UFP INDUSTRIES INC

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

Our results for the second quarter of 2024 include the following highlights:

Current wording

Our results for the third quarter of 2024 include the following highlights:

Previous wording

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.

Current wording

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 38.6% and 38.9% of our sales in the first nine months of 2024 and 2023, respectively.

Previous wording

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.

Current wording

Our overall unit sales of value-added products were flat in the third quarter and up 1% in the first nine months of 2024 compared to the same periods last year. Our overall unit sales of commodity-based products decreased approximately 2% in the third quarter and approximately 4% in the first nine months of 2024 compared to the same periods last year.

Previous wording

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%.

Current wording

Net sales in the third quarter of 2024 decreased by 13% 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 4% decline in units. Unit changes within this segment consisted of decreases of 3% in Deckorators, 4% in UFP Edge, and 5% 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 3%, while unit sales to independent retailers, which we believe are more closely correlated to new housing starts, decreased approximately 8%. 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 4%.

Previous wording

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.

Current wording

Earnings from operations for the Retail reportable segment decreased in the third quarter of 2024 compared to 2023 by $4.9 million, or 10.4%, as a result of the factors mentioned above.

Previous wording

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%.

Current wording

Net sales in the first nine months of 2024 decreased by 15% compared to the same period of 2023, due to a 7% decrease in selling prices, a 2% decrease due to the transfer of certain sales to the Construction and Packaging segments, and a 6% decline in units. Unit changes within this segment consisted of decreases of 2% in Deckorators, 9% in UFP Edge, and 9% 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, unit sales to big box customers decreased approximately 5%, while unit sales to independent retailers decreased approximately 7%. Within our Deckorators business unit, our sales of wood-plastic composite decking, mineral-based-composite decking and railing systems increased 6%.

Previous wording

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.

Current wording

Earnings from operations for the Retail reportable segment were flat in the first nine months of 2024 compared to 2023 as a result of the factors mentioned above and an increase in foreign exchange gains compared to the same period of 2023.

Previous wording

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.

Current wording

Net sales in the third quarter of 2024 decreased 11% compared to the same period of 2023, due to an 8% decrease in selling prices and a 5% decrease in unit sales, partially offset by a 2% increase due to the transfer of sales from the Retail segment. Unit changes consist of a decrease of 10% in structural packaging, primarily due to a decline in demand, partially offset by unit growth of 2% in PalletOne and 4% in Protective Packaging due to market share gains. The decline in prices is due to competitive price pressure as well as lower lumber costs.

Previous wording

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.

Current wording

Earnings from operations for the Packaging reportable segment decreased in the third quarter of 2024 compared to 2023 by $19.6 million, or 47.2%, due to the factors discussed above.

Previous wording

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.

Current wording

Net sales in the first nine months 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 11% in structural packaging and 7% in protective packaging, primarily due to a decline in demand. These declines were partially offset by 7% unit growth in PalletOne due to market share gains. The decline in prices is due to competitive price pressure as well as lower lumber costs.

Previous wording

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.

Current wording

Gross profits decreased by $92.7 million, or 27.8%, for the first nine months of 2024 compared to the same period last year. The decrease in gross profits was attributable to the following.

Previous wording

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.

Current wording

SG&A decreased by approximately $23.9 million, or 13.2%, in the first nine 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 $15.4 million, and totaled $29.8 million for the first nine months of 2024. Additionally, our sales incentive compensation decreased by $8.6 million.

Previous wording

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.

Current wording

Earnings from operations for the Packaging reportable segment decreased in the first nine months of 2024 compared to 2023 by $70.4 million, or 46.0%, due to the factors discussed above.

Previous wording

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.

Current wording

Net sales in the third quarter of 2024 decreased 8% compared to the same period of 2023 and consists of a unit decrease of 1% and a 7% decrease in selling prices. We experienced unit declines of 6% in commercial construction, 7% in concrete forming, and 8% in site built, primarily due to softer demand. These declines were substantially offset by an 11% increase in factory-built, primarily due to an increase in industry production. As of September 28, 2024 and September 30, 2023, we estimate that our backlog of orders in our site-built construction business unit were $80 million and $91 million, respectively. The decline in pricing was primarily due to competitive price pressure.

Previous wording

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:

Current wording

Gross profits decreased by $33.1 million, or 22.9%, in the third quarter of 2024 compared to the same period of 2023. The decrease in our gross profit was comprised of the following:

Previous wording

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.

Current wording

Earnings from operations for the Construction reportable segment decreased in the third quarter of 2024 compared to 2023 by $27.2 million, or 39.0%, due to the factors mentioned above.

Previous wording

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.

Current wording

Net sales in the first nine months of 2024 decreased 1% compared to the same period of 2023, consisting of a 7% decrease in selling prices partially offset by a 5% unit increase and a 1% increase due to the transfer of certain sales from the Retail segment. The unit increase was comprised of increases of 14% in factory-built, primarily due to an increase in industry production, and 4% in site-built, primarily due to market share gains resulting from capacity expansion and new products. These increases were partially offset by decreases of 7% in commercial construction and 10% in concrete forming due to lower demand.

Previous wording

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:

Current wording

Gross profits decreased by $52.1 million, or 12.9%, for the first nine months of 2024 compared to the same period of 2023. The decrease in our gross profit was comprised of the following:

Previous wording

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.

Current wording

SG&A decreased by approximately $5.2 million, or 2.4%, in the first nine months of 2024 compared to the same period of 2023. Accrued bonus expenses, which varies with the overall profitability and return on investment of the segments, decreased by $7.2 million and totaled $43.9 million for the first nine months of 2024. In addition, sales and other incentives decreased by $6.4 million. These decreases were partially offset by increases in wages and benefits of $7.4 million and professional fees of $2.0 million.

Previous wording

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.

Current wording

Earnings from operations for the Construction reportable segment decreased in the first nine months of 2024 compared to 2023 by $46.0 million, or 24.8%, due to the factors mentioned above.

Previous wording

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.

Current wording

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 24.2% in the third quarter of 2024 compared to 22.7% in the same period of 2023 and was 22.3% in the first nine months of 2024 compared to 23.3% for the same period in 2023. The increase in our effective tax rate for the third quarter was primarily due to a decrease in the benefit we recognized for an R&D tax credit in the quarter. The decrease in our effective tax rate for the first nine months of 2024 was primarily due to an increase in our tax deduction from stock-based compensation accounted for as a permanent difference.

Previous wording

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.

Current wording

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 59 days from 62 days during the third quarter of 2024 and decreased to 59 days from 65 days during the first nine months of 2024 compared to the prior year period.

Previous wording

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.

Current wording

The decrease in our days supply of inventory for the quarter and first nine 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 93% and 94% at the end of the third quarter of 2024 and 2023, respectively.

Previous wording

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.

Current wording

In the first nine months of 2024, our cash flows from operations were $498 million and were comprised of net earnings of $349 million, $134 million of non-cash expenses, and a $14 million increase in working capital since the end of December 2023. Our cash flows from operations decreased by $214 million compared to the same period of last year primarily due to the decrease in our investment in net working capital since year end, which was $164 million lower in 2024 compared to 2023. In 2023 our net working capital declined significantly as a result of demand normalizing from the peak of the pandemic period.

Previous wording

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.

Current wording

Purchases of property, plant, and equipment of $165 million comprised most of our cash used in investing activities during the first nine months of 2024. Net purchases of investments totaled $34.3 million while total proceeds from the sale of investments totaled $13.8 million. Outstanding purchase commitments on existing capital projects totaled approximately $163 million on September 28, 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, and make improvements to a number of facilities. We intend to fund capital expenditures and purchase commitments through our operating cash flows for the balance of the year.

Previous wording

Cash flows used in financing activities primarily consisted of:

Current wording

Cash flows used in financing activities during the first nine months of 2024 primarily consisted of the following:

Previous wording

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.

Current wording

On September 28, 2024, we had $2.0 million outstanding on our $750 million revolving credit facility, and we had approximately $711 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 September 28, 2024.

Previous wording

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.

Current wording

At the end of the third quarter of 2024, we had approximately $2.4 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.

Previous wording

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:

Current wording

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 prospects: