UFP INDUSTRIES INC Q3 FY2024 earnings call

• Economic Outlook: Expected interest rate drops and economic rebound didn't materialize; economy slowing likely through mid-2025, needing course correction.
• Cost Reduction Initiatives: Completing/expanding facility consolidations, exploring strategic alternatives for non-strategic businesses, reducing core SG&A and operating costs to achieve over $70M annualized cost reductions.
• Strategic Areas: Deploy capital in greenfield growth, acquisitions, new products; continue returning capital to shareholders via dividends and share repurchases; Board declared $0.33 per share dividend.
• Segment Details: Construction: Site build resilient but softer multifamily/single-family; factory built strong. Packaging: Pursue market share gains despite demand headwinds. Retail: ProWood, Edge, Deckorators had unit declines; Deckorators decking and SureStone doing well. New products: $118.7M in Q3, YTD $388.4M.
• Labor and Acquisition: Labor market improved but labor cost/higher benefits; acquisition pipeline growing, valuations more realistic.

Retail: Sales dropped 13% to $636 million, with 7% decline in selling prices, 2% from product sales transfers, and 4% in units. ProWood had a 5% unit decline, Edge 4%, Deckorators 3%. Deckorators decking increased 17%, SureStone decking 20%. Gross profits down 11%, but SG&A down $7M. Packaging: Sales fell 11% to $402 million, with 8% drop in selling prices, 5% in units (offset by 2% transfer). Gross profits down ~$23M, SG&A down $3M, operating profits down $20M to $22M. Construction: Sales decreased 8% to $535 million, with 7% decline in selling prices, 2% in units (offset by 1% transfer). Site-built commercial and concrete-forming down, factory-built up 11%. Gross profits down $33M, SG&A down $6M, operating profits down $27M to $42M.

• Cost Reductions: Target $70M annualized cost reductions from facility consolidations, strategic alternatives, and SG&A cuts; already taking actions for $35M in 2025, aiming for $60M annualized.
• Dividends and Repurchases: Board declared $0.33 per share dividend, 10% increase from prior year; authorized $200M share repurchase, ready to be more aggressive if shares are undervalued.
• Outlook: Soft demand and competitive pricing to continue into 2025; anticipate mid-single digits lower demand in retail, mid to high single digits lower in packaging, low single digits down in construction.

• Macroeconomic: Slowing economy, interest rates, inflation impacting consumers.
• Labor and Benefits: Higher labor costs, healthcare benefits, regulatory burdens in some states.
• Demand Volatility: Uncertainty in housing starts, impact on construction segments.

Q: Matt, you referenced $70 million in annualized cost reductions. Can you break down how much are coming from each bucket and detail on strategic business units?

A: Matt said facility consolidations encapsulate the buckets, no breakdown by category; Mike added $35M actions in 2025, half SG&A, half capacity consolidation, 60 target similar combination. Strategic alternatives for underperforming or non-aligned businesses.

Q: Are there other markets with increased competition outside packaging?

A: Matt said site-built construction and others face competitive pressure as demand wanes; housing starts above 1.2M help, below increases pressure.

Q: If market weakens further, what strategies to manage margins?

A: Mike said constantly looking at ways to improve margins, including reducing operating costs, facility consolidations, SG&A cuts.

Q: Perspective on new product performance?

A: Matt said new products need to meet return and margin criteria; core line innovations and new-to-market products aim for market share and better margins.