UFP Industries, Inc. (UFPI) Q4 2022 Earnings Call Transcript

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UFP Industries, Inc. (NASDAQ:UFPI) Q4 2022 Results Conference Call February 21, 2023 4:30 PM ET

Company Participants

Dick Gauthier - IR

Matt Missad - CEO

Mike Cole - CFO

Conference Call Participants

Julio Romero - Sidoti

Kurt Yinger - D.A. Davidson

Stanley Elliott - Stifel

Reuben Garner - Benchmark Company

Jay McCanless - Wedbush Securities

Ketan Mamtora - BMO Capital Markets

Kurt Yinger - D.A. Davidson


Good day, and invited to nan Q4 2022 UFP Industries, Inc. Earnings Conference Call and Webcast. [Operator Instructions] Please beryllium advised that today's convention is being recorded.

I would now for illustration to manus nan convention complete to your speaker, Mr. Dick Gauthier, Vice President of Communications. Sir, nan level is yours.

Dick Gauthier

Welcome to 4th fourth 2022 convention telephone for UFP Industries. Hosting nan telephone coming are CEO, Matt Missad; and CFO, Mike Cole. Matt and Mike will connection prepared remarks and past telephone will beryllium unfastened for questions. This convention telephone is disposable simultaneously successful its entirety to each willing investors and news media done our webcast astatine A replay will besides beryllium disposable astatine that website.

Before I move nan telephone complete to Matt Missad, fto maine punctual you that, today's property merchandise and position see forward-looking statements arsenic defined successful nan Private Securities Litigation Reform Act of 1995. These statements are taxable to risks and uncertainties that could origin existent results to disagree materially from nan company's expectations and projections. These risks and uncertainties include, but are not constricted to, those factors identified successful nan property merchandise and successful nan filings pinch nan Securities and Exchange Commission.

Now I would for illustration to move nan telephone complete to Matt Missad.

Matt Missad

Thank you, Dick, and happy Tuesday everyone. Thank you for joining our 4th fourth and twelvemonth extremity 2022 call. It was a banner twelvemonth pinch a grounds $9.6 cardinal successful nett sales. I cognize immoderate of you are wondering, why I couldn't cobble together different $400 cardinal to make it an moreover $10 cardinal to deed our 2027 extremity 5 years early.

It is thing I will activity on. For nan unthinkable year, our UFP teammates merit each nan accolades. I want to convey each 1 of them for moving truthful difficult to supply fantabulous products and services to our customers, which successful move allowed america to break records and to reward our teammates pinch well-deserved bonuses. We were besides capable to adhd complete $60 cardinal successful yearend bonuses and different for compensation to our hourly and accumulation teammates. It is genuinely exceptional.

Now I consciousness a spot for illustration someone, who finishes a delicious repast and says, this is nan champion repast I person ever eaten. And he instantly thinks, is that arsenic bully arsenic it will ever get? Well, we surely don't deliberation so. While we bask and observe affirmative achievements, we are perpetually looking to improve.

We are creating caller recipes to make judge that nan early tin beryllium savored moreover more. But I'm beautiful judge you didn't subordinate this telephone to observe 2022 aliases to do repast readying for nan future. You are acold much willing successful what's going to hap successful 2023 and beyond. We person reviewed countless forecasts, predictions, opinions, and axenic depths, which look to alteration frequently. It is difficult to find a consensus, but present is wherever our activity squad stands today.

New location building is apt to autumn 15% to 20% from 2022 levels. Interest rates will move astir apt up during nan first half of nan year, and possibly down successful precocious Q4 aliases early 2024. Government will proceed to get and go an moreover larger information of full home spending.

As an aside, we should astir apt nonstop our grandkids a convey you statement for this funding. Other information points are little clear, while we judge we are apt already successful a mild recession, nan mobility is really it will end. Will nan system person a difficult landing? A soft soft landing? Or a soft landing pinch nan wheels up, which will decidedly time off immoderate marks? Will user spending proceed aliases person nan effects of ostentation curved individual spending power?

Since we cannot power these outer factors, nan UFP squad is poised to do what it ever does, execute our scheme and proceed to position our institution for moreover amended occurrence than nan future. We person accumulated a important magnitude of superior during nan past 2 years, and are good positioned, return advantages of opportunities we expect to see. We will enactment operationally fierce and fiscally blimpish utilizing our equilibrium expanse to support our maturation and worth creation.

Our unsocial business exemplary allows decisions connected costs containment, staffing, and inventory levels to beryllium handled by those closest to nan action, and we don't hold for events to make decisions. 2023 whitethorn beryllium a turbulent year, but we will set quickly arsenic needed to beryllium businesslike successful our operations while being nimble successful pursuing growth.

Now, let's reappraisal conception capacity and outlook. In unit solutions, arsenic a value-added manufacturer, seller, and self-distributor, our products supply solutions for nan DIY user arsenic good arsenic nan master contractor.

Our caller president of Retail Solutions Will Schwartz has deed nan crushed running. This is our largest conception by income measurement and it has important opportunities for creating synergies and scaling caller and existing products.

Our decorator's merchandise statement has moved up to number 3 connected nan 2023 Life Story investigation astir trusted marque list. And while we are pleased to beryllium moving up, we are focused connected becoming nan champion and staying there. The precocious added capacity successful mineral-based manufacturing will let america to motorboat further caller products, which utilize our patented technology, which is already a favourite among installers and homeowners for its aesthetics, durability, and sustainability.

The number of decorators certified master installers has grown and they person go enthusiastic marque advocates. Our ProWood and Sunbelt units are utilizing our capacity formulations chemic institution to turn occurrence retardant treated lumber sales, while processing caller and improved preservatives to position our early growth. We proceed to activity pinch our customers to heighten our worth proposition and to grow our manufacture starring marketplace position.

UFP Edge Siding shape and trim products are fantabulous arsenic our civilization coding capabilities arsenic good arsenic thermally modified wood merchandise offerings are good received. The financial capacity was disappointing successful 2022 owed to delays connected automation instrumentality not being delivered and installed successful a timely fashion. We are looking for importantly amended results successful 2023 from this unit.

Our e-commerce level continues to turn and service our customers pinch nonstop fulfillment connected galore of our manufactured products, and our unit solutions strategy is simple. One, supply innovative caller products and solutions. Two, find and harness opportunities. Three, prime and build nan correct brands. Four, utilize our nationalist reach, purchasing expertise and distribution web to supply nan champion customer value.

The outlook for unit successful 2023 is mostly dependable for repair and remodel. Big container is forecasting level portion volumes and are expected to return stock from different retailers. Independent retailers predicting level to bound somewhat. The first 4th will beryllium difficult to comparison against 2022, but we expect easier comparisons successful Q2 and Q3.

Moving connected to construction, our president of construction, Patrick Benton, did an fantabulous occupation starring his squad to grounds 2022 performance. The results were awesome and nan group has already adjusted to nan little inclination statement successful caller housing, some successful site-built and mill built. Mike will supply much specifications connected trends, but this is nan area wherever cops will beryllium astir difficult successful 2023.

The forecast for lodging starts is successful nan scope of 15% to 20% beneath 2022 levels. And our balanced attack serving multi-family arsenic good arsenic azygous family helps position america good successful nan markets we serve, which besides thin to beryllium nan much resilient markets successful nan state and which proceed to summation population.

We are good positioned to meet anticipated marketplace needs and will proceed to set to nan existent marketplace conditions going forward. Overall starts astir nan 1.3 cardinal unsmooth estimates still supply ample opportunities for america to nutrient a beardown twelvemonth pinch a bully ROI. We've noticed that multi-family continues to show spot successful galore markets and nan build to rent investments by equity costs whitethorn thief bolster nan lodging starts numbers.

Factory build is expected to person a inclination statement akin to site-built barring much liking complaint changes. Factory build lodging is still nan astir affordable action and our factory-built customers are predicting a amended backmost half of ‘23 than nan first half.

RV whitethorn return longer to recover, though it is not a large information of our business. Our merchandise innovations successful RV whitethorn thief america summation stock moreover pinch nan smaller marketplace size. The outlook for actual forming and for commercialized building is coagulated for 2023 pinch immoderate caller infrastructure projects coming online.

We'll adding further laic down yards for actual forming successful 2023 to service some caller markets pinch amended maturation prospects and to grow our capabilities successful existing markets. Overall for construction, we will trust connected our acquisition guidance squad to guideline nan business done immoderate uncertainty and still nutrient beardown results.

UFP Packaging judge seems for illustration a better, much fitting sanction to maine than UFP Industrial. We dream you agree. Scott Worthington and his squad person streamlined their conception creating much attraction and velocity and person generated enthusiasm some pinch nan customers arsenic good arsenic pinch nan packaging team.

We person galore runways and divers extremity markets to pursue, specified arsenic durable goods, appliances, ray and dense equipment, agriculture, moving successful storage, automotive, furnishings, horticulture and glass. The packaging manufacture is very fragmented and our very humble marketplace stock leaves tremendous opportunity for growth.

The caller acquisition of Titan and each boxed up creates a relationship to halfway gift conversion and printing and gives a awesome touch constituent pinch existing and caller customers. Increasing our design, engineering, testing and analytical capabilities has helped to create much opportunities to bring solutions to customers, who worth that level of expertise and creativity. Adding accrued capacity successful alloy and different materials creates improved worth proposition for mixed worldly packaging. We expect to grow these capabilities successful our markets.

PalletOne has besides performed very good and will proceed to grow its nationalist footprint utilizing existing UFP locations wherever practical. Again, while location will beryllium economical challenges, nan semipermanent outlook for UFP Packaging stay strong. We will proceed to put successful automation, invention and acquisition to beforehand our extremity of becoming a world packaging solutions provider.

From an economical outlook, we expect immoderate runway to grow, while others are level to down. Our blimpish estimate wide for UFP Packaging is level to down 3% successful units. Our world squad is focused heavy connected extending our packaging solutions to multinational customers. The halfway of this capabilities successful India and Australia, our Sprint backed branded products successful nan Asia and different markets and pallet and structural packaging successful Mexico, Europe and different extremity markets heighten our full merchandise offerings.

Our world sourcing and income efforts create worldwide proviso capabilities for some our home and overseas customers, which we will besides beryllium enhancing successful 2023 pinch caller technologies.

Some different areas of liking are successful nan caller merchandise abstraction income for nan 4th fourth were $164 cardinal and for nan twelvemonth were $736 million, some numbers exceeded our targets. And while we hit our targets successful 2022, we request to do amended and person created a target for 2023 of $795 million. We cognize nan world is moving faster and we request to enactment ahead. And nan champion measurement to adhd lasting worth to supply nan user pinch a merchandise that meets an unmet need.

Our investments successful nan invention accelerator that this velocity to marketplace for caller merchandise ideas by accelerated loop and faster standard and synergy. Our precocious launched Innovate Fund is very actively seeking precocious shape improvement aliases early shape commercialization projects. The champion opportunities will fresh wrong our endeavor and tin beryllium scaled broadly and quickly passim nan organization.

The extremity of this invention squad matches our soul company's taxable for 2023. We request to innovate to dominate. In purchasing, nan lumber marketplace has been trending up slightly, since nan opening of nan year, but does not look to person nan aforesaid activity aliases volatility arsenic a twelvemonth ago.

We expect that nan mills will amended negociate nan proviso broadside and unless location is unexpected precocious demand, we don't expect nan aforesaid levels of nan lumber marketplace we saw successful 2022 aliases 2021. This will apt origin revenues to beryllium little moreover connected nan aforesaid level of portion sales. UFP proscription has invested to amended our transportation costs and efficiencies pinch caller exertion and caller leadership.

Shannon Evans, our caller VP of Transportation has instituted respective changes already, and will bring improved capacity to this profit center. We are excited for her imagination to return shape. Human Capital, while nan emblematic unemployment numbers stay low, nan UC Index is complete 6%, and nan workforce information complaint is beneath humanities highs.

Finding applicants is getting easier, yet uncovering those who wish to activity difficult successful our manufacture remains a challenge. We cognize others look akin challenges, truthful we activity to beryllium an employer of prime successful portion by providing important rewards to our teammates erstwhile we execute well.

We equilibrium our workforce among segments to guarantee easy transfers from areas which are seeing a slowdown to those that stay strong. We besides person expanded recruiting efforts to areas that are unfamiliar pinch UFP and whitethorn not person understood nan breadth of opportunities offered by our company. Those who commencement astatine nan crushed level and activity their measurement up pinch training, mentorship, and applicable acquisition provided by nan company. All who want to activity difficult to create a amended life for themselves and their families are invited and encouraged astatine UFP.

Now, I'd for illustration to move it complete to Mike Cole to reappraisal nan financial information.

Mike Cole

Thanks, Matt, and bully afternoon, everyone. Our consolidated results this 4th see a 10% integrated portion alteration arsenic request dropped successful our tract build and mill build business units, arsenic good arsenic our unit segment. These decreases were partially offset by a important summation successful our actual forming unit, while measurement successful our packaging conception was flat, an EBITDA separator complete 11% contempt nan measurement diminution reflecting nan wide stableness of our packaging segment.

Operating cashflow for nan twelvemonth of $832 cardinal up $320 cardinal complete past year, resulting successful a beardown equilibrium expanse pinch $1.8 cardinal successful liquidity, including a nett rate surplus of astir $280 million. And an exceptionally beardown 35% return connected investing superior for nan year.

Now, we'll locomotion done nan financial statements for nan 4th successful much details, starting pinch our income by segment. Retail conception income decreased by 2% owed to a 9% diminution successful integrated portion income and a 2% driblet from nan transportation of definite merchandise income from our unit to our building segment. These decreases were partially offset by a 2%-unit publication from acquisitions and a 7% summation successful trading prices.

As expected, we faced reliable portion comparisons this 4th compared to past year, arsenic our Sunbelt Outdoor Essentials and UFP Edge categories each acquisition nan important driblet successful volume. Organic measurement of decorators was down modestly while our ProWood integrated measurement was level year-over-year.

Sales from nan packaging conception accrued 1% owed to an summation successful trading prices. Organic units were level arsenic we were capable to offset a diminution successful measurement to definite customers pinch marketplace stock gains. Our squad continues to attraction connected enhancing our operation of value-added products that connection solutions to our customers packaging requirements. As a result, worth added income accrued to 76% of income successful Q4, compared to 71% past year. This strategy continues to use our gross profits and margins, which I'll reappraisal shortly.

Our alteration successful integrated measurement includes gains from $35 cardinal successful income to caller customers, $21 cardinal of income to caller locations of existing customers, and $31 cardinal of caller merchandise sales. These gains were offset by declines successful income to different accounts.

Our building conception income decreased 11% owed to a 16% integrated portion diminution offset by a 3% summation successful prices and a 2% summation owed to nan transportation of income from retail. The wide integrated portion diminution resulted from a 27% diminution successful cycle, a 12% diminution successful mill built, and a 2% diminution successful commercial. These declines were offset by a 21% summation successful actual warming. The summation successful our wide pricing is chiefly owed to our tract build business unit, which continues to activity done its backlog of orders.

Moving down nan income statement, our 4th fourth gross profits decreased by $14 cardinal aliases 4% comparing favorably pinch our 9% diminution successful portion sales. New products and enhancing our operation of value-added merchandise income proceed to beryllium cardinal strategies to amended margins crossed each our segments. An summation successful caller merchandise income contributed $10 cardinal to gross profits, and value-added income accrued to 68% of full income this twelvemonth from 65% past year.

By segment, retail's gross profit decreased by $5 cardinal compared to past year, chiefly owed to a drop-in portion waste mixed pinch unfavorable costs variances. Packaging's gross profit accrued by $7 million, chiefly owed to a value-based -- our value-based trading inaugural and favorable changes successful merchandise mix, including caller products.

Construction's gross profit decreased by $16 million. The wide diminution was owed to nan integrated portion decreases we knowledgeable successful our site-built and factory-built units, arsenic good arsenic unfavorable costs varis we knowledgeable successful our site-built portion owed to its drop-in volume. These decreases were offset by gross profit increases successful our commercialized and actual forming units.

Continuing to move down nan income statement, our SG&A expenses accrued by astir $5 million. The components of nan summation see an $18 cardinal summation successful wages and benefits, and a $2 cardinal summation successful recreation costs, partially offset by a $15 cardinal diminution successful income and prize incentives. Sequentially, our SG&A fell from $214 cardinal successful Q3 to $183 cardinal successful Q4, chiefly resulting from a alteration successful income and prize incentives and bad indebtedness expense.

Finally, our operating profits decreased $26 million, driven by decreases of $22 cardinal successful international, $14 cardinal successful retail, and $4 cardinal successful construction, which were personally offset by increases of $7 cardinal successful packaging and $8 cardinal successful corporate. It's important to statement that nan driblet successful world is partially offset by a $9 cardinal alteration successful net attributable to non-controlling liking presented farther down nan income statement.

Moving connected to our rate travel statement. Our nett rate flows from operations for nan twelvemonth pinch $832 cardinal and consisted of nett net and non-cash expenses pinch totaling $844 cardinal compared to $655 cardinal past year, and a $12 cardinal summation successful networking superior since nan extremity of 2021 compared to $143 cardinal summation past year.

We measurement our rate rhythm to measure our moving superior guidance and it accrued to 66 days this twelvemonth compared to 57 days and Q4 past year, chiefly owed to a 4 time summation successful our receivable rhythm and a 4 time summation successful our time proviso of inventory.

Our investing activities for nan twelvemonth included superior expenditures totaling $174 million, including description ary inefficiency CapEx of $71 million. Due to agelong lead times for equipment, nan magnitude was astatine nan debased extremity of our anticipated scope for nan year, and we invested $176 cardinal connected antecedently announced acquisitions, including nan December acquisition of Titan Corrugated and its connection each boxed up.

Finally, our financing activities for nan twelvemonth included $59 cardinal astatine dividends, $96 cardinal of shared repurchases and indebtedness repayments of $41 million. With respect to our superior building and resources, astatine nan extremity of December, we had $281 cardinal successful nett rate surplus compared to $51 cardinal successful nett indebtedness past year, and our full liquidity was $1.8 cardinal consisting of surplus rate of $559 cardinal and readiness of $741 cardinal nether our revolving in installments installation and $535 cardinal nether a support statement pinch definite lenders.

The spot of our rate travel generation, blimpish attack to managing our superior building and prudent return driven attack to superior allocation has provided america pinch an abundance of superior to turn our business and besides return to shareholders.

We will proceed to prosecute a equilibrium and return driven attack crossed dividends, buybacks, superior investments and M&A, specifically our Board conscionable approved different quarterly dividend of $0.25 a share, representing a year-over-year summation of 25% complete nan March costs a twelvemonth ago.

We person a stock repurchase programme approved by our Board of Directors and person their authorization to bargain backmost up to 2 cardinal shares. In nan past, we repurchased shares to offset nan effect of issuances, resulting from our worker use plans and astatine opportune times erstwhile our banal value falls to predetermined levels.

We expect superior expenditures of $200 cardinal to $225 cardinal adjacent year. Priority continues to beryllium fixed nan projects that heighten nan moving environments of our plants, return advantage of automation opportunities and thrust strategies that person beardown semipermanent maturation and worth imaginable of caller and value-added products.

Lastly, we proceed to prosecute a patient pipeline of acquisition opportunities of companies that are a beardown strategical fresh and heighten our capabilities and competitory position, while providing higher return separator return and maturation potential.

I'll decorativeness up pinch comments astir our outlook for adjacent year. We judge lumber prices person normalized and expect value will not travel a seasonal pattern, accordant pinch humanities trends and demand. This will effect our wide income levels erstwhile compared to nan elevated prices we knowledgeable past year, which we walk done to our customers.

We are presently readying for a mild U.S. recession of reasonably short long successful 2023, impacting nan markets we service arsenic follows. Housing starts person astir $1.3 cardinal a 15% to 20% diminution impacting volumes successful our tract building and mill build units. Remodeling activity and large container same-store income maturation that is level pinch 2022 impacting measurement successful our unit segment.

And wide business accumulation successful a scope of level to somewhat down pinch mixed results by runway, impacting our measurement successful our Packaging segment. With respect to profitability connected a consolidated ground and based connected our 2022 results of operations and business mix, we judge our decremental operating separator is 15% to 20% of nett sales.

In our 10-Q and successful our 10-K, we mentioned a assortment of cardinal factors that whitethorn effect our detrimental separator and promote you to see those arsenic you measure expectations of our early results. Finally, successful ray of nan effect of nan cooling lodging marketplace and softening economy, I'll time off you pinch immoderate further accusation connected caller trends successful our income and operating profits.

In Q4 aft a beardown October, our results trended down successful November and December. Most recently, our year-over-year income successful January were down astir 18.5% and year-over-year operating profit revenge by astir 37.5% which we judge is successful statement pinch nan outlook accusation we conscionable provided.

That completes my reappraisal of nan financials. Matt?

Matt Missad

Thank you, Mike. Now I'd for illustration to unfastened it up for immoderate questions that you whitethorn have.

Question-and-Answer Session


Thank you. [Operator Instructions]. First mobility will travel from Julio Romero pinch Sidoti. Your statement is open.

Julio Romero

Hey, bully afternoon, Matt, Mike and Dick. Thanks for taking nan questions. So, Mike, you mightiness person conscionable answered this pinch your ending comments connected nan inclination successful January, but if you could possibly conscionable talk astir I conjecture really request has been trending connected nan residential side. There's been immoderate optimism, conscionable fixed nan owe rates coming down somewhat successful January. Have you heard thing aliases seen thing that has possibly indicated immoderate alteration successful request aliases activity levels done January aliases February?

Matt Missad

Yes. What I'd opportunity Julio, Mike tin astir apt dive into a small much item pinch it, but what I would opportunity is that, it's going to beryllium a small bumpy. I think, there's been, nan complaint changes person gone down, they've travel up a small bit. So, I think, it's accordant pinch nan trends that Mike outlines benignant of wherever I would opportunity we are today.

Julio Romero

Okay. That makes sense. And I conjecture you guys could talk a small much broadly astir nan rebranding of nan battalion of nan business conception to packaging and possibly touch connected nan Titan Corrugated woody and really you spot that fitting into nan segment?

Matt Missad

Sure. Yes. I think, nan UFP packaging name, I springiness nan squad a batch of in installments for that. I think, respective investors talk to america astir nan sanction UFP Industrial. What does that mean? What is it, what is progressive pinch that? The much descriptive, informative sanction is UFP packaging, because that really describes what that conception is doing. They are providing packaging solutions to customers, utilizing nan creation and engineering capabilities, nan productivity that we have, and besides nan expertise to supply mixed materials.

The extremity is to return much of each customer's stock of their walk connected packaging materials. So, we added nan labeling institution a small complete a twelvemonth ago. The corrugate is an area that we person been progressive successful some successful Australia and successful India. And we've looked astatine it extensively successful nan U.S. and we thought a really bully institution successful Titan Corrugated to thief thrust that business going forward.

There's a batch of synergies pinch our customer mix, some nan customers that we person that utilize their product, arsenic good arsenic customers that Titan has and each boxed up person that we did not have. So, it will grow our customer scope arsenic well. But I deliberation nan full conception of packaging astatine this constituent is we're going to thrust much sales. We're going to beryllium a much complete supplier to those customers.


That will travel from nan statement of Kurt Yinger pinch D.A. Davidson. Your statement is open.

Kurt Yinger

Great. Thanks, and bully day Matt and Mike. Just wanted to commencement disconnected connected unit integrated units successful Q4. I know, you talked astir immoderate of nan different business lines, but could you talk astir possibly what was possibly disappointing location successful position of nan Q4 capacity and what gives you assurance into 2023 that you tin clasp volumes benignant of flattish there?

Matt Missad

Yes. I don't cognize that location was thing needfully disappointing. I think, we expected to person reliable comps. I deliberation location is somewhat of this backing that's going on, and somewhat successful nan channel. And truthful that contributed to package income successful Q4, but we're beautiful optimistic for retail, for 2023, and not only because of nan portion income but besides because of profitability.

Last twelvemonth for unit was peculiarly tough, nan dealing pinch nan lumber marketplace that, that did what it did, falling from good complete a 1000 to levels that aliases rather debased much recently. It was a reliable twelvemonth for them to conflict and, and we do truthful overmuch treated lumber that it, it was really reliable for nan segment. So, we're optimistic for a overmuch possibly that is bully successful position of wide income dollars because of little lumber prices, but overmuch amended successful position of profitability.

Kurt Yinger

Okay. And I conjecture you stole a small spot of my thunder pinch nan adjacent question, but I mean, successful 2021 and 2022 arsenic well, we've seen swings and lumbers some ways, but it seems for illustration nan headwinds connected nan downside person been much meaningful than possibly nan benefits connected nan upside.

So, do you consciousness comfortable pinch nan thought that conception gross margins nan past 2 years are possibly beneath what you would see normalized for that business? Potentially double digits going forward?

Mike Cole

I deliberation if you're talking astir retail, yes, precisely what I would say, I deliberation you're looking astatine it correctly. I think, nan emergence successful nan accelerated diminution of nan marketplace and nan extended declines of nan marketplace from those precocious levels, decidedly compressed margins.

So, I think, a small much equilibrium successful nan lumber marketplace decidedly will thief america there. And I deliberation Mike is correct successful nan outlook from portion sales. I cognize nan large boxes announced very, very precocious that their trends aren't arsenic beardown arsenic they primitively thought, but I still deliberation benignant of a flattish benignant of marketplace for them. They scheme to return stock from others and I deliberation they'll beryllium successful successful that initiative.

Kurt Yinger

Got it. Okay. That make sense. And past conscionable lastly, connected nan detrimental margins side, I mean, astatine slightest historically we've benignant of thought astir lumber fluctuations specifically and really they effect income being reasonably neutral connected profitability. And I admit that possibly nan past 2 years person been a small spot unsocial from that perspective.

But does that connection and nan detrimental separator scope use to, I guess, nan income headwinds that you expect from lumber prices being little connected a twelvemonth complete twelvemonth basis?

Matt Missad

Yeah, it does Kurt and truthful there's a batch of moving parts successful that detrimental separator disclosure, right? So, it -- but 1 of them is lumber prices and, and what lumber prices are going to do to nan sales, but besides what it's going to do to nan costs statement successful our wide profit per units. So, we've tried to beryllium thoughtful, moving different scenarios pinch each those different factors successful mind and successful 15 to 20 pinch nan existent operation looks for illustration a bully range.

Kurt Yinger

Okay. Sounds good.


We'll travel from nan statement of Stanley Elliott pinch Stifel. Your statement is open.

Stanley Elliott

The packaging business, you guys person decidedly have, really benignant of expanded nan capabilities of nan group. How speedy from for illustration speech clip to erstwhile you really get POS successful your manus and started to put caller products to activity retired there. Just trying to spot benignant of what level opportunities I conjecture wrong nan people of nan twelvemonth we mightiness beryllium capable to spot arsenic well.

Matt Missad

Yeah, it's a bully question, Stanley. I'd show you it's ne'er hap arsenic speedy arsenic we want it to. But, I think, dissimilar immoderate areas wherever if we're conscionable adding connected products to an further customer aliases an existing customer rather, it tends to beryllium a small spot of a shorter clip framework than if we are going successful and providing a caller worth solution for a caller customer, to really thief return costs retired of their cognition aliases to make thing amended for them, really bring them value. So those thin to beryllium longer long income efforts, but nan results of those thin to beryllium greater.

Stanley Elliott

Great. And I admit nan further colour benignant of connected nan quarter-to-date. But pinch nan insurgents I conjecture successful nan market, really quickly tin you guys pivot to restructuring, if we are not really successful a benignant of a milder convention if it's worse than that? And past conversely, benignant of possibly immoderate of nan leverage you each person to propulsion for immoderate further maturation to proceed to return stock location too?

Matt Missad

Again, really bully questions. I deliberation our decentralized exemplary enables america to respond very quickly to nan conditions that hap successful each of nan locations that we serve. And arsenic I mentioned successful my comments, we really don't look for an event, wherever we -- not for illustration a tech company, wherever we do for illustration a wide adjustment. Each entrepreneur that runs our operations is making those decisions connected day-to-day basis.

And so, I deliberation we tin respond very, very quickly arsenic we person proven successful nan past. And I deliberation Mike pointed retired very good that nan superior we person accumulated will let america to return advantage of opportunities that we expect will hap present successful nan adjacent term, peculiarly if things get tougher for others.

So, we are well-positioned to upwind nan storm. Obviously, cipher wants one, but we besides are good positioned to return advantage of maturation opportunities and return marketplace share.

Stanley Elliott

Perfect guys. Thanks for nan colour and champion of luck.


Thank you. One infinitesimal for our adjacent question. And that will travel from nan statement of Reuben Garner pinch Benchmark. Your statement is open.

Reuben Garner

Thanks, bully evening, guys. So possibly you gave immoderate adjuvant colour connected what nan twelvemonth whitethorn look for illustration from a measurement position by segment. Mike, conscionable fixed nan measurement you are benignant of discussing nan decremental margin, tin you springiness america a consciousness of what, if lumber prices do conscionable benignant of enactment normal seasonally, what benignant of unit that puts connected pricing and frankincense nan top-line for modeling purposes? And if it's evidently higher aliases little than wherever it is today, we tin make adjustments. But immoderate benignant of colour you could springiness to benignant of It's evidently been a volatile mates of years, truthful to benignant of quadrate it up for america would beryllium great.

Mike Cole

Yes. And because of nan alteration successful nan operation and becoming much value-added, lumber is becoming little and little arsenic a constituent of sales. And truthful -- but having said that, nan 18.5% diminution to america successful January is simply a beautiful bully parameter for what does nan effect of little volumes and nan effect of little lumber prices tin beryllium connected income dollars.

So, erstwhile you look astatine lumber prices successful January a twelvemonth ago, they were up $1,000 and now they're evidently half of that. So that -- truthful January could beryllium a beautiful bully typical period of little volumes and little prices from lumber.

Reuben Garner

Perfect. Sorry, I was stuck connected mute. And so, my follow-up would beryllium connected nan unit business. So, you mentioned destocking, we were evidently -- we were astatine nan builder show saw you location a fewer weeks ago. It sounded for illustration immoderate encouraging astatine slightest first greenish shoots astir what nan outpouring could beryllium for illustration for some unit and housing. Is location -- erstwhile you opportunity that these archive successful nan channel, are we to a constituent wherever from present there's much upside than downside? Like, what does nan transmission look for illustration comparative to possibly normal pre-COVID?

Matt Missad

I deliberation what I'd show you there, Reuben, it's very merchandise specific. I deliberation for nan astir part, nan retailers are managing their inventories. And I think, their outlook, their forecast person adjusted, and I deliberation that's really they set their inventory levels.

But I would say, again, we can't foretell what's going to hap going forward, but if nan existent trends and nan outlook continues, I deliberation it'll still beryllium a very unchangeable bully twelvemonth pinch retail, and we should execute amended than we did a twelvemonth agone simply because of amended execution and amended structure, and not nan roller coaster of nan lumber market.

Reuben Garner

Okay, great. Thanks. Congrats guys connected nan beardown adjacent of nan twelvemonth and bully luck successful ‘23.


One infinitesimal for our adjacent question, and that will travel from nan statement of Jay McCanless pinch Wedbush Securities. Your statement is open.

Jay McCanless

Hi, bully afternoon. Thanks for taking my question. The first one, truthful really bully deceleration successful SG&A dollars from 3Q to 4Q. Is that level astir apt thing person to what nan tally rate, quarterly tally complaint is going to look for illustration successful ‘23 pinch little lumber prices?

Matt Missad

Yes. The driblet from Q3 to Q4, Jay, was beautiful overmuch driven by nan little profitability we had successful Q4 comparative to Q3. So overmuch of our comp is adaptable base. So, nan income incentives mean astir 5% of gross profits, bonuses mean astir 17% of pre-bonus operating profit.

So, pinch those numbers you tin benignant of fig retired from quarter-to-quarter roughly, what nan income and prize incentives are. And so, nan measurement that I typically deliberation astir it is if you return nan existent quarter, which is astir typical our transverse structure, you region bonuses, and income incentives, and past nan halfway SG&A to maine benignant of, it runs much level building successful immoderate ostentation of course, but and immoderate different adjustments we whitethorn request to make to headcount and different changes successful nan costs structure. From there, past you exemplary in, based connected gross profits, and pre-bonus operating profit, what income incentives and bonuses tin be. So, that's beautiful overmuch why they up and down truthful overmuch from quarter-to-quarter.

Jay McCanless

Got it. And past nan year-over-year summation successful nan gross separator percentage, would it beryllium adjacent to opportunity that nan mostly of that is conscionable based connected nan larger percent of worth adhd from successful this twelvemonth versus past year? Or are location immoderate different things we request to deliberation astir pinch that gross separator percent growth?

Matt Missad

Yes. Looking backmost astatine nan year, I deliberation we talked a batch astir retail. Retail was low. The gross profit percent wrong retail's low, we -- and it has been for nan past 2 years for nan volatility of prices and having each that adaptable value products, we expect amended there, and for retail.

Looking backmost astatine packaging, packaging had a awesome year. Most of that is value-based selling, income operation and each those affirmative changes that successful nan business we consciousness for illustration there's structural changes. Maybe immoderate portion of that though is pursuing number prices for definite immoderate portion of nan twelvemonth and conscionable benignant of nan lagging that you get pinch pricing.

But nan large alteration we deliberation is going to hap connected nan rhythm side. So, connected nan rhythm side, there's very beardown marketplace conditions. And past for overmuch of nan twelvemonth pinch lumber prices falling, and those prices are held fixed nan gross profits wrong nan rhythm unit, we we're really strong. And so, if there's 1 area that's going to normalize that's nan astir salient wrong that detrimental margin, it is nan site-built area. And past unit is simply a adjuvant offset to that.

Jay McCanless

And past nan past mobility I had, I deliberation you said, actual forming was -- and I don't cognize if it was up 21% successful conscionable nett income aliases if that was 21% higher successful volumes, possibly is that a inclination we should expect to continue? And are you yet starting to spot immoderate benefits from nan road measure and immoderate of nan different infrastructure things that were announced I deliberation a twelvemonth aliases truthful ago?

Matt Missad

Yeah, I would opportunity Jay, we're starting to spot immoderate effect from immoderate of those projects. Many caller infrastructure nationalist useful type items are being funded, truthful that's a benefit. And I think, nan squad has done a awesome occupation of really growing.

They've built up unit and these further locations we talked astir are going to thief thrust much sales. So, nan push location proceed to beryllium much worth added, proceed to supply that work to nan customers and grow our geographic reach. So, we're very optimistic astir nan maturation inclination statement for actual forming. And I think, nan money that's being invested is starting to show up, but I deliberation that's a mini portion of it astatine this point.

Concrete farming successful commercialized too, really person a awesome opportunity to beryllium a thief domiciled -- adjuvant offset conscionable for illustration unit connected that detrimental operating margin, there's room for further betterment there.


And that will travel from nan statement of Ketan Mamtora pinch BMO Capital Markets. Your statement is open.

Ketan Mamtora

Thank you, and congratulations connected a bully 2022. I besides want to highlight; each nan advancement you guys person made successful improving nan disclosures some successful nan merchandise and besides successful your prepared remarks today. So, congratulations.

Matt Missad

We want to make your occupation easier.

Ketan Mamtora

Maybe to commencement with, first question, coming backmost to nan unit broadside now, is it imaginable to supply immoderate discourse arsenic to really nan waste successful is looking versus nary waste done from for immoderate of your customers? And we talked astir inventory talking earlier. I'm conscionable curious, arsenic we commencement 2023, is that much aliases little matching astatine this point, aliases not yet?

Matt Missad

Yeah, I don't person awesome visibility into that Ket, and I think, if you travel nan retailer’s income numbers that they're providing and what they'll person a amended consciousness for what is successful inventory successful their assortment of distribution centers, successful their stores. What we thin to do is effort to lucifer up our delivery. Since we tin vessel shop direct, we for illustration to beryllium capable to do that.

So, we'd for illustration to spot much activity done of our sales, and we effort to lucifer those pinch what nan shop income are. And I deliberation we thin to beryllium person astatine that connected astir of our main merchandise offerings, immoderate of nan much specialty items that spell done a distribution center, it's a small much difficult to quantify.

Ketan Mamtora

Got it. That's helpful. And then, Mike, tin you talk a small spot astir what you guys are targeting successful position of caller merchandise income for this year?

Mike Cole

Yes, successful position of nan number of $795 cardinal aliases circumstantial products aliases both?

Ketan Mamtora

Both. They recovered nan highlights of a mates of things. Obviously, you person sewage a batch of different things coming through. But possibly conscionable a mates of things you whitethorn want to highlight?

Mike Cole

Yes. So, I usually don't supply closure connected individual caller merchandise items, but what I tin show you conscionable benignant of wide categories. Obviously, nan decorator’s merchandise statement that called retired immoderate items there, utilizing that technology, location are different building products items we person been moving on, and hadn't really had capacity to beryllium capable to prosecute those. Now that we person ample capacity, we tin prosecute immoderate of those different merchandise lines. So that's 1 category, I would say.

And past nan different connected nan Packaging side, immoderate of nan things that we person acquired arsenic good arsenic immoderate of nan things that we provide, Strip Pack, for example, location is simply a number of items location that will thief thrust that caller merchandise sales.

Ketan Mamtora

Got it. No, that's helpful. And past Mike, erstwhile you talked astir January trend, I conscionable want to make judge I person nan correct numbers. You talked about, income down 18.5% and I thought I heard you besides talk astir an EBIT number. Did I drawback that correct aliases I did not?

Mike Cole

Operating profit. So conscionable consecutive operating profit, not adjusted EBITDA. Operating profit was down 37.5%, income were down 18.5%.

Ketan Mamtora

Got it. And past Mike, is it imaginable astatine all, conscionable directionally, to talk astir really nan 3 segments performed wrong benignant of nan numbers that you conscionable gave?

Mike Cole

Yes. I deliberation that's astir apt bully color. So I mentioned nan precocious lumber prices that January past twelvemonth versus January this year, right? So that 18.5% would coming a very blimpish look astatine sales, if you usage that going forward. But, and even, that those precocious lumber prices allowed unit to make rather a spot of money successful past year. So unit dropped furnished successful January. But it is because they had debased costs of lumber buying successful Q4, trading into a overmuch higher marketplace January, February, March of past year. So unit was nan biggest drop, and our tract build was adjacent and business held -- aliases excuse me, packaging, getting utilized to that, each that done beautiful well.

Ketan Mamtora

Got it. That's adjuvant color. I'll move it over. Thank you.


Thank you. One infinitesimal for our adjacent question. And we do person a follow-up mobility from Kurt Yinger pinch D.A. Davidson. Your statement is open.

Kurt Yinger

Hey, thanks. Just 2 speedy travel ups. First connected nan Packaging business, I mean, nan gross margins proceed to beryllium very impressive. Do you deliberation nan caller results location are sustainable aliases possibly thing you tin moreover build upon this twelvemonth wrong that benignant of presumption of level to possibly down 3 connected volumes?

Mike Cole

Well, Kurt, it's a adjacent question. But it's not 1 that I tin really answer. I would opportunity that they person opportunities to summation worth add, and I think, that's a guidance they're going. As we talk astir each nan time, there's still sticks and panels business that's being done that they're trying to person that to much worth add. So that's decidedly a separator enhancement. Some of nan different things connected nan income broadside are much difficult astatine this constituent to benignant of quantify.

Kurt Yinger

Okay. That's adjacent enough. And then, I conjecture sticking pinch nan packaging segment. I mean, complete nan past mates quarters pricing location has almost wholly benignant of decoupled pinch trends we've seen connected nan lumber side. Is that really we should deliberation astir nan pricing constituent going forward, aliases do you expect nan year-over-year lumber deflation successful 2023? We'll commencement to show up location to a greater extent?

Matt Missad

Yes. I deliberation location whitethorn beryllium immoderate compression owed to that, but I would opportunity wide nan worth that's being added is added, and Mike pointed this out, this retired before, nan worth of nan lumber arsenic a full -- arsenic a percent of nan full waste has gotten little owed to nan different worth that we're adding done our creation engineering and packaging solutions team. So, I would opportunity that, we would expect nan immense mostly of that worth adhd to remain.

Kurt Yinger

Got it. Okay. Thanks for that, Matt, and bully luck present successful Q1, guys.


Speakers, I'm showing nary further questions successful nan queue astatine this time. I would now for illustration to move nan telephone backmost complete to Mr. Matt Missad for immoderate closing remarks.

Matt Missad

Thank you again for spending clip pinch america today. I cognize galore of you are headed disconnected to observe and possibly person your ain individual Mardi Gras, truthful we will dream that each goes well. We cognize that 2023 is not forecasted to beryllium arsenic bully arsenic 2022, but arsenic a master eater, I referred to successful nan opening knows well, it would still beryllium a very bully meal. We're assured that we tin create nan caller champion twelvemonth ever successful nan adjacent fewer years. We person each nan ingredients, nan people, nan products, and nan passion to create an moreover amended look for early success. With a small practice from nan system and little involution from those who create much problems than they solve, I americium assured that our squad will innovate to predominate successful 2023 and beyond. Have a awesome day.


Thank you each for participating. This concludes today's program. You whitethorn now disconnect.

Editor: Naga

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