, we expect the business conditions that impacted our first quarter results will carry over for the remainder of 2025. News around tariffs on Canadian lumber has only created additional headwinds. The 90-day reprieve on any tariffs has helped the overall lumber market remain relatively stable, but the overall environment is fluid, and if something changes, the industry would most likely see some levels of inflation as prices are ultimately passed along to the consumer. From an impact standpoint, we'd note that we import less than 15% of the lumber we purchase from Canada. We'd also note that Southern Yellow Pine is domestically produced and represents over 70% of our purchases of lumber. Historically, a tighter lumber market has allowed us to have better availability of product, including low grade for packaging applications as a result of our scale. This has allowed us to improve our market share and lower costs. Along those same lines, softer patches in the economy have allowed UFP to use our scale, strong financial position, and lower cost manufacturing position to gain share in the marketplace. While all of this uncertainty is contributing to a lack of visibility beyond the first half of 2025, regardless of the outcome, we remain confident in our ability to navigate any potential tariff impacts. Longer term, we are well positioned to take advantage of favorable demographic trends in an underbuilt housing market. We plan to position our business to take market share as well. We remain committed to our long-term targets, which includes 7% to 10% unit growth, 12.5% EBITDA margins, all while maintaining our strong return on capital profile and conservative capital structure. The timeline to achieve these targets is pushed out due to the current economic environment, but the goals remain unchanged. Before I turn the call over to Mike, I want to thank our 15,000-plus employees for their hard work and dedication. The uncertain macro environment will undoubtedly pass, and it is with their effort that will emerge from this period a much stronger and more profitable company.