# UFP INDUSTRIES INC (UFPI) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from UFP INDUSTRIES INC's 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/912767/000155837024001963/ufpi-20231230x10k.htm
Accession: 0001558370-24-001963
Filing date: 2024-02-28
Report date: 2023-12-30
Extracted from a later financial-section MD&A body after the formal Item 7 span was a short reference. Source document followed from filing index: ufpi-20231230xex13.htm.
Confidence: high

Company profile: /company/UFPI/
All MD&A years: /company/UFPI/mda/
Previous year: /company/UFPI/mda/fy2022/ (FY 2022)
Next year: /company/UFPI/mda/fy2024/ (FY 2024)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

UFP Industries, Inc. is a holding company with subsidiaries throughout North America, Europe, Asia, and Australia that design, manufacture, and supply products made from wood, wood and non-wood composites, and other materials to three markets: retail, packaging, and construction. We are headquartered in Grand Rapids, Mich. For more information about UFP Industries, Inc., or its affiliated operations, go to www.ufpi.com.

This report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act, as amended, that are based on management’s beliefs, assumptions, current expectations, estimates and projections about the markets we serve, the economy and the Company itself. Words like “anticipates,” “believes,” “confident,” “estimates,” “expects,” “forecasts,” “likely,” “plans,” “projects,” “should,” variations of such words, and similar expressions identify such forward-looking statements. These statements do not guarantee future performance and involve certain risks, uncertainties and assumptions that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. We do not undertake to update forward-looking statements to reflect facts, circumstances, events, or assumptions that occur after the date the forward-looking statements are made. Actual results could differ materially from those included in such forward-looking statements. Investors are cautioned that all forward-looking statements involve risks and uncertainty. Among the factors that could cause actual results to differ materially from forward-looking statements are the following: fluctuations in currency and inflation; fluctuations in the price of lumber; adverse economic conditions in the markets we serve; concentration of sales to customers; vertical integration strategies; excess capacity or supply chain challenges; our ability to make successful business acquisitions; government regulations, particularly involving environmental and safety regulations; adverse or unusual weather conditions; inbound and outbound transportation costs; alternatives to replace treated wood products; cybersecurity breaches; tariffs on import and export sales; costs associated with product liability, casualty, manufacturing and construction defects, and other claims; and potential pandemics. Certain of these risk factors as well as other risk factors and additional information are included in our reports on Form 10-K and 10-Q on file with the Securities and Exchange Commission. We are pleased to present this overview of 2023.

OVERVIEW

Our results for 2023 were impacted by the following:

[[GREPCENT_TABLE]]
[["","\u25cf","Our net sales decreased 25% compared to 2022, which was comprised of a 16% decrease in selling prices and a 9% decrease in unit sales. The overall decrease in our selling prices is primarily due to lower lumber prices and a more competitive pricing environment in certain of our business units. The overall unit decline consists of a 6% decrease in our retail segment, a 6% decrease in our packaging segment, and a 13% decrease in our construction segment. Acquired businesses contributed 2% unit growth in our packaging segment."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Our gross profits decreased by $370.5 million, or 20.7%, compared to last year, exceeding our 9% decline in unit sales. By segment, gross profits decreased by $203 million in Construction and $171 million in Packaging, while Retail experienced a $33 million increase in gross profits. The overall decrease in our gross profits is primarily due to the decline in unit sales, unfavorable cost variances as a result of fixed manufacturing costs, and more competitive pricing in certain business units. These unfavorable factors were partially offset by more favorable lumber price trends in 2023 on products sold in our Retail segment that are based on variable selling prices. The remaining decline in our gross profits is primarily due to our International segment, which is presented under \u201cAll Other\u201d in the segment reporting tables below."]]
[[/GREPCENT_TABLE]]

2

Table of Contents

UFP INDUSTRIES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

[[GREPCENT_TABLE]]
[["","\u25cf","Our operating profits decreased $304 million, or 32.0%, compared to last year. The overall decrease is a result of the decline in gross profits mentioned above offset by a $65 million decrease in selling, general, and administrative (\u201cSG&A\u201d) expenses. Our SG&A declined primarily due to our incentive compensation plans which are tied to profitability and return on investment. More specifically, our sales incentive expense declined by $30 million to approximately $59 million for the year and bonus expense declined by $54 million to $175 million for the year. Our decremental operating margin comparing our decrease in operating profits relative to our decrease in net sales was 12.6%."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Our cash flows from operations in 2023 was $959.9 million compared to $831.6 million in 2022. The $128 million improvement resulted from the change in our investment in net working capital, which was $300 million lower in 2023 than it was in 2022 resulting in an increase in operating cash flows, offset by a $172 million decrease in net earnings and non-cash expenses compared to the prior year. Our investment in net working capital has declined primarily due to a decline in market demand in the industries we serve as well a decline in the cost of lumber."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","We invested $180.4 million in capital expenditures to support and grow our existing businesses and invested $52.4 million in an acquired business."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","We returned $68.2 million to our shareholders through dividends and repurchased approximately 975,000 shares of our common stock for $82.1 million, at an average price of $84.27 per share."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Our net surplus cash (cash less debt and cash overdraft) at the end of 2023 was $841.9 million compared to $281.4 million at the end of 2022. Our unused borrowing capacity under our revolving credit facility and a shelf agreement with certain lenders along with our cash surplus resulted in total liquidity of approximately $2.4 billion at the end of December 2023. We plan to continue to pursue a balanced and return driven approach to capital allocation focused on continuing to increase our dividend at a rate that is aligned with our anticipated long-term earnings growth rate, repurchasing our common stock to offset dilution from issuances under our equity-based compensation programs, making capital investments needed to execute our organic growth and operating improvement strategies, and completing business acquisitions that complement our existing businesses and provide new avenues for growth."]]
[[/GREPCENT_TABLE]]

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Table of Contents

UFP INDUSTRIES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

HISTORICAL LUMBER PRICES

The following table presents the Random Lengths framing lumber composite price.

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Random Lengths Composite"],["\u200b","\u200b","Average $/MBF"],["\u200b","","2023","","2022"],["January","\u200b","$","386","\u200b","$","1,112","\u200b"],["February","\u200b","","437","\u200b","","1,225","\u200b"],["March","\u200b","","411","\u200b","","1,321","\u200b"],["April","\u200b","","420","\u200b","","1,051","\u200b"],["May","\u200b","","400","\u200b","","948","\u200b"],["June","\u200b","","398","\u200b","","670","\u200b"],["July","\u200b","","455","\u200b","","621","\u200b"],["August","\u200b","","430","\u200b","","625","\u200b"],["September","\u200b","","430","\u200b","","556","\u200b"],["October","\u200b","\u200b","400","\u200b","\u200b","503","\u200b"],["November","\u200b","\u200b","371","\u200b","\u200b","483","\u200b"],["December","\u200b","\u200b","383","\u200b","\u200b","420","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Year-to-date average","\u200b","$","410","\u200b","$","795","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Year-to-date percentage change","\u200b","","(48.4)","%","","\u200b","\u200b"]]
[[/GREPCENT_TABLE]]

​

In addition, a Southern Yellow Pine (“SYP”) composite price, which we prepare and use, is presented below. Our purchases of this species comprise almost two-thirds of our total lumber purchases.

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Southern Yellow Pine"],["\u200b","\u200b","Average $/MBF"],["\u200b","","2023","","2022"],["January","\u200b","$","406","\u200b","$","1,010","\u200b"],["February","\u200b","","452","\u200b","","1,115","\u200b"],["March","\u200b","","464","\u200b","","1,198","\u200b"],["April","\u200b","","474","\u200b","","902","\u200b"],["May","\u200b","","437","\u200b","","732","\u200b"],["June","\u200b","","427","\u200b","","574","\u200b"],["July","\u200b","","442","\u200b","","547","\u200b"],["August","\u200b","","417","\u200b","","589","\u200b"],["September","\u200b","","424","\u200b","","533","\u200b"],["October","\u200b","\u200b","396","\u200b","\u200b","490","\u200b"],["November","\u200b","\u200b","355","\u200b","\u200b","472","\u200b"],["December","\u200b","\u200b","369","\u200b","\u200b","445","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Year-to-date average","\u200b","$","422","\u200b","$","717","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Year-to-date percentage change","\u200b","\u200b","(41.1)","%","\u200b","\u200b","\u200b"]]
[[/GREPCENT_TABLE]]

​

Lower overall lumber prices in 2023 compared to 2022 is primarily due to increased capacity of the supply of lumber in North America combined with an increase in imports from other countries while demand for lumber has declined. A change in lumber prices impacts our profitability of products sold with fixed and variable prices, as discussed below.

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UFP INDUSTRIES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

​

IMPACT OF THE LUMBER MARKET ON OUR OPERATING RESULTS

We experience significant fluctuations in the cost of commodity lumber products from primary producers ("Lumber Market"). We generally price our products to pass lumber costs through to our customers so that our profitability is based on the value-added manufacturing, distribution, engineering, and other services we provide. As a result, our sales levels (and working capital requirements) are impacted by the lumber costs of our products. Lumber costs, including plywood and other panel products, were 43.5% and 49.6% of our net sales in 2023 and 2022, respectively.

Our gross margins are impacted by (1) the relative level of the Lumber Market (i.e. whether prices are higher or lower from comparative periods), and (2) the trend in the market price of lumber (i.e. whether the price of lumber is increasing or decreasing within a period or from period to period). Moreover, as explained below, our products are priced differently. Some of our products have fixed selling prices, while the selling prices of other products are indexed to the reported Lumber Market with a fixed dollar adder to cover conversion costs and profits. Consequently, the level and trend of the Lumber Market impact our products differently.

Below is a general description of the primary ways in which our products are priced.

[[GREPCENT_TABLE]]
[["","\u25cf","Products with fixed selling prices. These products include value-added products, such as manufactured items, sold within all segments. Prices for these products are generally fixed at the time of the sales quotation for a specified period of time. In order to reduce any exposure to adverse trends in the price of component lumber products, we attempt to lock in costs with our suppliers or purchase necessary inventory for these sales commitments. The time period limitation eventually allows us to periodically re-price our products for changes in lumber costs from our suppliers."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Products with selling prices indexed to the reported Lumber Market with a fixed dollar \"adder\" to cover conversion costs and profits. These products primarily include treated lumber, panel goods, other commodity-type items, and trusses sold to the manufactured housing industry. For these products, we estimate the customers\u2019 needs and we carry anticipated levels of inventory. Because lumber costs are incurred in advance of final sale prices, subsequent increases or decreases in the market price of lumber impact our gross margins. We believe our sales of these products are at their highest relative level in our second quarter, primarily due to pressure-treated lumber sold in our retail segment."]]
[[/GREPCENT_TABLE]]

For each of the product pricing categories above, our margins are exposed to changes in the trend of lumber prices. As a result of the balance in our net sales of each category we believe our gross profits are more stable than those of our competitors who are less diversified.

The greatest risk associated with changes in the trend of lumber prices is on the following products:

[[GREPCENT_TABLE]]
[["","\u25cf","Products with significant inventory levels with low turnover rates, whose selling prices are indexed to the Lumber Market. In other words, the longer the period of time these products remain in inventory, the greater the exposure to changes in the price of lumber. This would include treated lumber, which comprises approximately 21% of our total net sales in 2023. This exposure is less significant with remanufactured lumber, panel goods, other commodity-type items, and trusses sold to the manufactured housing market due to the higher rate of inventory turnover. We attempt to mitigate the risk associated with treated lumber through inventory consignment programs with our vendors. We estimate that 18% of our total purchases for 2023 were completed under these programs. (Please refer to the \u201cRisk Factors\u201d section of our annual report on form 10-K, filed with the United States Securities and Exchange Commission.)"]]
[[/GREPCENT_TABLE]]

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UFP INDUSTRIES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

[[GREPCENT_TABLE]]
[["","\u25cf","Products with fixed selling prices sold under long-term supply arrangements, particularly those involving multi-family construction projects. We attempt to mitigate this risk through our purchasing practices and longer vendor commitments."]]
[[/GREPCENT_TABLE]]

In addition to the impact of the Lumber Market trends on gross margins, changes in the level of the market cause fluctuations in gross margins when comparing operating results from period to period. This is explained in the following example, which assumes the price of lumber has increased from period one to period two, with no changes in the trend within each period.

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","Period 1","","Period 2"],["Lumber cost","\u200b","$","300","\u200b","$","400","\u200b"],["Conversion cost","\u200b","","50","\u200b","","50","\u200b"],["= Product cost","\u200b","","350","\u200b","","450","\u200b"],["Adder","\u200b","","50","\u200b","","50","\u200b"],["= Sell price","\u200b","$","400","\u200b","$","500","\u200b"],["Gross margin","\u200b","","12.5","%","","10.0","%"]]
[[/GREPCENT_TABLE]]

​

As is apparent from the preceding example, the level of lumber prices does not impact our overall profits but does impact our margins. Gross margins and operating margins are negatively impacted during periods of high lumber prices; conversely, we experience margin improvement when lumber prices are relatively low. As a result of this factor, we believe it is useful to compare our change in units sold with our change in gross profits, selling, general, and administrative expenses, and operating profits as presented in the following table.

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Annual Percentage Change from"],["\u200b","\u200b","Prior Year Ended"],["\u200b","","December 30,","\u200b","December 31,"],["\u200b","","2023","","2022"],["Units sold","","(9.0)","%","\u200b","2.0","%"],["Gross profit","\u200b","(20.7)","\u200b","\u200b","27.2","\u200b"],["Selling, general, and administrative expenses","\u200b","(7.9)","\u200b","\u200b","22.0","\u200b"],["Earnings from operations","\u200b","(32.0)","\u200b","\u200b","28.8","\u200b"]]
[[/GREPCENT_TABLE]]

​

​

It is our long-term goal to increase our gross profits and earnings from operations at a rate of growth that exceeds our unit sales growth, or in other words, increase our profit per unit sold. We also have a long-term goal of improving our efficiencies and leveraging the fixed costs in our selling, general, and administrative expenses as we grow, which would result in a rate of growth of these expenses which is less than our unit sales growth resulting in a lower cost per unit.

BUSINESS COMBINATIONS AND ASSET PURCHASES

We completed one business acquisition during 2023 and four during 2022. The annual historical sales attributable to acquisitions in 2023 and 2022 were approximately $38.0 million and $177.8 million, respectively. These business combinations were not significant to our operating results individually or in aggregate; consequently pro forma results for 2023 and 2022 are not presented.

See Notes to Consolidated Financial Statements, Note C, "Business Combinations" for additional information.

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Table of Contents

UFP INDUSTRIES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

The following table presents, for the periods indicated, the components of our Consolidated Statements of Earnings as a percentage of net sales. See “Impact of the Lumber Market on our Operating Results”.

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","Year Ended"],["\u200b","December 30,","","December 31,"],["\u200b","2023","","2022"],["Net sales","100.0","%","100.0","%"],["Cost of goods sold","80.3","","81.4"],["Gross profit","19.7","","18.6"],["Selling, general, and administrative expenses","10.6","","8.6"],["Other losses (gains), net","0.1","","0.1"],["Earnings from operations","9.0","","9.9"],["Other (income) expense, net","(0.3)","","0.2"],["Earnings before income taxes","9.3","","9.7"],["Income taxes","2.2","","2.4"],["Net earnings","7.1","","7.3"],["Less net earnings attributable to noncontrolling interest","\u2014","","(0.1)"],["Net earnings attributable to controlling interest","7.1","%","7.2","%"]]
[[/GREPCENT_TABLE]]

Note: Actual percentages are calculated and may not sum to total due to rounding.

The following table presents, for the periods indicated, our selling, general, and administrative (SG&A) costs as a percentage of gross profit. We believe this ratio provides an enhanced view of our effectiveness in managing these costs given our strategies to enhance our capabilities and improve our value-added product offering and recognizing the higher relative level of SG&A these strategies require, and mitigates the impact of changing lumber prices.

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b"],["\u200b","Year Ended"],["\u200b","","December 30,","\u200b","","December 31,"],["\u200b","","2023","\u200b","","2022"],["Gross profit","$","1,418,938","\u200b","$","1,789,461"],["Selling, general, and administrative expenses","$","766,633","\u200b","$","832,079"],["SG&A as percentage of gross profit","","54.0%","\u200b","","46.5%"]]
[[/GREPCENT_TABLE]]

​

The increase in the ratio above is primarily due to a combination of fixed SG&A costs and more competitive pricing in certain business units as the markets we serve have declined from peak levels experienced during and shortly after the pandemic. For comparison purposes, our SG&A costs as a percentage of gross profits in 2019 (immediately prior to the pandemic) was 64%.

7

Table of Contents

UFP INDUSTRIES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OPERATING RESULTS BY SEGMENT

Our business segments consist of UFP Retail Solutions (“Retail”), UFP Packaging (“Packaging” and formerly known as UFP Industrial) and UFP Construction (“Construction”), and align with the end markets we serve. Among other things, this structure allows for a more specialized and consistent sales approach among Company operations, more efficient use of resources and capital, and quicker introduction of new products and services. We manage the operations of our individual locations primarily through a market-centered reporting structure under which each location is included in a business unit, and business units are included in our Retail, Packaging, and Construction segments. In the case of locations that serve multiple segments, results are allocated and accounted for by segment. The exception to this market-centered reporting and management structure is our International segment, which comprises our Mexico, Canada, Europe, Asia, and Australia operations and sales and buying offices in other parts of the world. Our International segment and Ardellis (our insurance captive) are included in the “All Other” column of the table below. The “Corporate” column includes purchasing, transportation, corporate ventures, and administrative functions that serve our operating segments. Operating results of Corporate primarily consists of over (under) allocated costs. The operating results of UFP Real Estate, Inc., which owns and leases real estate, and UFP Transportation Ltd., which owns, leases, and operates transportation equipment, are also included in the Corporate column. Inter-company lease and service charges are assessed to our operating segments for the use of these assets and services at fair market value rates.

The following tables present our operating results by segment for December 30, 2023 and December 31, 2022.

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year Ended December 30, 2023"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Retail","\u200b","Packaging","\u200b","Construction","\u200b","All Other","\u200b","Corporate","\u200b","Total"],["Net sales","\u200b","$","2,886,515","\u200b","$","1,838,200","\u200b","$","2,161,059","\u200b","$","328,884","\u200b","$","3,726","\u200b","$","7,218,384"],["Cost of goods sold","\u200b","","2,508,513","\u200b","","1,422,940","\u200b","","1,637,329","\u200b","\u200b","240,106","\u200b","\u200b","(9,442)","\u200b","\u200b","5,799,446"],["Gross profit","\u200b","\u200b","378,002","\u200b","\u200b","415,260","\u200b","\u200b","523,730","\u200b","\u200b","88,778","\u200b","\u200b","13,168","\u200b","\u200b","1,418,938"],["Selling, general, administrative expenses","\u200b","\u200b","209,182","\u200b","\u200b","219,323","\u200b","\u200b","279,107","\u200b","\u200b","55,654","\u200b","\u200b","3,367","\u200b","\u200b","766,633"],["Other","\u200b","\u200b","757","\u200b","\u200b","8","\u200b","\u200b","1,277","\u200b","\u200b","4,482","\u200b","\u200b","(753)","\u200b","\u200b","5,771"],["Earnings from operations","\u200b","$","168,063","\u200b","$","195,929","\u200b","$","243,346","\u200b","$","28,642","\u200b","$","10,554","\u200b","$","646,534"]]
[[/GREPCENT_TABLE]]

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year Ended December 31, 2022"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Retail","\u200b","Packaging","\u200b","Construction","\u200b","All Other","\u200b","Corporate","\u200b","Total"],["Net sales","\u200b","$","3,650,639","\u200b","$","2,394,681","\u200b","$","3,143,868","\u200b","$","431,611","\u200b","$","5,940","\u200b","$","9,626,739"],["Cost of goods sold","\u200b","","3,306,112","\u200b","","1,808,449","\u200b","","2,417,212","\u200b","\u200b","300,307","\u200b","\u200b","5,198","\u200b","\u200b","7,837,278"],["Gross profit","\u200b","\u200b","344,527","\u200b","\u200b","586,232","\u200b","\u200b","726,656","\u200b","\u200b","131,304","\u200b","\u200b","742","\u200b","\u200b","1,789,461"],["Selling, general, administrative expenses","\u200b","\u200b","193,383","\u200b","\u200b","250,858","\u200b","\u200b","328,125","\u200b","\u200b","66,745","\u200b","\u200b","(7,032)","\u200b","\u200b","832,079"],["Other","\u200b","\u200b","817","\u200b","\u200b","129","\u200b","\u200b","1,097","\u200b","\u200b","5,929","\u200b","\u200b","(774)","\u200b","\u200b","7,198"],["Earnings from operations","\u200b","$","150,327","\u200b","$","335,245","\u200b","$","397,434","\u200b","$","58,630","\u200b","$","8,548","\u200b","$","950,184"]]
[[/GREPCENT_TABLE]]

​

8

Table of Contents

UFP INDUSTRIES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following tables present the components of our operating results as a percentage of net sales by segment for December 30, 2023 and December 31, 2022.

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year Ended December 30, 2023","\u200b"],["\u200b","","\u200b","","\u200b","","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Retail","\u200b","Packaging","\u200b","Construction","\u200b","All Other","\u200b","Corporate","\u200b","Total","\u200b"],["Net sales","\u200b","100.0","%","100.0","%","100.0","%","100.0","%","N/A","\u200b","100.0","%"],["Cost of goods sold","\u200b","86.9","\u200b","77.4","\u200b","75.8","\u200b","73.0","\u200b","\u2014","\u200b","80.3","\u200b"],["Gross profit","\u200b","13.1","\u200b","22.6","\u200b","24.2","\u200b","27.0","\u200b","\u2014","\u200b","19.7","\u200b"],["Selling, general, administrative expenses","\u200b","7.2","\u200b","11.9","\u200b","12.9","\u200b","16.9","\u200b","\u2014","\u200b","10.6","\u200b"],["Other","\u200b","\u2014","\u200b","\u2014","\u200b","0.1","\u200b","1.4","\u200b","\u2014","\u200b","0.1","\u200b"],["Earnings from operations","\u200b","5.8","%","10.7","%","11.3","%","8.7","%","\u2014","\u200b","9.0","%"]]
[[/GREPCENT_TABLE]]

Note: Actual percentages are calculated and may not sum to total due to rounding.

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year Ended December 31, 2022","\u200b"],["\u200b","","\u200b","","\u200b","","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Retail","\u200b","Packaging","\u200b","Construction","\u200b","All Other","\u200b","Corporate","\u200b","Total","\u200b"],["Net sales","\u200b","100.0","%","100.0","%","100.0","%","100.0","%","N/A","\u200b","100.0","%"],["Cost of goods sold","\u200b","90.6","\u200b","75.5","\u200b","76.9","\u200b","69.6","\u200b","\u2014","\u200b","81.4","\u200b"],["Gross profit","\u200b","9.4","\u200b","24.5","\u200b","23.1","\u200b","30.4","\u200b","\u2014","\u200b","18.6","\u200b"],["Selling, general, administrative expenses","\u200b","5.3","\u200b","10.5","\u200b","10.4","\u200b","15.5","\u200b","\u2014","\u200b","8.6","\u200b"],["Other","\u200b","\u2014","\u200b","\u2014","\u200b","\u2014","\u200b","1.4","\u200b","\u2014","\u200b","0.1","\u200b"],["Earnings from operations","\u200b","4.1","%","14.0","%","12.6","%","13.6","%","\u2014","\u200b","9.9","%"]]
[[/GREPCENT_TABLE]]

Note: Actual percentages are calculated and may not sum to total due to rounding.

​

NET SALES

We design, manufacture and market wood and wood-alternative products, primarily used to enhance outdoor living environments, for national home centers and other retailers, engineered wood components, structural lumber, and other products for factory-built and site-built residential and commercial construction, customized interior fixtures used in a variety of retail stores, commercial, and other structures, and structural wood packaging, components and packing materials for various industries. Our strategic long-term sales objectives include:

[[GREPCENT_TABLE]]
[["","\u25cf","Maximizing unit sales growth while achieving return on investment goals. The following table presents estimates, for the periods indicated, of our percentage change in net sales which were attributable to changes in overall selling prices versus changes in units shipped."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","% Change"],["\u200b","","in Sales","","in Selling Prices","","in Units","","Acquisition Unit Change","","Organic Unit Change"],["2023 versus 2022","\u200b","(25.0)","%","(16.0)","%","(9.0)","%","1.0","%","(10.0)","%"],["2022 versus 2021","\u200b","11.5","%","9.5","%","2.0","%","3.0","%","(1.0)","%"]]
[[/GREPCENT_TABLE]]

​

[[GREPCENT_TABLE]]
[["","\u25cf","Expanding geographically in our core businesses, domestically and internationally."]]
[[/GREPCENT_TABLE]]

9

Table of Contents

UFP INDUSTRIES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

[[GREPCENT_TABLE]]
[["","\u25cf","Increasing our sales of \"value-added\" products and enhancing our product offering with new or improved products. Value-added products generally consist of fencing, decking, lattice, and other specialty products sold in the Retail segment; structural and protective packaging and machine-built pallets sold in the Packaging segment; engineered wood components, customized interior fixtures, manufactured and assembled concrete forms sold in the Construction segment; and \"wood alternative\" products. Engineered wood components include roof trusses, wall panels, and floor systems. Wood alternative products consist of products manufactured with wood and non-wood composites, metals and plastics sold in each of our segments. Although we consider the treatment of dimensional lumber and panels with certain chemical preservatives a value-added process, treated lumber is not presently included in the value-added sales totals. Remanufactured lumber and panels that are components of finished goods are also generally categorized as \u201ccommodity-based\u201d products."]]
[[/GREPCENT_TABLE]]

The following table presents, for the periods indicated, our percentage of value-added and commodity-based sales to total sales by our segments.

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year Ended December 30, 2023","\u200b","Year Ended December 31, 2022","\u200b"],["\u200b","","Value-Added","","Commodity-Based","\u200b","Value-Added","","Commodity-Based"],["Retail","","50.5","%","\u200b","49.5","%","\u200b","44.9","%","\u200b","55.1","%","\u200b"],["Packaging","\u200b","77.0","%","\u200b","23.0","%","\u200b","72.0","%","\u200b","28.0","%","\u200b"],["Construction","\u200b","83.2","%","\u200b","16.8","%","\u200b","77.2","%","\u200b","22.8","%","\u200b"],["All Other","\u200b","83.8","%","\u200b","16.2","%","\u200b","76.3","%","\u200b","23.7","%","\u200b"],["Corporate","\u200b","27.5","%","\u200b","72.5","%","\u200b","44.3","%","\u200b","55.7","%","\u200b"],["Total Sales","\u200b","68.4","%","\u200b","31.6","%","\u200b","63.4","%","\u200b","36.6","%","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Note: Certain prior year product reclassifications and the change in designation of certain products as \"value-added\" resulted in a change in prior year's sales."]]
[[/GREPCENT_TABLE]]

​

Our overall unit sales of value-added products decreased approximately 9% in 2023 compared to 2022. Our unit sales of commodity-based products also decreased approximately 9% compared to 2022.

[[GREPCENT_TABLE]]
[["","\u25cf","Developing new products. We define new products as those that will generate sales of at least $1 million per year within 4 years of launch and are still growing and gaining market penetration. New product sales in 2023 decreased 8% compared to the prior year, primarily due to a decline in lumber prices, which were passed to our customers in our selling prices. Approximately $17.4 million of new product sales for 2022, while still sold, were sunset in 2023 and excluded from the table below because they no longer meet the definition above. Our goal was to achieve annual new product sales of at least $795 million in 2023. For 2024, we have redefined our definition of new products as we focus on more value-added products and services. As a result, we have lowered the forecast for new product sales to $510 million for 2024. On a long-term basis, our goal is for new product sales to comprise at least 10% of our total net sales."]]
[[/GREPCENT_TABLE]]

10

Table of Contents

UFP INDUSTRIES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The table below presents new product sales in thousands:

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","New Product Sales by Segment","\u200b","\u200b"],["\u200b","\u200b","Year Ended","\u200b","\u200b"],["\u200b","","December 30,","\u200b","% of Segment","","December 31,","\u200b","% of Segment","","% Change","\u200b"],["\u200b","\u200b","2023","\u200b","Net Sales","\u200b","2022","\u200b","Net Sales","\u200b","in Sales","\u200b"],["Retail","\u200b","$","327,019","\u200b","11.3","%","\u200b","$","338,547","\u200b","9.3","%","","(3.4)","%","\u200b"],["Packaging","\u200b","","277,703","\u200b","15.1","%","\u200b","\u200b","277,859","\u200b","11.6","%","","(0.1)","%","\u200b"],["Construction","\u200b","\u200b","109,617","\u200b","5.1","%","\u200b","\u200b","140,176","\u200b","4.5","%","\u200b","(21.8)","%","\u200b"],["All Other and Corporate","\u200b","","1,808","\u200b","0.5","%","\u200b","\u200b","2,508","\u200b","0.6","%","","(27.9)","%","\u200b"],["Total New Product Sales","\u200b","","716,147","\u200b","9.9","%","\u200b","\u200b","759,090","\u200b","7.9","%","","(5.7)","%","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Note: Certain prior year product reclassifications and the change in designation of certain products as \"new\" resulted in a change in prior year's sales."]]
[[/GREPCENT_TABLE]]

​

Retail Segment:

Net sales from the Retail segment decreased 21% in 2023 compared to 2022 due to a 15% decrease in selling prices and a 6% decrease in organic unit growth. Our selling prices of variable-priced products declined due to lower lumber prices. The selling prices of these products are indexed to the lumber market at the time they are shipped. Additionally, our unit sales to big box customers, which we believe are more closely correlated with repair and remodel activity, increased nearly 2%, while unit sales to independent retailers, which we believe are more closely correlated to new housing starts, decreased approximately 20%.

​

Gross profits increased by $33.5 million, or 9.7%, to $378.0 million in 2023 compared to 2022. Our change in gross profits was attributable to the following:

[[GREPCENT_TABLE]]
[["","\u25cf","The gross profits of our ProWood business unit increased $28.7 million, primarily due to less volatile lumber prices during 2023 compared to severe, adverse volatility in 2022. The products sold by this unit consists primarily of pressure treated lumber sold at a variable price indexed to the lumber market at the time they are shipped."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Our Deckorator\u2019s business unit increased by approximately $18.2 million due to an increase in overall unit sales, sales of new products, and operational improvements."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","The improvements above were offset by a $14 million decrease in gross profits of our Edge business unit."]]
[[/GREPCENT_TABLE]]

Selling, general and administrative (“SG&A”) expenses increased by approximately $15.8 million, or 8.2%, in 2023 compared to 2022. Accrued bonus expense, which varies with the overall profitability and return on investment of the segment, increased approximately $8.8 million and totaled approximately $45.8 million in 2023. The remaining increase is comprised of many smaller increases spread over several accounts.

Earnings from operations of the Retail reportable segment increased in 2023 compared to 2022 by $17.7 million, or 11.8%, as a result of the factors mentioned above.

Packaging Segment:

Net sales from the Packaging segment decreased 23% in 2023 compared to 2022 due to a 17% decrease in selling prices and an 8% decrease in organic unit sales, partially offset by unit growth from acquisitions of 2%. The decline in prices is due to competitive price pressure as well as lower lumber costs passed to customers.

11

Table of Contents

UFP INDUSTRIES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

​

Gross profits decreased by $171.0 million, or 29.2%, to $415.3 million in 2023 compared to 2022. The decrease in gross profits is primarily due to lower demand resulting in lower unit sales, as well as competitive price pressure, and unfavorable cost variances as a result of fixed manufacturing costs. Acquisitions contributed $8.1 million to gross profit.

Selling, general and administrative (“SG&A”) expenses decreased by approximately $31.5 million, or 12.6%, in 2023 compared to 2022. Accrued bonus expense, which varies with the overall profitability and return on investment of the segment, decreased approximately $28.4 million, and totaled approximately $53.8 million for 2023. Additionally, our bad debt expense decreased by $8.1 million and incentive compensation expense decreased by $8.5 million. These decreases were partially offset by an increase in salaries and wages of $8.7 million, and acquired operations, which contributed approximately $5.6 million to our SG&A.

Earnings from operations of the Packaging reportable segment in 2023 decreased by $139.3 million, or 41.6%, compared to 2022 due to the factors discussed above.

Construction Segment:

Net sales from the Construction segment decreased 31% in 2023 compared to 2022 due to an 18% decrease in selling prices and a decline in organic unit sales of 13%. Organic unit changes within this segment consisted of decreases of 2% in concrete forming, 12% in site-built housing, 14% in factory-built housing, and 24% in commercial construction. The decline in pricing was due to competitive price pressure as well as the decline in lumber prices, which were passed to our customers.

​

​

Gross profits decreased by $202.9 million, or 27.9% to $523.7 million in 2023 compared to 2022. The decrease in our gross profit was comprised of the following factors:

[[GREPCENT_TABLE]]
[["","\u25cf","Gross profits in our factory-built housing and site-built construction business unit decreased by $65.6 million and $118.2 million, respectively, due to competitive price pressure as well as lower sales volumes and unfavorable cost variances due to fixed manufacturing costs."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","The gross profit of our concrete forming business unit decreased by $17.4 million due to a decline in selling prices."]]
[[/GREPCENT_TABLE]]

SG&A expenses decreased by approximately $49.0 million, or 14.9%, in 2023 compared to 2022. Accrued bonus expense, which varies with the overall profitability of the segment and return on investment, decreased approximately $31.0 million compared to last year and totaled approximately $65.0 million for 2023. The remaining decrease was primarily due to decreases in sales incentive compensation of $13.9 million, bad debt expense of $5.3 million, and professional fees of $3.2 million. These decreases were offset by an increase in salaries, wages, and benefits of approximately $3.0 million.

Earnings from operations of the Construction reportable segment increased in 2023 compared to 2022 by $154.1 million, or 38.8%, due to the factors mentioned above.

All Other Segment:

Our All Other reportable segment consists of our International and Ardellis (our insurance captive) segments that are not significant. The decline in sales and earnings from operations is primarily due to our operation in Mexico that exports molding and millwork products to the U.S.

12

Table of Contents

UFP INDUSTRIES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Corporate:

The corporate segment consists of over (under) allocated costs that are not significant.

INTEREST EXPENSE

Interest expense in 2023 was similar to 2022 due to consistent amounts of outstanding debt during each period as well as fixed interest rates on these debts. See “Note C of Notes to the Consolidated Financial Statements”.

INTEREST AND INVESTMENT INCOME

Interest and investment income increased by $39.2 million in 2023 compared to 2022 due to the increase in cash and the higher interest rate environment.

INCOME TAXES

Effective tax rates differ from statutory federal income tax rates, primarily due to provisions for state and local income taxes, and permanent tax differences. Our effective tax rate was 23.4% in 2023 compared to 24.6% in 2022. The decrease in our overall effective tax rate was primarily due to an increase in our tax deduction from stock-based compensation accounted for as a permanent difference, and an increase in the research and development tax credit, and a manufacturing exemption which reduced our income tax in one of the states we operate.

OFF-BALANCE SHEET COMMITMENTS AND CONTRACTUAL OBLIGATIONS

We have no significant off-balance sheet commitments. The following table summarizes our contractual obligations as of December 30, 2023 (in thousands).

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Payments Due by Period"],["\u200b","","Less than","","1 \u2013 3","","3 \u2013 5","","After","","\u200b","\u200b"],["Contractual Obligation","\u200b","1 Year","\u200b","Years","\u200b","Years","\u200b","5 Years","\u200b","Total"],["Long-term debt and finance lease obligations","\u200b","$","42,823","\u200b","$","826","\u200b","$","44,119","\u200b","$","188,666","\u200b","$","276,434"],["Estimated interest on long-term debt and finance lease obligations","\u200b","","10,062","\u200b","","17,105","\u200b","","15,643","\u200b","","26,720","\u200b","","69,530"],["Operating leases","\u200b","","32,796","\u200b","","56,539","\u200b","","31,515","\u200b","","31,686","\u200b","","152,536"],["Capital project purchase obligations","\u200b","","93,566","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b","","93,566"],["Total","\u200b","$","179,247","\u200b","$","74,470","\u200b","$","91,277","\u200b","$","247,072","\u200b","$","592,066"]]
[[/GREPCENT_TABLE]]

​

As of December 30, 2023, we also had $47.8 million in outstanding letters of credit issued during the normal course of business, as required by some vendor contracts.

13

Table of Contents

UFP INDUSTRIES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

LIQUIDITY AND CAPITAL RESOURCES

The table below presents, for the periods indicated, a summary of our cash flow statement (in thousands):

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","December 30,","\u200b","December 31,","\u200b"],["\u200b","","2023","","2022"],["Cash from operating activities","","$","959,890","","$","831,567"],["Cash used in investing activities","","\u200b","(240,164)","","\u200b","(353,936)"],["Cash used in financing activities","","\u200b","(162,860)","","\u200b","(210,210)"],["Effect of exchange rate changes on cash","","\u200b","5,767","","\u200b","979"],["Net change in cash and cash equivalents","","\u200b","562,633","","\u200b","268,400"],["Cash, cash equivalents, and restricted cash, beginning of year","","\u200b","559,623","","\u200b","291,223"],["Cash, cash equivalents, and restricted cash, end of year","\u200b","$","1,122,256","\u200b","$","559,623","\u200b"]]
[[/GREPCENT_TABLE]]

​

In general, we fund our growth through a combination of operating cash flows, our revolving credit facility, and issuance of long-term notes payable at times when interest rates are favorable. We have not issued equity to finance growth except in the case of a large acquisition that occurred many years ago. We manage our capital structure by attempting to maintain a targeted ratio of debt to equity and debt to earnings before interest, taxes, depreciation and amortization. We believe these financial ratios are among many other important factors to maintaining a strong credit profile, which in turn helps ensure timely access to capital when needed.

Seasonality has a significant impact on our working capital due to our primary selling season which occurs during the period from March to September. Consequently, our working capital increases during our first and second quarters resulting in negative or modest cash flows from operations during those periods. Conversely, we experience a substantial decrease in working capital once we move beyond our peak selling season which typically results in significant cash flows from operations in our third and fourth quarters.

Due to the seasonality of our business and the effects of the Lumber Market, we believe our cash cycle (days of sales outstanding plus days supply of inventory less days payables are outstanding) is a good indicator of our working capital management. As indicated in the table below, our cash cycle decreased slightly to 63 days in 2023 from 64 days in 2022.

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year Ended"],["\u200b","\u200b","December 30,","\u200b","December 31,"],["\u200b","\u200b","2023","\u200b","2022"],["Days of sales outstanding","","\u200b","33","","\u200b","36"],["Days supply of inventory","\u200b","","41","\u200b","","40"],["Days of payables outstanding1","\u200b","","(11)","\u200b","","(12)"],["Days in cash cycle","\u200b","","63","\u200b","","64"]]
[[/GREPCENT_TABLE]]

1 We’ve modified our calculation of days of payables outstanding to be based on the cost of goods sold and accounts payable balances in our monthly financial statements. In prior periods, our calculation was based on invoice data. We’ve made this change to simplify the calculation and more easily integrate acquired operations into our financial metrics. The prior year metrics have been restated for the new method which reduced days of payables from a previously reported 20 days to 12 days.

​

We continue to focus on past due account balances with customers, and the percentage of our accounts receivable that are current are 91% in 2023 compared to 87% in 2022, which contributed to the improvement in our days of sales outstanding.

14

Table of Contents

UFP INDUSTRIES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our cash flows from operating activities in 2023 was $960 million, which was comprised of net earnings of $514 million, $158 million of non-cash expenses, and a $288 million decrease in working capital since the end of December 2022. Our cash flows from operations increased by $128 million compared to last year primarily due to a $300 million decrease in our investment in net working capital compared to the prior year period, offset by a decrease in our net earnings and non-cash expenses of $172 million. The elevated decrease in our net working capital this year was due to the drop in lumber prices and a decline in demand in certain markets we serve.

Purchases of property, plant, and equipment of $180 million comprised most of our cash used in investing activities during 2023. Capital spending primarily consists of several projects to expand capacity to manufacture new and value-added products, primarily in our Packaging segment and Deckorators and ProWood business units, achieve efficiencies through automation in all segments, make improvements to a number of facilities, and increase our transportation capacity (tractors, trailers). Cash used for acquisitions during the year totaled $52 million compared to $180 million in 2022. In the current year we made one acquisition, UFP Palets y Embalajes SL. See Notes to Consolidated Financial Statements, Note C, "Business Combinations" for additional information.

Cash flows used in financing activities primarily consisted of:

[[GREPCENT_TABLE]]
[["","\u25cf","Cash paid for repurchases of common stock of $82 million. We repurchased 974,869 shares of our common stock for the year at an average share price of $84.27."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Dividends paid during 2023 include first quarter dividends of $16 million ($0.25 per share), second quarter dividends of $15 million ($0.25 per share) third quarter dividends of $19 million ($0.30 per share), and fourth quarter dividends of $18 million ($0.30 per share)."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Contingent consideration payments of $6 million."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Distributions to noncontrolling interests of $7 million."]]
[[/GREPCENT_TABLE]]

On November 1, 2018, we entered into a five-year, $375 million unsecured revolving credit facility with a syndicate of U.S. banks. On February 28, 2021, this credit agreement was amended to increase the availability from $375 million to $550 million by exercising the accordion feature in the original agreement. On December 6, 2022, a second amendment increased the availability from $550 million to $750 million. The facilities now include up to $60 million which may be advanced in the form of letters of credit, and up to $100 million (U.S. dollar equivalent) which may be advanced in Canadian dollars, Australian dollars, Sterling, Euros and such other foreign currencies as may subsequently be agreed upon among the parties. Cash borrowings are charged interest based upon an index selected by the Company, plus a margin that is determined based upon the index selected and upon the financial performance of the Company and certain of its subsidiaries. We are charged a facility fee on the entire amount of the lending commitment, at a per annum rate ranging from 15.0 to 30.0 basis points, also determined based upon our performance.

On December 30, 2023, we had $3.7 million outstanding on our $750 million revolving credit facility. The revolving credit facility also supports letters of credit totaling $37.3 million which includes approximately $3.3 million related to industrial development revenue bonds. As a result, we have approximately $709.0 million in remaining availability. We also had approximately $10.5 million of outstanding letters of credit that were issued outside of the revolving credit facility. Financial covenants on the unsecured revolving credit facility and unsecured notes include minimum interest tests and a maximum leverage ratio. The agreements also restrict the amount of additional indebtedness we may incur and the amount of assets which may be sold. We were in compliance with all our covenant requirements on December 30, 2023.

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UFP INDUSTRIES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ENVIRONMENTAL CONSIDERATIONS AND REGULATIONS

See Notes to Consolidated Financial Statements, Note L, “Commitments, Contingencies, and Guarantees”.

CRITICAL ACCOUNTING POLICIES

In preparing our consolidated financial statements, we follow accounting principles generally accepted in the United States. These principles require us to make certain estimates and apply judgments that affect our financial position and results of operations. We continually review our accounting policies and financial information disclosures. Following is a summary of our more significant accounting policies that require the use of estimates and judgments in preparing the financial statements.

GOODWILL

We evaluate goodwill for indicators of impairment when events or circumstances indicate that this risk may be present. Our judgments regarding the existence of impairment are based on market conditions, operational performance and estimated future cash flows. Determining whether an impairment has occurred requires the valuation of the respective reporting unit, which we have consistently estimated using primarily a weighted average between income and market valuation approaches. We believe this approach is the most appropriate and accurate method to measure the fair value of our intangible assets. We use discounted cash flow analysis with the following assumption: a business is worth today what it can generate in future cash flows; cash received today is worth more than an equal amount of cash received in the future; and future cash flows can be reasonably estimated. The discounted cash flow analysis is based on the present value of projected cash flows and residual values.

If the carrying value of goodwill is considered impaired, an impairment charge is recorded to adjust it to its fair value. Changes in forecasted operations and changes in discount rates can materially affect these estimates. In addition, we test goodwill annually for impairment or more frequently if changes in circumstances or the occurrence of other events suggest impairments exist. The test for impairment requires us to make several estimates about fair value, most of which are based on projected future cash flows and market valuation multiples. Changes in these estimates may result in the recognition of an impairment loss.

On our annual testing date of September 30, 2023, the fair values exceed the carrying values for all reporting units and there were no indicators for impairment. We believe we have sufficient available information, both current and historical, to support our assumptions, judgments and estimates used in the goodwill impairment test.

REVENUE RECOGNITION

Revenue for product sales is recognized at the time the performance obligation is satisfied, which is primarily when the goods are delivered to the carrier, Free On Board (FOB) shipping point. Generally, title passes at the time of shipment. In certain circumstances, the customer takes title when the shipment arrives at the destination. However, our shipping process is typically completed the same day.

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UFP INDUSTRIES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Performance on construction contracts is reflected in operations using over time accounting, under either the cost to cost or units of delivery methods, depending on the nature of the business at individual operations. Under over time accounting using the cost to cost method, revenues and related earnings on construction contracts are measured by the relationships of actual costs incurred related to the total estimated costs. Under over time accounting using the units of delivery method, revenues and related earnings on construction contracts are measured by the relationships of actual units produced related to the total number of units. Revisions in earnings estimates on the construction contracts are recorded in the accounting period in which the basis for such revisions becomes known. Projected losses on individual contracts are charged to operations in their entirety when such losses become apparent.

Our construction contracts are generally entered into with a fixed price and completion of the projects can range from 6 to 18 months in duration. Therefore, our operating results are impacted by, among many other things, labor rates and commodity costs. During the year, we update our estimated costs to complete our projects using current labor and commodity costs and recognize losses to the extent that they exist.

SHORT-TERM DEMAND OUTLOOK

We believe effectively executing our strategies will allow us to achieve long-term goals in the future. However, demand in the markets we serve has contracted, which will impact our results and vary depending on the severity and duration of this cycle. The following factors should be considered when evaluating our future results:

[[GREPCENT_TABLE]]
[["","\u25cf","Lumber prices, which impact our cost of goods sold and selling prices, have normalized due to additional capacity added by sawmills and demand falling from peak levels. We anticipate lumber prices will remain in range near current levels, and experience more typical seasonal trends, until there is a substantial change in the balance of supply and demand."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Retail segment sales accounted for 40% of our net sales in 2023. When evaluating future demand for the segment, we analyze data such as the same-store sales growth of national home improvement retailers and forecasts of home remodeling activity. Based on this data, we currently anticipate market demand to be flat to slightly down in 2024."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Packaging segment sales accounted for 26% of our net sales in 2023. When evaluating future demand, we consider a number of metrics, including the Purchasing Managers Index (PMI), durable goods manufacturing, and U.S. real GDP. We currently believe overall demand in the markets we serve to be slightly up to slightly down in 2024."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Construction segment sales accounted for 30% of our net sales in 2023."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","-","The site-built business unit accounted for approximately 14% of our net sales in 2023. Approximately one-third of site-built customers are multifamily builders. The Mortgage Bankers Association of America forecasts a 1% decrease in national housing starts to an estimated 1.42 million starts in 2024 and the National Association of Home Builders forecasts starts of 1.34 million, a 6% decrease from 2023."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","-","The factory-built business unit accounted for 10% of our net sales in 2023. When evaluating future demand, we analyze data from production and shipments of manufactured housing. The National Association of Home Builders and John Burns Real Estate Consulting forecast the manufactured home shipments in 2024 to be flat to slightly up."]]
[[/GREPCENT_TABLE]]

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UFP INDUSTRIES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

[[GREPCENT_TABLE]]
[["","-","The commercial and concrete forming business units accounted for approximately 6% of our net sales in 2023. When evaluating future demand, we analyze data from non-residential construction spending. We anticipate overall demand in this business unit to be flat to slightly up in 2024."]]
[[/GREPCENT_TABLE]]

LONG-TERM OUTLOOK

GOALS

Our long-term financial goals include:

[[GREPCENT_TABLE]]
[["","\u25cf","Growing our annual unit sales by 7 to 10 percent. We anticipate smaller tuck-in acquisitions will contribute toward this goal;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Achieving and sustaining a 12.5 percent EBITDA margin by continuing to enhance our capabilities and grow our portfolio and sales of value-added products and by achieving operating improvements;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Earning an incremental return on new investment over our cost of capital; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Maintaining a conservative capital structure."]]
[[/GREPCENT_TABLE]]

​

RETAIL SEGMENT

The Home Improvement Research Institute (“HIRI”) anticipates growth in home improvement spending and has forecasted 2.4% growth in 2025 and 3.0% annual growth through 2027. We continue to compete for market share for certain retail customers and face intense pricing pressure from other suppliers to this market.

Our long-term goal is to achieve sales growth by:

[[GREPCENT_TABLE]]
[["","\u25cf","Increasing our market share of value-added products, including our Deckorators and Edge product lines. Continued investment in capacity for Deckorators and Edge is expected to contribute to this increase."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Developing new products and increasing our emphasis on product innovation and product differentiation in order to counter commoditization trends and influences."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Acquiring businesses in core product categories when those opportunities exist."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Adding new products and customers through strategic business acquisitions or alliances."]]
[[/GREPCENT_TABLE]]

PACKAGING SEGMENT

Our goal is to increase our sales of wood, wood alternative, and protective packaging products to a wide variety of packaging customers and manufactured wood components for OEM users. We believe the vast amount of hardwood and softwood lumber consumed for packaging applications, combined with the highly fragmented nature of this market, provides us with market share growth opportunities as a result of our competitive advantages in manufacturing, purchasing, and material utilization.

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UFP INDUSTRIES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

In addition, purchasers of packaging products with a wide geographic footprint increasingly desire to reduce the number of suppliers they buy from, which provides an opportunity to gain market share due to our international presence. We plan to continue to obtain market share by expanding our manufacturing capacity, enhancing our capabilities and product offerings to enhance the solutions we offer our customers, and improving our ability to serve large regional and international customers in targeted markets.

We plan to continue to pursue acquisition opportunities that meet our strategic criteria and help us meet these objectives. The recently implemented reorganization of our business to market-based segments is intended to promote higher rates of sales growth through the introduction of new products, including protective and other packaging materials, and enhanced expertise in this market as well as improved earnings through more efficient use of our people, resources and capital.

Market indicators that should be considered when evaluating future demand for our products in the packaging segment include industrial production, the Purchasing Managers Index, and U.S. GDP growth.

CONSTRUCTION SEGMENT

The National Association of Home Builders forecasts a 3% increase in manufactured home shipments from 2023 to 2024 and a 4% compounded annual growth rate through 2026.

The Mortgage Bankers Association of America forecasts national housing starts of 1.42 million in 2024 and 1.47 million in 2025. The National Association of Home Builders forecasts starts of 1.34 million in 2024 and 1.42 million in 2025. The consensus estimate of all housing starts is 1.4 million in 2024, 1.47 million in 2025, and 1.5 million is 2026.

Non-residential construction spending is a market indicator that should be considered when evaluating future demand for our products in our Commercial and Concrete Forming business units within our Construction segment.

GROSS PROFIT

We believe the following factors are likely to impact our gross profits and margins in the future:

[[GREPCENT_TABLE]]
[["","\u25cf","End market demand and our ability to grow and leverage fixed costs and price our products based on the value we offer our customers."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Our ability to maintain market share and gross margins on products sold to our largest customers. We believe our level of service, geographic diversity, and quality of products provides an added value to our customers. However, if our customers are unwilling to pay for these advantages, our sales and gross margins may be reduced."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Sales mix of value-added and commodity products and our ability to sell new products."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Fluctuations in the relative level of the Lumber Market and trends in the market price of lumber. (See \"Impact of the Lumber Market on our Operating Results.\")"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Fuel and transportation costs."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Rising labor and benefit costs."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Our ability to continue to achieve productivity improvements as our unit sales increase and planned cost reductions through continuous improvement activities, automation, and other initiatives."]]
[[/GREPCENT_TABLE]]

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UFP INDUSTRIES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

[[GREPCENT_TABLE]]
[["","\u25cf","Changes in corporate income tax rates and the cost of complying with new or increased government regulations."]]
[[/GREPCENT_TABLE]]

SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES

In recent years, selling, general and administrative (SG&A) expenses have increased due to acquisitions and added personnel hired to take advantage of growth opportunities and execute our initiatives intended to increase our sales of new products and improve our sales mix of value-added products. We anticipate our trend of increases in these costs will continue; however, our objective is to reduce these costs on a per unit basis and as a percentage of gross profits as we grow through the improved productivity of our people and as a result of fixed costs. In addition, bonus and other incentive expenses is based on our profitability and the effective management of our assets and will continue to fluctuate based on our results. See Note H — Common Stock for discussion of future compensation costs related to long-term share-based bonus awards.

On a long-term basis, we expect that our SG&A expenses will primarily be impacted by:

[[GREPCENT_TABLE]]
[["","\u25cf","Our growth in sales to the packaging and the construction segments. Our sales to these segments require a higher ratio of SG&A costs due, in part, to product design and engineering requirements."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Sales of new products and value-added, branded products to the retail segment, which generally require higher product development, marketing, advertising, and other selling costs."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Our incentive compensation programs which are tied to gross profits, pre-bonus earnings from operations and threshold levels of return on investment."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Our growth and success in achieving continuous improvement objectives designed to improve our productivity and leverage our fixed costs as we grow."]]
[[/GREPCENT_TABLE]]

LIQUIDITY AND CAPITAL RESOURCES

Our cash cycle will continue to be impacted in the future by our mix of sales by segment. Sales from our Construction and Packaging segments require a greater investment in receivables than sales to our Retail segment, while our Retail segment generally requires a greater investment in inventory. Also, our net investment in trade receivables, inventory, and accounts payable will continue to be impacted by the level of lumber prices.

Additionally, we expect to spend approximately $250 million to $300 million on capital expenditures, incur depreciation of approximately $110 million, and incur amortization and other non-cash expenses of approximately $45 million in 2024.

On December 30, 2023, we had outstanding purchase commitments on capital projects of approximately $93.6 million. We intend to fund capital expenditures and purchase commitments through our operating cash flows and availability under our revolving credit facility which is considered sufficient to meet these commitments and working capital needs.

Our dividend rates are reviewed and approved at each of our February, April, July, and October board meetings and payments are made in March, June, September, and December of each year. On February 1, 2024, our board approved a quarterly cash dividend of $0.33 per share, which represents a 10% increase from December 2023. This dividend will be payable on March 15, 2024, to shareholders of record on March 1, 2024. Our board considers our dividend yield, payout ratios relative to earnings and operating cash flow, and potential variability of future results, among other factors, as part of its decision-making process.

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UFP INDUSTRIES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

We have a share repurchase program approved by our Board of Directors, and on July 26, 2023, our board authorized the repurchase of up to $200 million worth of shares of outstanding stock through July 31, 2024. This share authorization supersedes and replaces our prior share repurchase authorizations. We currently have remaining authorization to repurchase up to $173 million through July 31, 2024. In the past, we have repurchased shares in order to offset the effect of issuances resulting from our employee benefit plans and at opportune times when our stock price falls to predetermined levels.

​

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