Universal Forest Products, Inc. Reports EPS of $0.61; Posts Net Earnings of $11.7 Million

Business Wire,  July 16, 2008  

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Results Impacted by High Fuel Cost and Weak Economy

GRAND RAPIDS, Mich. -- Universal Forest Products, Inc. (Nasdaq: UFPI) today announced its results for the second quarter of 2008. Net earnings in the quarter were $11.7 million, which compared to net earnings of $16.8 million for the same period last year. Diluted earnings per share for the second quarter were $0.61, down from $0.86 for the same period last year. Second-quarter net sales were $708.5 million, down from $773.1 million for the second quarter of 2007, and were impacted by a weak economy and a soft lumber market. Margins were impacted by higher fuel and other transportation costs and ongoing price pressure, particularly in the site-built construction market.

"Despite the current market environment, we're profitable, we're gaining share in some key markets, and we're concentrating on making sure we're well-positioned for growth when the economy regains strength," said President and CEO Michael B. Glenn. "The fundamentals of our company remain solid and we're pleased with our achievements in the face of extraordinary challenges."

Glenn added that the Company remains focused on increasing diversification, containing costs through continuous improvement, growing market share and ensuring the organization is sized appropriately to its business opportunities. The Company is working to mitigate the impact of rising fuel costs by passing them along.

In addition to rising fuel costs, weak consumer spending and ongoing price pressure, the quarter saw depressed lumber prices, which impact the Company's selling prices. The year-to-date composite lumber price was 8.5% lower for the second quarter than the same period last year.

By market, Universal posted the following gross sales results for the second quarter:

Do-It-Yourself/retail: $334.7 million, a decrease of 7.1% from the same period of 2007. The Company picked up market share by leveraging its competitive advantages and adding to its vast portfolio of lumber and outdoor living products. Sales, however, were impacted by weak consumer spending, reflected in a Consumer Confidence Index that plunged to near-record lows in the quarter and lower same-store sales at two big box retailers. Most experts call for continued decline in home improvement spending through 2008, and for moderate growth in 2009 and beyond.

Industrial packaging/components: $174.0 million, an increase of 6.4% over 2007. The industrial market remains a strong opportunity, even though in the short term it is being affected by a challenged economy. Universal continues to add customers and to be encouraged by opportunities for market share gains in this arena. The concrete forming business is having a positive impact. Most of the markets served by concrete forming saw solid year-to-date growth through May 2008. These markets include nonresidential construction in health care, public safety, lodging, power, office buildings and other areas.

Site-built construction: $132.8 million, a decrease of 17.7% from the same period of 2007. These results are in spite of declines in single-family housing starts of 43.9% and 41.8%, respectively, in April 2008 and May 2008 over the same months in 2007. The Company believes the housing market won't begin a recovery until 2010, and believes tighter credit conditions will have a negative impact on multi-family and light construction, which performed well in 2007. However, the Company believes it can continue to take share and is focused on diversification by growing its custom builder, light-commercial and multifamily business, on cutting costs and on enhancing efficiency through continuous improvement.

Manufactured housing: $84.2 million, a decrease of 20.2% from 2007. The 1.4% uptick in shipments of HUD-code homes in April 2008 over April 2007 didn't hold for the balance of the quarter. Shipments in May 2008 were approximately 15% lower than May 2007. May 2008 year-to-date shipments declined 5.1% from May 2007. The Manufactured Housing Institute recently revised its forecast downward by 3%, calling for annual shipments of 96,000 homes. Shipments of modular homes were down 27% in the first quarter of 2008 from the same period of 2007, the most recent statistics available. With its commanding market share, Universal's performance will essentially track with the market. The Company expects conditions to remain soft until the oversupply of site-built homes is absorbed and credit conditions improve, and believes passage of a lending reform package is critical to any near-term pickup in this market.

OUTLOOK

In February, the Company announced 2008 targets based on assumptions about markets, economic conditions and other relevant factors; however, some of those assumptions have not held: Diminished consumer spending impacted DIY/retail more than anticipated; the over-supply of affordable site-built homes and the lack of conventional financing options have both hampered manufactured housing; and the industrial market slowed with the weakening economy and will be negatively impacted by any ongoing economic downturn. In addition, rising fuel prices are significantly impacting transportation costs in all of its markets.