UFP Industries, Inc. Quarterly Report (Form 10-Q)

UFP Industries Navigates Challenging Market Conditions with Diversified Business Model

UFP Industries, a leading manufacturer and supplier of wood and wood-alternative products, has reported its financial results for the first quarter of 2025. Despite facing headwinds in some of its end markets, the company’s diversified business model and strategic initiatives have helped it weather the storm.

Financial Performance Overview

For the first quarter of 2025, UFP Industries reported a 3% decrease in net sales compared to the same period in 2024. This was driven by a 1% decrease in selling prices and a 2% decrease in unit sales. The overall decrease in net sales was primarily due to declines in the Retail and Packaging segments, partially offset by growth in the Construction segment.

Gross profits decreased by 18% to $268 million, with the Retail, Packaging, and Construction segments all experiencing declines. The company attributed the decrease in gross profits to volume decreases in the Retail and Packaging segments, competitive pricing pressure in the Site-Built and Structural Packaging business units, and increased material costs in several business units.

Operating profits decreased by 31% to $92 million, primarily due to the decline in gross profits, partially offset by a decrease in selling, general, and administrative (SG&A) expenses. The reduction in SG&A expenses was mainly driven by lower bonus and incentive compensation tied to profitability and return on investment.

Cash flows used in operations increased significantly, from $17 million in the first quarter of 2024 to $109 million in the first quarter of 2025. This was due to a decrease in net earnings and non-cash expenses, as well as a larger increase in working capital compared to the prior year.

Lumber Market Dynamics and Impact

UFP Industries experiences significant fluctuations in the cost of commodity lumber products, which can impact its profitability. In the first quarter of 2025, the Random Lengths framing lumber composite price increased by 12.7% compared to the same period in 2024, while the Southern Yellow Pine (SYP) composite price increased by 5.8%.

The company generally prices its products to pass lumber costs through to customers, so its profitability is based on the value-added manufacturing, distribution, engineering, and other services it provides. However, the level and trend of lumber prices can still impact the company’s gross margins, as some products have fixed selling prices, while others are indexed to the reported lumber market with a fixed dollar “adder” to cover conversion costs and profit.

UFP Industries has strategies in place to mitigate the risks associated with changes in lumber prices, such as locking in costs with suppliers, managing inventory levels, and passing through changes in lumber costs to customers. The company believes its diversification and operating practices help to mitigate the impact of volatile lumber market conditions.

Segment Performance

Retail Segment The Retail segment experienced a 3% decrease in net sales, driven by a 4% decline in unit sales, partially offset by a 1% increase in selling prices. The decrease in unit sales was primarily due to declines in the Deckorators and ProWood business units. Gross profits in the Retail segment decreased by 20%, mainly due to lower sales and higher material costs in the ProWood and Deckorators business units.

Packaging Segment The Packaging segment’s net sales decreased by 3%, with a 1% decrease in selling prices and a 3% decrease in organic unit sales, partially offset by a 1% increase from an acquired business. Gross profits in the Packaging segment decreased by 19%, primarily due to competitive pricing pressure and volume declines in the Structural Packaging and PalletOne business units, as well as higher material costs.

Construction Segment The Construction segment’s net sales remained flat, with a 3% decrease in selling prices offset by a 3% increase in organic unit sales. Gross profits in the Construction segment decreased by 21%, mainly due to a decline in unit sales and competitive pricing pressure in the Site-Built construction business unit, as well as increased labor and overhead costs in the Commercial Construction business unit.

Outlook and Strategic Initiatives

UFP Industries has set long-term financial goals, including growing annual unit sales by 7-10% (including smaller acquisitions), achieving a 12.5% EBITDA margin, earning an incremental return on new investments above its hurdle rate, and maintaining a conservative capital structure.

In the short term, the company is facing more challenging market conditions, which have led it to develop and execute plans to reduce or eliminate capacity at underperforming locations, exit unprofitable business, and reduce SG&A costs. The goal is to lower the company’s cost structure and improve operating profits by $60 million by the end of 2026, with approximately $40 million in benefits expected by the end of 2025.

Key factors that will influence UFP Industries’ future prospects include:

• Lumber prices, which are expected to remain near current levels with more typical seasonal trends, unless higher duties or tariffs are enacted.
• Retail demand, which is anticipated to be slightly down for the remainder of 2025.
• Packaging demand, which is expected to be slightly down for the remainder of 2025.
• Construction demand, which is expected to be mixed, with slight declines in site-built and commercial construction, and slight growth in factory-built housing.

To support its growth and shareholder returns, UFP Industries plans to continue its balanced and return-driven approach to capital allocation, including:

• Increasing the quarterly cash dividend by 6% to $0.35 per share.
• Expanding its share repurchase authorization to $300 million through July 2025.
• Targeting capital expenditures of $300-$350 million in 2025, with a focus on projects that enhance automation and drive strategies for new and value-added products.
• Pursuing strategic acquisitions that fit the company’s capabilities and provide higher margin, return, and growth potential.

Conclusion

Despite facing headwinds in some of its end markets, UFP Industries has demonstrated the resilience of its diversified business model. The company’s strategic initiatives, including cost-cutting measures and investments in new and value-added products, position it well to navigate the current challenges and continue delivering value to its shareholders over the long term.