"Challenging" lumber price volatility earlier this year caused Universal Forest Products Inc. (UFPI) to incur a 74% drop in net earnings for the third quarter from the year-earlier period to $2.6 million despite a 5% increase in net sales to $480.6 million, the company reported Wednesday.
"While lumber prices stabilized during the third quarter of 2010, inventories were built earlier in the year-when lumber prices were up as much as 52% over the previous year-in preparation for a solid selling season, which didn't materialize," Grand Rapids, Mich.-based UFPI said in its announcement. "At the end of June, the company's inventory consisted primarily of higher-cost lumber, which adversely affected profits in the third quarter. The company has sold through this product, and by the end of the third quarter its inventories comprised lumber purchased at a much lower cost."
The $2.6 million in net earnings for the July to September period compares with $10.6 million earned in 2009's third quarter, while the $480.6 million in sales represented a gain from 3Q2009's $457.8 million.
Sales to the site-built construction market climbed 1.6% to $70.1 million even though unit sales dropped about 4% as a result of plant closures in the third quarter of 2009. Shipments out of plants that remained open went up 7%. "Universal believes this industry will be challenged for years to come and continues to focus on commercial, government and turnkey projects to diversify its business and add value for the customer," UFPI said.
The biggest segment of all--the do-it-yourself/retail market--slipped 7.7% to $197.9 million. Unit sales for DIY/retail declined 10% due to soft demand. "Predictions for 2011 and beyond hinge on the stabilization and eventual improvement of the economy. Most experts forecast a recovery to begin in 2011. The Home Improvement Research Institute believes 2011 will see a gain of just 1.6% in home improvement spending, with growth hovering between 6% and 7% annually in subsequent years. Universal continues to add to the products it offers to retailers and drive costs out of its processes in its persistent efforts to be the low-cost producer."
Elsewhere in the company, sales to the industrial market jumped 19.3% to $158.1 million, while UFPI's manufactured housing market segment also saw a gain in sales, up 18.2% to $63.4 million.
"This was the most challenging lumber market I've seen in my 36 years with the company, and I'm proud of the way our people managed through it," CEO Michael B. Glenn said in a statement. "Frankly, this type of market has the potential to wipe out an entire year's profits for most companies that operate in our industries. Fortunately, our agility and diverse business model have allowed us to generate more than $17 million in net earnings for the year so far. With more than $58 million in cash and only $53 million in debt, we have the resources to take advantage of opportunities that arise. We remain in an enviable position in our markets."
The cost of goods sold climbed 9.7% in the third quarter to $426.2 million from $388.5 million, leading to a 21.4% decline in gross profit to $54.4 million. (See financial statement.) Selling, general, and administrative expenses dropped 7.6% to $47.3 million. Earnings from operations sank by nearly two-thirds to $6 billion.
UFPI describes itself as America's leading buyer of solid-sawn lumber and the largest customer of North America's largest mills as well as the nation's biggest producer of both pressure-treated wood and engineered roof systems for manufactured housing and site-built construction.