UFP Industries, Inc. Q3 FY2025 earnings call

Key Points

• Net sales were $1.56 billion, with 4% decline in units and 1% decline in price. New product sales totaled 7.2% of total sales. Profitability pressured but trailing 12-month basis flattening out.
• Market dynamics include cyclically soft demand, trade uncertainty, and competitive pricing. Business units finding unit and profit stabilization.
• Actions taken: Target above-market growth with focus on returns, introduce value-added products, address underperforming operations via restructuring and divestitures, $1 billion CapEx program with $200 million towards automation, select greenfield investments, active on M&A front with three bolt-on acquisitions this year, and pivoted to share repurchases with $350 million bought back by October.
• Retail segment: ProWood working on cost and process improvement, Surestone with strong demand and expansion plans, Deckorators with growth in certain products but railing decline.
• Packaging segment: First to feel down cycle impacts, showing signs of stabilization, with engineering/design capabilities, geographic expansion, and cost reduction efforts.
• Construction segment: Site Built affected by market challenges, Factory Built outperforming, Concrete Forming successful in fragmented market.

Retail Segment

• ProWood performed well even in a tougher market, working on cost positions and manufacturing process improvement. Introduced TrueFrame, and Surestone had strong demand with expansion efforts in Selma and Buffalo, NY. Deckorators delivered 5% unit growth and 8% net sales growth, including 31% increase in Surestone decking and 9% growth in wood plastic composite decking, but railing sales declined 13%. Sales to customers in Retail were $594 million, a 7% decline compared to last year.

Packaging Segment

• Sales were $395 million, down 2% with a 3% organic unit decline, offset by 1% growth from recent acquisitions. Protective Packaging volumes grew 15% driven by geographic expansion. Sequential trends in this segment are stabilizing. Adjusted EBITDA in this segment was flat year-over-year.

Construction Segment

• Markets remained consistent. Site Built business was competitive but affected by builders managing home inventories and consumer challenges. Factory Built business outperformed end markets, and Concrete Forming business had success in fragmented marketplace. Construction sales were $496 million, down 7% primarily due to volume and pricing pressure in Site Built.

Guidance

• Low single-digit unit declines across segments through year-end due to soft demand and pricing pressure. Cycle faces most pronounced headwinds, while other businesses show signs of stabilization or modest growth. Confident actions like cost reductions, capacity optimization, and strategic investments position for above-market growth and margin expansion as business conditions normalize. Targeted an annual run rate of EBITDA improvements from cost and capacity reductions of $60 million by 2026. Plan for SG&A expenses in 2025 with certain targets. Outlook consistent with low single-digit unit declines and potential for growth as market normalizes.

Risks

• Cyclically soft demand ongoing.
• Trade uncertainty.
• Competitive pricing pressures creating difficult operating environment.

Q: Talk about where we stand with the Surestone retail rollout, including store expansion, sell-through, etc.

A: Remain on pace for 2026 selling season, on shelf and ready for that season. On pace with capacity expansions. Sell-through is good, outsizing market in difficult consumer market.

Q: With Surestone growth, ballpark impact of new retail shelf spaces vs Pro channel and wood plastic composite growth despite shelf space losses last year.

A: Very pleased, gaining share, Surestone is unique technology, investing in branding, will continue to take market share, teams innovating to match price points.

Q: Recent trends in the cycle, perspective on 2026 from customers and competitive price pressures.

A: Market is murky with uncertainty, affordability issues. Most businesses see stabilization, but cycle business lacks clarity. Sequentially, saw additional pricing pressures from Q2 to Q3.

Q: Capital allocation standpoint, balance between M&A and share repurchases, and interesting areas for M&A.

A: Cash flow generation good, allocating more free cash flow to share buybacks, preserving balance sheet for meaningful M&A transactions, focused on strengthening core with disciplined M&A opportunities.

Q: Language change in Construction regarding Site Built vs Factory Built, strength of Factory Built business now vs quarter ago, and customer feedback for spring season.

A: Not a huge shift, consumer confidence and affordability challenges. Industry production more challenged recently. Excited about Factory Built's affordability address and market potential.

Q: Potential tariff impact for 4Q and 2026, and data center build impact on concrete forming.

A: Pricing has been hanging out, well positioned with majority domestic purchases. Excited about concrete forming and value-added solutions for data center build opportunities.

Q: Packaging business stabilization, green shoots, and drivers of aggressive growth.

A: Feels like found bottom, stabilized, optimism from national accounts, near-shoring opportunities, consolidations, cost out, and automation. Geared and ready to roll as business recovers.

Q: Lumber prices impact on packaging competitiveness and alternatives.

A: In fiber stricken market, generally better market for them as they buy entire gamut of products, able to use pricing and purchasing strategies to take advantage.

Q: Cadence of Surestone's full potential in revenue and profitability, and advertising cadence.

A: Fully operational in both sites in Q1, some challenges from capital investment to be resolved. Marketing efforts to remain similar in 2026. Most meaningful sales growth and margin contribution to occur in 2026 with new capacity.