Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 29, 2024
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-22684
UFP INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Michigan
38-1465835
(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) 364-6161
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 every Interactive Data File required to be submitted 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 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-2 of the Exchange Act.
Large Accelerated Filer ⌧
Accelerated Filer ◻
Non-Accelerated Filer ◻
Smaller Reporting Company ☐
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 a 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-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 June 29, 2024
Common stock, $1 par value
60,918,541
Securities registered pursuant to Section 12(b) of the Act:
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
Condensed Consolidated Balance Sheets at June 29, 2024, December 30, 2023 and July 1, 2023
Condensed Consolidated Statements of Earnings and Comprehensive Income for the Three and Six Months Ended June 29, 2024 and July 1, 2023
4
Condensed Consolidated Statements of Shareholders’ Equity for the Three and Six Months Ended June 29, 2024 and July 1, 2023
5
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 29, 2024 and July 1, 2023
7
Notes to Unaudited Condensed Consolidated Financial Statements
8
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
19
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
36
Item 4.
Controls and Procedures
PART II.
OTHER INFORMATION
Legal Proceedings – NONE
Item 1A.
Risk Factors - NONE
37
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults upon Senior Securities – NONE
Mine Safety Disclosures – NONE
Item 5.
Other Information
Item 6.
Exhibits
38
2
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share data)
June 29,
December 30,
July 1,
2024
2023
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
$
1,041,341
1,118,329
702,148
Restricted cash
761
3,927
Investments
36,740
34,745
38,459
Accounts receivable, net
724,921
549,499
802,300
Inventories:
Raw materials
393,871
352,785
334,300
Finished goods
290,942
375,003
486,887
Total inventories
684,813
727,788
821,187
Refundable income taxes
27,499
29,327
13,717
Other current assets
37,954
38,474
36,486
TOTAL CURRENT ASSETS
2,554,029
2,502,089
2,415,058
DEFERRED INCOME TAXES
3,291
4,228
4,187
RESTRICTED INVESTMENTS
30,344
24,838
22,756
RIGHT OF USE ASSETS
124,903
103,774
105,907
OTHER ASSETS
101,292
87,438
96,079
GOODWILL
335,448
336,313
336,495
INDEFINITE-LIVED INTANGIBLE ASSETS
7,332
7,345
7,330
OTHER INTANGIBLE ASSETS, NET
162,358
175,195
138,117
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment
1,638,880
1,559,304
1,447,482
Less accumulated depreciation and amortization
(819,383)
(782,727)
(729,468)
PROPERTY, PLANT AND EQUIPMENT, NET
819,497
776,577
718,014
TOTAL ASSETS
4,138,494
4,017,797
3,843,943
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable
263,318
203,055
264,408
Accrued liabilities:
Compensation and benefits
172,790
232,331
183,910
Other
80,506
66,713
79,414
Current portion of lease liability
28,020
22,977
25,887
Current portion of long-term debt
43,754
42,900
2,385
TOTAL CURRENT LIABILITIES
588,388
567,976
556,004
LONG-TERM DEBT
232,979
233,534
274,821
LEASE LIABILITY
102,872
84,885
84,194
44,787
45,248
51,018
OTHER LIABILITIES
33,027
35,934
36,137
TOTAL LIABILITIES
1,002,053
967,577
1,002,174
TEMPORARY EQUITY:
Redeemable noncontrolling interest
18,931
20,030
6,772
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, 60,918,541, 61,621,004, and 61,865,006
60,919
61,621
61,865
Additional paid-in capital
371,771
354,702
335,494
Retained earnings
2,670,086
2,582,332
2,408,314
Accumulated other comprehensive loss
(5,965)
1,106
(2,290)
Total controlling interest shareholders’ equity
3,096,811
2,999,761
2,803,383
Noncontrolling interest
20,699
30,429
31,614
TOTAL SHAREHOLDERS’ EQUITY
3,117,510
3,030,190
2,834,997
TOTAL LIABILITIES, TEMPORARY EQUITY AND SHAREHOLDERS’ EQUITY
See notes to consolidated condensed financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
AND COMPREHENSIVE INCOME
(in thousands, except per share data)
Three Months Ended
Six Months Ended
NET SALES
1,901,959
2,043,918
3,540,925
3,866,394
COST OF GOODS SOLD
1,539,216
1,643,851
2,852,104
3,107,998
GROSS PROFIT
362,743
400,067
688,821
758,396
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
203,155
204,703
395,214
399,386
OTHER LOSSES (GAINS), NET
554
1,867
750
3,805
EARNINGS FROM OPERATIONS
159,034
193,497
292,857
355,205
INTEREST EXPENSE
3,167
3,275
6,303
6,393
INTEREST AND INVESTMENT INCOME
(13,215)
(7,717)
(29,708)
(14,264)
EQUITY IN LOSS OF INVESTEE
642
417
1,236
1,005
INTEREST AND OTHER
(9,406)
(4,025)
(22,169)
(6,866)
EARNINGS BEFORE INCOME TAXES
168,440
197,522
315,026
362,071
INCOME TAXES
42,208
46,734
67,695
85,705
NET EARNINGS
126,232
150,788
247,331
276,366
NET (EARNINGS) LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST
(302)
(27)
(610)
464
NET EARNINGS ATTRIBUTABLE TO CONTROLLING INTEREST
125,930
150,761
246,721
276,830
EARNINGS PER SHARE – BASIC
2.05
2.40
4.01
4.41
EARNINGS PER SHARE – DILUTED
2.36
4.00
4.35
OTHER COMPREHENSIVE INCOME:
OTHER COMPREHENSIVE INCOME (LOSS)
(7,980)
4,478
(9,110)
10,730
COMPREHENSIVE INCOME
118,252
155,266
238,221
287,096
COMPREHENSIVE (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST
2,020
(1,721)
1,429
(3,481)
COMPREHENSIVE INCOME ATTRIBUTABLE TO CONTROLLING INTEREST
120,272
153,545
239,650
283,615
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(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
Interest (NCI)
Total
Equity
Balance on December 30, 2023
Net earnings (loss)
120,791
622
121,413
(314)
Foreign currency translation adjustment
(1,419)
616
(803)
(333)
Unrealized loss on debt securities
6
Distributions to NCI
(3,331)
Cash dividends - $0.33 per share - quarterly
(20,411)
Issuance of 6,251 shares under employee stock purchase plan
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
Accrued expense under deferred compensation plans
7,621
Balance on March 30, 2024
61,754
362,231
2,664,081
(307)
28,336
3,116,095
19,383
652
126,582
(350)
(5,594)
(2,220)
(7,814)
(102)
Unrealized gain on debt securities
(64)
(607)
(6,069)
(20,249)
Issuance of 8,573 shares under employee stock purchase plan
9
807
816
Issuance of 29,460 shares under stock grant programs
29
1
35
Issuance of 9,841 shares under deferred compensation plans
10
(10)
Repurchase of 883,232 shares
(883)
(99,681)
(100,564)
7,954
1,395
Balance on June 29, 2024
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY, CONTINUED
Balance on December 31, 2022
61,618
294,029
2,217,410
(9,075)
32,841
2,596,823
6,880
126,069
(313)
125,756
(178)
3,850
2,195
6,045
56
151
(4,859)
43
Cash dividends - $0.25 per share - quarterly
(15,642)
Issuance of 10,140 shares under employee stock purchase plan
675
685
Issuance of 824,669 shares under stock grant programs
825
14,356
15,187
Issuance of 93,165 shares under deferred compensation plans
93
(93)
Repurchase of 450,597 shares
(450)
(34,818)
(35,268)
9,598
7,165
Balance on April 1, 2023
62,096
325,730
2,293,025
(5,074)
29,864
2,705,641
6,801
150,817
(29)
2,983
1,694
4,677
(199)
(427)
(15,507)
Issuance of 9,253 shares under employee stock purchase plan
754
763
Net forfeitures of 1,503 shares under stock grant programs
(1)
34
Issuance of 11,686 shares under deferred compensation plans
12
(12)
Repurchase of 250,000 shares
(251)
(19,965)
(20,216)
8,201
1,213
Balance on July 1, 2023
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings
Adjustments to reconcile net earnings to net cash used in operating activities:
Depreciation
60,643
52,786
Amortization of intangibles
11,735
10,371
Expense associated with share-based and grant compensation arrangements
19,276
17,875
Deferred income taxes
299
Unrealized gain on investments and other
(1,825)
(1,291)
Equity in loss of investee
Net loss (gain) on sale, disposition and impairment of assets
1,991
(182)
Gain from reduction of estimated earnout liability
(1,855)
Changes in:
Accounts receivable
(176,839)
(183,717)
Inventories
41,684
154,413
Accounts payable and cash overdraft
61,125
56,899
Accrued liabilities and other
(25,723)
(63,142)
NET CASH FROM OPERATING ACTIVITIES
239,078
321,064
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchases of property, plant and equipment
(106,585)
(84,981)
Proceeds from sale of property, plant and equipment
2,353
789
Acquisitions, net of cash received and purchase of equity method investment
67
Purchases of investments
(16,416)
(14,747)
Proceeds from sale of investments
9,284
11,486
(7,674)
2,076
NET CASH USED IN INVESTING ACTIVITIES
(119,038)
(85,310)
CASH FLOWS USED IN FINANCING ACTIVITIES:
Borrowings under revolving credit facilities
12,354
11,026
Repayments under revolving credit facilities
(11,988)
(11,869)
Repayments of debt
Repayment of debt on behalf of investee
(6,303)
Contingent consideration payments and other
(4,779)
(6,179)
Proceeds from issuance of common stock
1,470
1,448
Dividends paid to shareholders
(40,660)
(31,149)
Distributions to noncontrolling interest
(9,400)
Payments to taxing authorities in connection with shares directly withheld from employees
(17,838)
Repurchase of common stock
(119,362)
(55,484)
48
NET CASH USED IN FINANCING ACTIVITIES
(196,468)
(97,047)
Effect of exchange rate changes on cash
(3,726)
4,579
NET CHANGE IN CASH AND CASH EQUIVALENTS
(80,154)
143,286
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, BEGINNING OF YEAR
1,122,256
559,623
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, END OF PERIOD
1,042,102
702,909
RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH:
Cash and cash equivalents, beginning of period
559,397
Restricted cash, beginning of period
226
Cash, cash equivalents, and restricted cash, beginning of period
Cash and cash equivalents, end of period
Restricted cash, end of period
Cash, cash equivalents, and restricted cash, end of period
SUPPLEMENTAL INFORMATION:
Interest paid
6,317
6,345
Income taxes paid
65,572
66,329
NON-CASH INVESTING ACTIVITIES:
Capital expenditures included in accounts payable
3,005
1,915
NON-CASH FINANCING ACTIVITIES:
Common stock issued under deferred compensation plans
9,743
8,929
NOTES TO UNAUDITED
CONDENSED CONSOLIDATED 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 the information and footnotes normally included in the annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America. All significant intercompany balances and transactions have been 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 June 29, 2024, the carrying value of our investment in Dempsey is $58.9 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-K for the fiscal year ended December 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 July 1, 2023 balances in the accompanying unaudited condensed consolidated balance sheets.
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.
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 (in thousands):
June 29, 2024
December 30, 2023
Quoted
Prices with
Prices in
Active
Observable
Unobservable
Markets
Inputs
(Level 1)
(Level 2)
(Level 3)
Money market funds
250,775
10,952
261,727
492,800
6,133
498,933
Fixed income funds
5,130
24,477
29,607
5,112
18,976
24,088
Treasury securities
344
Equity securities
17,279
22,000
39,279
16,411
10,500
26,911
Alternative investments
4,054
4,052
Mutual funds:
Domestic stock funds
14,406
13,330
International stock funds
550
509
Target funds
Bond funds
Alternative funds
486
474
Total mutual funds
15,456
14,327
288,984
35,429
26,054
350,467
528,994
25,109
14,552
568,655
From the assets measured at fair value as of June 29, 2024, listed in the table above, $261.4 million of money market funds are held in Cash and Cash Equivalents, $36.7 million of mutual funds, equity securities, and alternative investments are held in Investments, $22.0 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 $30.0 million of fixed income funds and $0.3 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 equity securities in our non-qualified deferred compensation plan, our wholly owned licensed captive insurance company, and assets held in financial institutions. These funds are valued at prices quoted in an active exchange market and are included in “Cash and Cash Equivalents”, “Investments”, “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.
In accordance with our investment policy, our wholly-owned captive, Ardellis Insurance Ltd. (“Ardellis”), maintains an investment portfolio, totaling $66.7 million and $59.2 million as of June 29, 2024 and December 30, 2023, respectively, which has been included in the aforementioned table of total investments. This portfolio consists of domestic and international equity securities, alternative investments, and fixed income bonds.
Ardellis’ available for sale investment portfolio, including funds held with the State of Michigan, consists of the following (in thousands):
Unrealized
Cost
Gain (Loss)
Fair Value
Fixed income
31,067
(1,460)
25,514
(1,426)
13,669
3,610
13,523
2,888
Mutual funds
12,922
2,485
15,407
12,348
1,934
14,282
3,266
788
3,211
841
61,268
5,423
66,691
54,940
4,237
59,177
Our fixed income investments consist of a blend of US Government and Agency bonds and investment grade corporate 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 unrealized gain of the portfolio was $5.4 million and $4.2 million as of June 29, 2024 and December 30, 2023, respectively. Carrying amounts above are recorded in the Investments and Restricted Investments line items within the balance sheet as of June 29, 2024 and December 30, 2023.
C. REVENUE RECOGNITION
Within the three primary segments, UFP Retail Solutions (“Retail”), UFP Packaging (“Packaging”) 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 when this performance obligation is 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.
Certain customer products that we provide require installation by the Company or a third party. Installation revenue is recognized upon completion. If we use a third party for installation, the party will act as an agent to us until completion of the installation. 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 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 over time accounting, under either cost to cost or units of delivery methods, depending on the nature of the business at individual operations, which is in accordance with ASC 606 as revenue is recognized when certain performance obligations are performed. Under over time accounting using the cost to cost method, revenues and related earnings on construction contracts are measured by the relationships of actual costs incurred relative to the total estimated costs. Under over time accounting using the units of delivery method, revenues and related earnings on construction contracts are measured by the relationships of actual units produced relative 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.
11
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):
% Change
Point in Time Revenue
1,857,264
2,006,319
(7.4)%
3,462,099
3,790,775
(8.7)%
Over Time Revenue
44,695
37,599
18.9%
78,826
75,619
4.2%
Total Net Sales
(6.9)%
(8.4)%
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 over time accounting accounts which are included in “Other current assets” and “Accrued liabilities: Other”, respectively (in thousands):
Cost and Earnings in Excess of Billings
7,227
3,572
Billings in Excess of Cost and Earnings
8,816
9,487
12,914
D. EARNINGS PER SHARE
The computation of earnings per share (“EPS”) is as follows (in thousands):
Numerator:
Net earnings attributable to controlling interest
Adjustment for earnings allocated to non-vested restricted common stock equivalents
(4,781)
(7,588)
(9,684)
(13,096)
Net earnings for calculating EPS
121,149
143,173
237,037
263,734
Denominator:
Weighted average shares outstanding
61,668
62,786
61,817
62,756
Adjustment for non-vested restricted common stock equivalents
(2,633)
(3,160)
(2,710)
(2,969)
Shares for calculating basic EPS
59,035
59,626
59,107
59,787
Effect of dilutive restricted common stock equivalents
124
918
106
885
Shares for calculating diluted EPS
59,159
60,544
59,213
60,672
Net earnings per share:
Basic
Diluted
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.
In addition, on June 29, 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 June 29, 2024, we had outstanding purchase commitments on commenced capital projects of approximately $109.7 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. 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.
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 ensure 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 these bonds. As of June 29, 2024, we had approximately $23.4 million in outstanding payment and performance bonds for open projects. We had approximately $6.9 million in payment and performance bonds outstanding for completed projects which are still under warranty.
On June 29, 2024, we had outstanding letters of credit totaling $43.8 million, primarily related to certain insurance contracts, industrial development revenue bonds, and other debt agreements described further below.
13
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 and other legal agreements. As of June 29, 2024, we have irrevocable letters of credit outstanding totaling approximately $40.4 million for these types of arrangements. We have reserves recorded on our balance sheet, in accrued liabilities, that reflect our expected future liabilities under those 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 $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 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 second quarter of 2024 which would require us to recognize a liability on our balance sheet.
F. BUSINESS COMBINATIONS
We completed the following business combination since the end of the second quarter of 2023, which was accounted for using the purchase method. Dollars below are in thousands unless otherwise noted:
Net
Company
Acquisition
Intangible
Tangible
Operating
Name
Date
Purchase Price
Assets
Segment
September 20, 2023
$52,841consideration for 80% stock purchase, net of acquired cash
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.
The purchase accounting valuation of the UFP Palets investment is yet to be finalized. In aggregate, investments completed since the end of the second quarter of 2023 and not consolidated with other operations contributed approximately $10.7 million in net sales and $1.2 million in operating losses during the first six 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
We operate manufacturing, treating and distribution facilities internationally, but primarily in the United States. Our 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 operations, 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. In the case of locations that serve multiple segments, results are allocated and accounted for by segment.
14
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 and our Ardellis segment, which represents our wholly owned fully licensed captive insurance company based in Bermuda. Our International and Ardellis segments do not meet the quantitative thresholds in order to be separately reported and accordingly, the International and Ardellis segments have been aggregated 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 June 29, 2024
Retail
Packaging
Construction
All Other
Corporate
Net sales to outside customers
809,067
435,204
574,547
81,470
1,671
Intersegment net sales
70,102
26,275
18,797
80,055
(195,229)
Earnings from operations
59,783
29,516
52,011
7,496
10,228
Three Months Ended July 1, 2023
938,630
488,100
550,464
67,592
(868)
198,518
20,976
23,554
75,480
(318,528)
60,211
56,864
61,959
6,786
7,677
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 in this filing.
Six Months Ended June 29, 2024
1,437,832
859,622
1,092,443
148,417
2,611
129,448
47,201
38,832
151,312
(366,793)
105,763
60,762
97,353
11,369
17,610
Six Months Ended July 1, 2023
1,699,924
974,661
1,066,057
123,387
2,365
421,843
41,026
49,390
152,967
(665,226)
100,469
111,596
116,207
11,618
15,315
The following table presents goodwill by segment as of June 29, 2024, and December 30, 2023 (in thousands):
Balance as of December 30, 2023
84,204
141,042
87,805
23,262
Foreign Exchange, Net
(44)
(170)
(651)
(865)
Balance as of June 29, 2024
84,160
87,635
22,611
15
The following table presents total assets by segment as of June 29, 2024, and December 30, 2023 (in thousands).
Total Assets by Segment
Segment Classification
916,574
828,798
10.6
%
802,204
798,623
0.4
666,622
621,762
7.2
337,962
316,481
6.8
1,415,132
1,452,133
(2.5)
Total Assets
3.0
The following table presents our disaggregated net sales (in thousands) by business unit for each segment for the three and six months ended June 29, 2024, and July 1, 2023 (in thousands).
Deckorators
99,706
103,656
173,841
181,119
ProWood
668,275
794,287
1,194,236
1,445,287
UFP Edge
38,009
40,216
65,293
72,768
3,077
471
4,462
Total Retail
Structural Packaging
280,102
330,510
554,252
658,760
PalletOne
136,911
136,937
269,401
274,507
Protective Packaging
18,191
20,653
35,969
41,394
Total Packaging
Factory Built
225,242
180,024
417,076
347,637
Site Built
238,547
248,445
460,106
469,562
Commercial
66,347
66,320
127,731
138,665
Concrete Forming
44,411
55,675
87,530
110,193
Total Construction
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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 25.1% in the second quarter of 2024 compared to 23.7% in the same period of 2023 and was 21.5% in the first six months of 2024 compared to 23.7% for the same period in 2023. The increase in our effective tax rate for the second quarter was primarily due to the impact of certain compensation expense which is not deductible. The decrease in our effective tax rate for the first six months of 2024 was primarily due to an increase in our tax deduction from stock-based compensation accounted for as a permanent difference.
I. COMMON STOCK
Below is a summary of common stock issuances for the first six months of 2024 and 2023 (in thousands, except average share price):
Share Issuance Activity
Common Stock
Average Share Price
Shares issued under the employee stock purchase plan
116.64
Shares issued under the employee stock gift program
117.80
Shares issued under the director compensation plan
114.61
Shares issued under the LTSIP
352
113.49
Shares issued under the executive stock match plan
64
111.35
Forfeitures
(20)
Total shares issued under stock grant programs
398
113.14
Shares issued under the deferred compensation plans
87
112.29
During the first six months of 2024, we repurchased 1,202,527 shares of our common stock at an average share price of $114.09.
July 1, 2023
87.86
86.88
Shares issued under the director retainer stock program
87.02
756
86.14
Shares issued under the executive stock grants plan
75
85.89
824
86.12
105
85.16
During the first six months of 2023, we repurchased approximately 700,597 shares of our common stock at an average share price of $79.20.
17
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.
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 June 29, 2024 and a $0.8 million adjustment as of July 1, 2023.
K. SUBSEQUENT EVENTS
Subsequent to our reporting date, we repurchased 197,417 shares for $21.8 million, at an average share price of $110.22.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
UFP Industries, Inc. is a holding company with subsidiaries in North America, Europe, Asia, and Australia that design, manufacture, and supply products made from wood, wood and non-wood composites, and other materials to three segments: retail, 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 results 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 UFP Industries, Inc., or its affiliated operations, go to 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. We 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 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 outbound transportation costs; alternatives to 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 our reports on Form 10-K and 10-Q on file with the Securities and Exchange Commission. We are pleased to present this overview of the second quarter of 2024.
OVERVIEW
Our results for the second quarter of 2024 include the following highlights:
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
January
386
February
389
437
March
416
411
April
403
420
May
377
400
June
382
Second quarter average
387
406
Year-to-date average
394
409
Second quarter percentage change
(4.7)
Year-to-date percentage change
(3.7)
20
In addition, a Southern Yellow Pine (“SYP”) composite price, which we prepare and use, is presented below. Our purchases of this species comprise almost two-thirds of our total lumber purchases.
Southern Yellow Pine
380
371
452
353
355
427
360
446
443
(19.3)
(16.3)
Lower overall lumber prices in 2024 compared to 2023 is primarily due to increased supply of SYP lumber in the U.S. while end market demand has remained soft. A change in lumber prices impacts profitability of products sold with fixed and 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 38.9% and 39.0% of our sales in the first six months of 2024 and 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). Additionally, as explained below, product 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.
21
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.
The greatest risk associated with changes in the trend of lumber prices is on the following products:
In addition to the impact of 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
Lumber cost
300
Conversion cost
50
= Product cost
350
450
Adder
= Sell price
500
Gross margin
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.
BUSINESS COMBINATIONS AND ASSET PURCHASES
We completed one business acquisition in fiscal 2023. The annual historical sales attributable to this acquisition is approximately $38 million. This business combination was not significant to our quarterly results individually or in aggregate and thus pro forma results for 2024 and 2023 are not presented.
22
See Notes to the Unaudited Condensed Consolidated Financial Statements, Note F, “Business Combinations” for additional information.
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.
Net sales
100.0
Cost of goods sold
80.9
80.4
80.5
Gross profit
19.1
19.6
19.5
Selling, general, and administrative expenses
10.7
11.2
10.3
Other losses (gains), net
0.1
8.4
9.5
8.3
9.2
Other (income) expense, net
(0.5)
(0.2)
(0.6)
Earnings before income taxes
8.9
9.7
9.4
Income taxes
2.2
2.3
1.9
6.6
7.4
7.0
7.1
Less net earnings attributable to noncontrolling interest
Note: Actual percentages are calculated and may not sum to total due to rounding.
As 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
Units sold
(1.0)
(8.0)
(9.0)
(9.3)
(20.5)
(9.2)
(22.8)
(0.8)
(4.6)
(8.1)
(17.8)
(32.2)
(17.6)
(34.8)
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. The increase in the ratio of SG&A as a percentage of gross profit from the prior year is attributable to SG&A costs within our Packaging, Construction, and Corporate segments.
SG&A as percentage of gross profit
56.0%
51.2%
57.4%
52.7%
23
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).
682,307
351,518
448,992
61,564
(5,165)
126,760
83,686
125,555
19,906
6,836
Selling, general, administrative expenses
65,291
52,996
73,307
14,576
(3,015)
1,686
1,174
237
(2,166)
(377)
815,808
369,865
413,260
47,337
(2,419)
122,822
118,235
137,204
20,255
1,551
61,699
61,377
74,083
13,099
(5,555)
912
(6)
1,162
370
(571)
24
1,209,948
690,496
852,553
110,566
(11,459)
227,884
169,126
239,890
37,851
14,070
120,901
106,937
142,457
27,967
(3,048)
1,220
1,427
80
(1,485)
(492)
1,481,798
735,528
807,194
84,362
(884)
218,126
239,133
258,863
39,025
3,249
115,612
127,629
141,421
26,063
(11,339)
2,045
(92)
1,235
1,344
(727)
The following tables present the components of our operating results, for the periods indicated, as a percentage of net sales by segment.
N/A
84.3
80.8
78.1
75.6
15.7
19.2
21.9
24.4
8.1
12.2
12.8
17.9
(2.7)
9.1
86.9
75.8
75.1
70.0
13.1
24.2
24.9
30.0
12.6
13.5
19.4
0.5
6.4
11.7
11.3
25
84.2
80.3
78.0
74.5
15.8
19.7
22.0
25.5
12.4
13.0
18.8
0.0
7.7
87.2
75.5
75.7
68.4
24.5
24.3
31.6
13.3
21.1
1.1
5.9
11.4
10.9
We design, manufacture and market wood and wood-alternative products, primarily used to enhance outdoor living environments; for national home centers and other retailers; for engineered wood components, structural lumber, and other products for factory-built and site-built residential and commercial construction; customized interior fixtures used in a variety of retail stores, commercial, and other structures; and structural wood packaging, components and packing materials for various industries. Our strategic long-term sales objectives include:
in Sales
in Selling Prices
in Units
Acquisition Unit Change
Organic Unit Change
Second quarter 2024 versus Second quarter 2023
(6.9)
(5.9)
Year-to-date 2024 versus Year-to-date 2023
(8.4)
(7.4)
26
The following table presents, for the periods indicated, our percentage of value-added and commodity-based sales to total sales by our segments:
Value-Added
Commodity-Based
54.7
45.3
52.3
47.7
75.2
24.8
77.5
22.5
83.8
16.2
76.7
23.3
48.0
52.0
Total Sales
68.1
31.9
67.4
32.6
53.5
46.5
51.7
48.3
77.3
22.7
81.5
18.5
83.5
16.5
76.6
23.4
60.3
39.7
68.3
31.7
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.
Our overall unit sales of value-added products were flat in the second quarter and first six months of 2024 compared to 2023. Our overall unit sales of commodity-based products decreased approximately 2% in the second quarter and approximately 4% in the first six months of 2024 compared to the same period last year.
27
The table below presents new product sales in thousands:
New Product Sales by Segment
% of Segment
Net Sales
64,285
7.9
66,846
(3.8)
45,623
10.5
68,090
14.0
(33.0)
22,646
3.9
16,869
3.1
34.2
All Other and Corporate
1,019
1.2
186
0.3
447.8
Total New Product Sales
133,573
151,991
(12.1)
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.
116,155
118,399
(1.9)
97,839
133,392
13.7
(26.7)
43,863
4.0
35,512
3.3
23.5
1,678
225
0.2
645.8
259,535
7.3
287,528
(9.7)
Retail Segment
Net sales in the second quarter of 2024 decreased by 14% compared to the same period of 2023 due to a 7% decline in selling prices, a 2% decrease due to the transfer of certain sales to the Construction and Packaging segments, and a 5% decline in units. Unit changes within this segment consisted of decreases of 2% in Deckorators, 4% in UFP Edge, and 6% in ProWood. Our selling prices of variable-priced products declined due to lower lumber prices. The selling prices of these products are indexed to the lumber market at the time they are shipped. Additionally, our unit sales to big box customers, which we believe are more closely correlated with repair and remodel activity, decreased approximately 5%, while unit sales to independent retailers, which we believe are more closely correlated to new housing starts, increased approximately 1%.Within our Deckorators business unit, our sales of wood-plastic composite decking, mineral-based-composite decking (sold under our new Surestone tradename) and railing systems increased 5%.
Gross profits increased by $3.9 million, or 3.2% to $126.8 million for the second quarter of 2024 compared to the same period last year. The increase in gross profit was attributable to the following:
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SG&A increased by approximately $3.6 million, or 5.8%, in the second quarter of 2024 compared to the same period of 2023. Accrued bonus expense, which varies with the overall profitability of the segment and return on investment, increased approximately $3.2 million from the second quarter of 2023 and totaled approximately $18.7 million for the quarter. Modest increases in salaries, wages, and benefits were offset by decreases in sales incentive compensation and travel related expenses.
Earnings from operations for the Retail reportable segment decreased in the second quarter of 2024 compared to 2023 by $0.4 million, or 1.0%, as a result of the factors mentioned above.
Net sales in the first six months of 2024 decreased by 15% compared to the same period of 2023, due to a 6% decrease in selling prices, a 2% decrease due to the transfer of certain sales to the Construction and Packaging segments, and a 7% decline in units. Our selling prices of variable-priced products declined due to lower lumber prices. The selling prices of these products are indexed to the lumber market at the time they are shipped. Additionally, unit sales to big box customers decreased approximately 7%, while unit sales to independent retailers decreased approximately 8%. Within our Deckorators business unit, our sales of wood-plastic composite decking, mineral-based-composite decking and railing systems increased 7%.
Gross profits increased by $9.8 million, or 4.5% to $227.9 million for the first six months of 2024 compared to the same period last year. Our increase in gross profit was attributable to the following:
SG&A increased by approximately $5.3 million, or 4.6%, in the first six months of 2024 compared to the same period of 2023. Accrued bonus expense, which varies with the overall profitability of the segment and return on investment, increased approximately $5.8 million and totaled approximately $32.7 million for the first six months of 2024. Modest increases in salaries, wages, and benefits were offset by decreases in sales incentive compensation and travel related expenses.
Earnings from operations for the Retail reportable segment increased in the first six months of 2024 compared to 2023 by $5.3 million, or 5.3%, as a result of the factors mentioned above.
Packaging Segment
Net sales in the second quarter of 2024 decreased 11% compared to the same period of 2023, due to an 8% decrease in selling prices and a 6% decrease in unit sales, partially offset by a 3% increase due to the transfer of sales from the Retail segment. Unit changes consist of decreases of 12% in structural packaging and 11% in protective packaging, primarily due to a decline in demand. These declines were partially offset by 10% 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 $34.6 million, or 29.2%, for the second quarter of 2024 compared to the same period last year. The decrease in gross profit was attributable to the following:
SG&A decreased by approximately $8.4 million, or 13.7%, in the second quarter of 2024 compared to the same period of 2023. Accrued bonus expense, which varies with the overall profitability of the segment and return on investment, decreased approximately $5.4 million relative to the second quarter of 2023, and totaled $10.7 million for the quarter. The remaining decrease was primarily due to a decrease in sales incentive compensation of $3.0 million.
Earnings from operations for the Packaging reportable segment decreased in the second quarter of 2024 compared to 2023 by $27.3 million, or 48.1%, due to the factors discussed above.
Net sales in the first six months of 2024 decreased 12% compared to the same period of 2023, due to a 9% decrease in selling prices and a 6% decrease in unit sales, partially offset by a 3% increase due to the transfer of sales from the Retail segment. Unit changes consist of decreases of 11% in structural packaging and 12% in protective packaging, primarily due to a decline in demand. These declines were partially offset by 10% 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 $70.0 million, or 29.3%, for the first six months of 2024 compared to the same period last year. The decrease in gross profits was attributable to the following.
SG&A decreased by approximately $20.7 million, or 16.2%, in the first six months of 2024 compared to the same period of 2023. Accrued bonus expense, which varies with the overall profitability of the segment and return on investment, decreased approximately $10.6 million, and totaled $21.3 million for the six months of 2024. Additionally, our sales incentive compensation decreased by $5.4 million and earnout compensation decreased by $3.7 million.
Earnings from operations for the Packaging reportable segment decreased in the first six months of 2024 compared to 2023 by $50.8 million, or 45.6%, due to the factors discussed above.
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Construction Segment
Net sales in the second quarter of 2024 increased 4% compared to the same period of 2023 and consists of a unit increase of 7% and an increase due to the transfer of certain sales from the Retail segment of 1%, partially offset by a 4% decrease in selling prices. Unit changes within this segment consist of increases of 19% in factory-built, primarily due to an increase in industry production, and 4% in site-built, primarily due to market share gains from capacity expansion and new products. These increases were partially offset by unit declines of 10% in concrete forming due to lower demand. As of June 29, 2024 and July 1, 2023, we estimate that our backlog of orders in our site-built construction business unit were $81.9 million and $112.6 million, respectively. The decline in pricing was primarily due to competitive price pressure.
Gross profits decreased by $11.6 million, or 8.5%, in the second quarter of 2024 compared to the same period of 2023. The decrease in our gross profit was comprised of the following:
SG&A decreased by approximately $0.8 million, or 1.0%, in the second quarter of 2024 compared to the same period of 2023. Decreases in sales incentive compensation of $1.4 million, earnout expense of $1.0 million, and $0.7 million in accrued bonus expense, which totaled $16.2 million for the quarter, were partially offset by increases in wages and benefits of $3.0 million.
Earnings from operations for the Construction reportable segment decreased in the second quarter of 2024 compared to 2023 by $9.9 million, or 16.1%, due to the factors mentioned above.
Net sales in the first six months of 2024 increased 2% compared to the same period of 2023 and consist of a unit increase of 8% and a 1% increase due to the transfer of certain sales from the Retail segment, partially offset by a 7% decrease in selling prices. Unit changes within this segment consist of increases of 16% in factory-built, primarily due to an increase in industry production, and 10% in site-built, primarily due to market share gains resulting from capacity expansion and new products. These increases were partially offset by unit declines of 8% in commercial construction and 11% in concrete forming due to lower demand.
Gross profits decreased by $19.0 million, or 7.3%, for the first six months of 2024 compared to the same period of 2023. The decrease in our gross profit was comprised of the following:
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SG&A increased by approximately $1.0 million, or 0.7%, in the first six months of 2024 compared to the same period of 2023. Increases in wages and benefits of $4.5 million, professional fees of $2.1 million, and travel expenses of $0.5 million, were partially offset by decreases in sales incentive compensation of $2.4 million, earnout compensation of $1.0 million, and accrued bonus expense of $1.2 million. Accrued bonus expenses, which varies with the overall profitability and return on investment of the segments, totaled $30.4 million for the first six months of 2024.
Earnings from operations for the Construction reportable segment decreased in the first six months of 2024 compared to 2023 by $18.9 million, or 16.2%, 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.
The corporate segment consists of over (under) allocated costs that are not significant.
OFF-BALANCE SHEET TRANSACTIONS
We have no significant off-balance sheet transactions.
LIQUIDITY AND CAPITAL RESOURCES
The table below presents, for the periods indicated, a summary of our cash flow statement (in thousands):
Cash from operating activities
Cash used in investing activities
Cash used in financing activities
Net change in all cash and cash equivalents
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In general, we fund our growth through a combination of operating cash flows, our revolving credit facility, 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 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 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 decreased to 56 days from 63 days during the second quarter of 2024 and decreased to 59 days from 62 days during the first six months of 2024 compared to the prior year period.
Days of sales outstanding
Days supply of inventory
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Days of payables outstanding
(11)
Days in cash cycle
63
59
62
The decrease in our days supply of inventory for the quarter and first six months of 2024 is due to improvements in inventory turns in our Construction and Packaging segments. The decrease in our days of sales outstanding is primarily due to improvements 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 94% at the end of the second quarter of 2024 and 2023.
In the first six months of 2024, our cash flows from operations were $239 million and were comprised of net earnings of $247 million, $92 million of non-cash expenses, and a $100 million decrease in working capital since the end of December 2023. Our cash flows from operations decreased by $82 million compared to the same period of last year primarily due to an increase in our investment in net working capital since year end, which was $64 million higher in 2024 compared to 2023.
Purchases of property, plant, and equipment of $107 million comprised most of our cash used in investing activities during the first six months of 2024. Net purchases of investments totaled $7.1 million. Total proceeds from the sales of property, plant, and equipment were $2.3 million. Outstanding purchase commitments on existing capital projects totaled approximately $110 million on June 29, 2024. Capital spending primarily consists of several projects to expand capacity to manufacture new and value-added products, primarily in 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.
Cash flows used in financing activities primarily consisted of:
On June 29, 2024, we had $3.6 million outstanding on our $750 million revolving credit facility, and we had approximately $709 million in remaining availability after considering $37 million in outstanding letters of credit. 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 June 29, 2024.
At the end of the second quarter of 2024, we had approximately $2.3 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 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 30, 2023.
FORWARD OUTLOOK
Our long-term financial goals include:
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:
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:
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 enter 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 are 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. Additionally, certain of our operations enter into transactions that will be settled in a currency other than the U.S. Dollar. We may enter into forward foreign exchange rate contracts in the future to mitigate foreign currency exchange risk. Historically, our hedge contracts have been immaterial to the financial statements.
Item 4. Controls and Procedures.
PART II. OTHER INFORMATION
Item 1A. Risk Factors.
None
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Fiscal Month
(2)
(3)
(4)
March 31 - May 4, 2024
476,924
114.18
82,245,706
May 5 - June 1, 2024
22,130
115.03
79,700,092
June 2 - 29, 2024
384,178
113.39
36,136,539
On and effective as of July 24, 2024, our board authorized the repurchase of up to $200 million worth of shares of our common stock through the period ending July 31, 2025, which supersedes and replaces prior authorizations.
Item 5. Other Information.
During the quarter ended June 29, 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.
Item 6. Exhibits.
The following exhibits (listed by number corresponding to the Exhibit Table as Item 601 in Regulation S-K) are filed with this report:
Certifications.
(a)
Certificate of the Chief Executive Officer of UFP Industries, Inc., pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).
(b)
Certificate of the Chief Financial Officer of UFP Industries, Inc., pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).
Certificate of the Chief Executive Officer of UFP Industries, Inc., pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).
Certificate of the Chief Financial Officer of UFP Industries, Inc., pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).
101
Interactive Data File formatted in iXBRL (Inline eXtensible Business Reporting Language).
(INS)
iXBRL Instance Document.
(SCH)
iXBRL Schema Document.
(CAL)
iXBRL Taxonomy Extension Calculation Linkbase Document.
(LAB)
iXBRL Taxonomy Extension Label Linkbase Document.
(PRE)
iXBRL Taxonomy Extension Presentation Linkbase Document.
(DEF)
iXBRL Taxonomy Extension Definition Linkbase Document.
104
Cover Page Interactive Data File (the cover page XBRL tags are embedded in the Inline XBRL document).
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: August 7, 2024
By:
/s/ Matthew J. Missad
Matthew J. Missad,
Chairman of the Board, Chief Executive Officer and
Principal Executive Officer
/s/ Michael R. Cole
Michael R. Cole,
Chief Financial Officer,
Principal Financial Officer and
Principal Accounting Officer
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