UFP Industries, Inc. — Q1 2022 Form 10-Q
Business context and period. UFP Industries supplies wood, wood-composite and other products to retail, industrial and construction markets. This unaudited report covers the three months ended March 26, 2022; comparisons are with the three months ended March 27, 2021. Amounts below are in U.S. dollars unless noted.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Net sales | $2,489.3 million | $1,825.0 million | +36.4% |
| Gross profit / margin | $478.4 million / 19.2% | $286.6 million / 15.7% | Margin +3.5 percentage points |
| Earnings from operations / margin | $259.0 million / 10.4% | $137.5 million / 7.6% | +88.4% |
| Net earnings attributable to controlling interest | $189.7 million | $103.3 million | +83.6% |
| Diluted earnings per share | $3.00 | $1.67 | +$1.33 |
| Cash used in operating activities | $245.0 million | $196.7 million | Use increased $48.4 million |
Cash and cash equivalents were $73.8 million at quarter-end. Total debt was approximately $421.9 million, comprising $42.9 million current and $379.0 million long-term debt; cash overdraft was $61.7 million. Management reported net debt of approximately $410 million and total liquidity of approximately $445.3 million, including remaining revolving-credit availability. Working capital increased substantially during the quarter: receivables were $1,095.4 million and inventory $1,230.4 million, versus $737.8 million and $963.3 million, respectively, at fiscal year-end.
Changes, drivers, and segments
- Sales growth reflected a 26.4% increase in selling prices, 6.8% acquisition-related unit growth and 3.2% organic unit growth. Companywide unit sales rose 10%.
- Management attributed improved earnings to fixed-cost leverage, passing through lumber and other cost increases, value-based selling, and growth in higher-margin value-added products. Acquisitions contributed approximately $10.3 million to operating-profit growth.
- Retail sales increased 31% and segment operating profit rose 33% to $71.4 million. Industrial sales increased 36% and operating profit rose 104% to $82.4 million. Construction sales increased 41% and operating profit rose 139% to $78.8 million.
- Value-added products represented 58.4% of sales, compared with 58.2% a year earlier. New-product sales rose 58.5% to $150.9 million. The effective tax rate increased to 24.0% from 23.3%, primarily because a one-time tax-credit refund benefited Q1 2021.
Cash flow, outlook, and risks
- Operating cash use reflected a $473.5 million increase in working capital since year-end, partly offset by earnings and non-cash expenses. Management cited higher lumber prices, business growth and increased inventory days to support customer delivery expectations. The cash cycle lengthened to 53 days from 48.
- Management noted that seasonal working-capital needs typically produce negative or modest operating cash flow in the first half, with stronger cash generation expected in the third and fourth quarters. It expected working capital to release as lumber prices normalize and the peak selling season passes.
- Planned 2022 capital spending was $175–$225 million, subject to supplier lead-time uncertainty. Outstanding commitments on commenced capital projects were $68.7 million. The company said it intended to fund capital spending and commitments from operating cash flow.
- Management set a 2022 goal of at least $525 million in annual new-product sales. It also said capacity investments were expected to add nearly $100 million in planned Retail sales in 2022; this is an expectation, not a guarantee.
- In April, the company added $500 million of borrowing capacity through a shelf facility, with no amounts drawn at the time of filing. The board raised the Q2 dividend to $0.25 per share. The company also repurchased approximately 756,000 shares for $58.5 million in April, subsequent to quarter-end.
- Key exposures include lumber-price volatility, supply-chain constraints, adverse economic or weather conditions, interest-rate changes on variable-rate debt, foreign-currency movements and acquisition execution. Management stated that substantial or prolonged lumber-price trends could affect sales volume, gross margins and profitability.
- At March 26, the company had $51.7 million of outstanding letters of credit, approximately $30.0 million of payment and performance bonds for open projects, and $11.1 million for completed projects still under warranty. Management said routine legal claims were not expected to materially affect the financial statements. No significant off-balance-sheet transactions were reported; the company was in compliance with debt covenants.
Important facts for investors to verify
- How much of sales and profit growth persists after separating lumber-price effects, acquisition contributions, organic volumes and product mix.
- Whether receivables and inventory convert to cash as seasonality normalizes, and whether the expected second-half operating cash flow materializes.
- Whether lumber prices, supplier availability and customer demand support margins and planned sales growth without increasing working-capital or inventory risk.
- Execution of the $175–$225 million capital plan, the $525 million new-product sales goal, and acquisition integration and returns.
- Debt, covenant headroom, liquidity and the impact of subsequent share repurchases and the increased dividend.
- Construction backlog: commercial orders were approximately $93.0 million and site-built orders $141 million at quarter-end; management expected most to be filled within the next fiscal year, but noted orders could be canceled.