UFP INDUSTRIES INC (UFPI) FY 2024 MD&A
This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
UFP Industries, Inc. is a holding company with subsidiaries in the United States, Mexico, Canada, Spain, India, United Arab Emirates and Australia that design, manufacture, and supply products made from wood, wood and non-wood composites, and other materials to three segments: retail, packaging, and construction. We are headquartered in Grand Rapids, Michigan.
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.
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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; 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.
OVERVIEW
We are pleased to present this overview of 2024. Our results for 2024 were impacted by the following:
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | Our net sales decreased 8% compared to 2023, which was comprised of a 7% decrease in selling prices and a 1% 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 7% decrease in our retail segment and a 3% decrease in our packaging segment, partially offset by a 5% increase in our construction segment. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | Our gross profits decreased by $192.2 million, or 13.5%, compared to last year, exceeding our 1% decline in unit sales. By segment, gross profits decreased by $85 million in Construction and $114 million in Packaging, while Retail was flat. The overall decrease in our gross profits is primarily due to the decline in unit sales and unfavorable cost variances resulting from fixed manufacturing costs, and more competitive pricing in certain business units. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | Our operating profits decreased $154 million, or 24%, compared to last year. The overall decrease is a result of the decline in gross profits mentioned above offset by a $32 million decrease in selling, general, and administrative (“SG&A”) expenses. Our SG&A declined primarily due to our incentive compensation plans, bonus and sales incentives, which are tied to profitability and return on investment. More specifically, our bonus expense declined by $41 million to $134 million for the year and sales incentive expense declined by $10 million to approximately $49 million for the year. Our decremental operating margin was 27.3%, which is calculated by dividing the decrease in our earnings from operations by the decrease in our net sales. In other words, for every dollar decrease in sales from 2023 to 2024, our operating profits decreased 27.3 cents. The decremental operating margin is intended to provide investors additional visibility into expected operating profits during periods of declining sales and pricing. In a declining business cycle, the Company’s management uses this metric to evaluate a change in its profitability resulting from a reduction in sales volume while considering the impact of product pricing changes, changes in product sales mix, its ratio of variable and fixed costs, and anticipated cost saving measures, among other factors. Our decremental operating margin was higher this quarter than we’ve experienced in other recent down cycles primarily due to more competitive pricing and a cautious approach to reducing our cost structure and capacity as a result of uncertainty about the timing of a rebound in demand. We currently have a goal to implement cost and capacity reductions that will generate a favorable impact on operating profits totaling approximately $60 million by 2026. We anticipate benefits of $30 to $35 million in 2025. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | Our cash flows from operations in 2024 was $643 million compared to $960 million in 2023. The $317 million decline resulted from the change in our investment in net working capital, which was $237 million lower in 2024 than it was in 2023 resulting in a decrease in operating cash flows, as well as an $80 million decrease in net earnings and non-cash expenses compared to the prior year. Our investment in net working capital declined significantly as demand normalized from the peak of the pandemic period. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | We invested $232 million in capital expenditures to support and grow our existing businesses and invested $30 million to acquire a business. |
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| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | We returned $81 million to our shareholders through dividends. We repurchased approximately 1,409,266 shares of our common stock for $160 million, at an average price of $113.53 per share. Of this amount, 154,196 shares were repurchased in order to settle tax withholding obligations of long-term stock incentive plan participants’ awards which vested in February. The shares were purchased at an average price of $115.69 per share, totaling $17.8 million. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | Our Cash and cash equivalents at the end of 2024 was $1.2 billion compared to $1.1 billion at the end of 2023. Our unused borrowing capacity under our revolving credit facility and a shelf agreement with certain lenders along with our cash resulted in total liquidity of approximately $2.5 billion at the end of December 2024. 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. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | We made a $40 million debt repayment on our Series 2012 Senior Note Tranche B, which matured on December 17, 2024. |
HISTORICAL LUMBER PRICES
The following table presents the Random Lengths framing lumber composite price.
| | | | | | | | |
|---|---|---|---|---|---|---|---|
| | | Random Lengths Composite | | ||||
| | | Average $/MBF | | ||||
| | 2024 | 2023 | |||||
| January | | $ | 398 | | $ | 386 | |
| February | | 389 | | 437 | | ||
| March | | 416 | | 411 | | ||
| April | | 403 | | 420 | | ||
| May | | 377 | | 400 | | ||
| June | | 382 | | 398 | | ||
| July | | 363 | | 455 | | ||
| August | | 386 | | 430 | | ||
| September | | 398 | | 430 | | ||
| October | | | 405 | | | 400 | |
| November | | | 442 | | | 371 | |
| December | | | 436 | | | 383 | |
| | | | | | | | |
| Year-to-date average | | $ | 400 | | $ | 410 | |
| | | | | | | | |
| Year-to-date percentage change | | (2.4) | % | | |
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In addition, a Southern Yellow Pine (“SYP”) composite price, which we prepare and use, is presented below. Our purchases of this species comprise approximately two-thirds of our total lumber purchases.
| | | | | | | | |
|---|---|---|---|---|---|---|---|
| | | Random Lengths SYP | | ||||
| | | Average $/MBF | | ||||
| | 2024 | 2023 | |||||
| January | | $ | 380 | | $ | 406 | |
| February | | 371 | | 452 | | ||
| March | | 394 | | 464 | | ||
| April | | 371 | | 474 | | ||
| May | | 353 | | 437 | | ||
| June | | 355 | | 427 | | ||
| July | | 333 | | 442 | | ||
| August | | 345 | | 417 | | ||
| September | | 337 | | 424 | | ||
| October | | | 368 | | | 396 | |
| November | | | 386 | | | 355 | |
| December | | | 359 | | | 369 | |
| | | | | | | | |
| Year-to-date average | | $ | 363 | | $ | 422 | |
| | | | | | | | |
| Year-to-date percentage change | | | (14.0) | % | | | |
Lower overall lumber prices in 2024 compared to 2023 is primarily due to increased capacity to produce SYP lumber in the U.S. while end market demand has remained soft. A change in lumber prices impacts our profitability of products sold with fixed and variable prices, as discussed below.
IMPACT OF THE LUMBER MARKET ON OUR OPERATING RESULTS
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 dollar sales levels (and working capital requirements) are impacted by the lumber costs of our products. Lumber costs were 40.4% and 43.5% of our net sales in 2024 and 2023, 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.
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | 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. |
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| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | 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 customers’ needs and carry appropriate 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. |
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 to each of our end markets, 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:
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | 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 includes treated lumber, which comprised approximately 21% of our total net sales in 2024. 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 15% of our total purchases for 2024 were completed under these programs. (Please refer to the “Risk Factors” section of our annual report on form 10-K, filed with the United States Securities and Exchange Commission.) |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | 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. |
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.
| | | | | | | | |
|---|---|---|---|---|---|---|---|
| | Period 1 | Period 2 | |||||
| Lumber cost | | $ | 300 | | $ | 400 | |
| Conversion cost | | 50 | | 50 | | ||
| = Product cost | | 350 | | 450 | | ||
| Adder | | 50 | | 50 | | ||
| = Sell price | | $ | 400 | | $ | 500 | |
| Gross margin | | 12.5 | % | 10.0 | % |
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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.
| | | | | | | |
|---|---|---|---|---|---|---|
| | | | | | | |
| | | Annual Percentage Change from | ||||
| | | Prior Year Ended | ||||
| | December 28, | | December 30, | |||
| | 2024 | 2023 | ||||
| Units sold | (1.0) | % | | (9.0) | % | |
| Gross profit | | (13.5) | | | (20.7) | |
| Selling, general, and administrative expenses | | (4.1) | | | (7.9) | |
| Earnings from operations | | (23.9) | | | (32.0) | |
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 2024 and one during 2023. The annual historical sales attributable to these acquisitions in 2024 and 2023 was approximately $25 million and $38 million, respectively. These business combination were not significant to our operating results; consequently pro forma results for 2024 and 2023 are not presented.
See Notes to Consolidated Financial Statements, Note C, "Business Combinations" for additional information.
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”.
| | | | | | |
|---|---|---|---|---|---|
| | | Year Ended | |||
| | December 28, | December 30, | |||
| | 2024 | 2023 | |||
| Net sales | 100.0 | % | 100.0 | % | |
| Cost of goods sold | 81.6 | 80.3 | |||
| Gross profit | 18.4 | 19.7 | |||
| Selling, general, and administrative expenses | 11.0 | 10.6 | |||
| Net loss (gain) on disposition and impairment of assets | | 0.1 | | — | |
| Other (gains) losses, net | (0.1) | 0.1 | |||
| Earnings from operations | 7.4 | 9.0 | |||
| Interest and other | (0.7) | (0.3) | |||
| Earnings before income taxes | 8.1 | 9.3 | |||
| Income taxes | 1.8 | 2.2 | |||
| Net earnings | 6.3 | 7.1 | |||
| Less net earnings attributable to noncontrolling interest | (0.1) | — | |||
| Net earnings attributable to controlling interest | 6.2 | % | 7.1 | % |
Note: Actual percentages are calculated and may not sum to total due to rounding.
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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. This ratio also mitigates the impact of changing lumber prices.
| | | | | | | |
|---|---|---|---|---|---|---|
| | | | | |||
| | | Year Ended | ||||
| | | December 28, | | December 30, | ||
| | | 2024 | | 2023 | ||
| Gross profit | | $ | 1,226,742 | | $ | 1,418,938 |
| Selling, general, and administrative expenses | | $ | 735,046 | | $ | 766,633 |
| SG&A as percentage of gross profit | | 59.9% | | 54.0% |
The increase in the ratio above is primarily due to a combination of fixed SG&A costs within our Packaging, Construction, and Corporate segments and more competitive pricing in certain business units resulting in a decline in gross profits. For comparison purposes, our SG&A costs as a percentage of gross profits in 2019 (immediately prior to the pandemic) was 64%.
OPERATING RESULTS BY SEGMENT
Our business segments consist of UFP Retail Solutions (“Retail”), UFP Packaging (“Packaging”) and UFP Construction (“Construction”), and align with the end markets we serve. Among other advantages, this structure allows for a more specialized and consistent sales approach, 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. The exception to this market-centered reporting and management structure is our International segment, which comprises our packaging operations in Mexico, Canada, Spain, India, United Arab Emirates and Australia 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 services 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 28, 2024 and December 30, 2023.
| | | | | | | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Year Ended December 28, 2024 | ||||||||||||||||
| | | | | | | | | | | | | | | |||||
| | | Retail | | Packaging | | Construction | | All Other | | Corporate | | Total | ||||||
| Net sales | | $ | 2,597,994 | | $ | 1,636,563 | | $ | 2,113,844 | | $ | 298,190 | | $ | 5,718 | | $ | 6,652,309 |
| Cost of goods sold | | 2,209,195 | | 1,335,304 | | 1,675,346 | | 240,518 | | | (34,796) | | | 5,425,567 | ||||
| Gross profit | | | 388,799 | | | 301,259 | | | 438,498 | | | 57,672 | | | 40,514 | | | 1,226,742 |
| Selling, general, administrative expenses | | | 209,592 | | | 191,757 | | | 262,517 | | | 39,940 | | | 31,240 | | | 735,046 |
| Net loss (gain) on disposition and impairment of assets | | | 3,067 | | | 6,545 | | | 673 | | | 28 | | | (4,156) | | | 6,157 |
| Other (gains) losses, net | | | (2,964) | | | — | | | (376) | | | (3,572) | | | 209 | | | (6,703) |
| Earnings from operations | | $ | 179,104 | | $ | 102,957 | | $ | 175,684 | | $ | 21,276 | | $ | 13,221 | | $ | 492,242 |
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| | | | | | | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Year Ended December 30, 2023 | ||||||||||||||||
| | | | | | | | | | | | | | | |||||
| | | Retail | | Packaging | | Construction | | All Other | | Corporate | | Total | ||||||
| Net sales | | $ | 2,956,007 | $ | 1,838,200 | | $ | 2,161,059 | | $ | 259,392 | | $ | 3,726 | | $ | 7,218,384 | |
| Cost of goods sold | | 2,566,572 | | 1,422,940 | | 1,637,329 | | 182,047 | | | (9,442) | | | 5,799,446 | ||||
| Gross profit | | | 389,435 | | | 415,260 | | | 523,730 | | | 77,345 | | | 13,168 | | | 1,418,938 |
| Selling, general, administrative expenses | | | 213,288 | | | 219,323 | | | 279,107 | | | 51,548 | | | 3,367 | | | 766,633 |
| Net loss (gain) on disposition and impairment of assets | | | 800 | | | 8 | | | 9 | | | (166) | | | (911) | | | (260) |
| Other losses, net | | | 3,180 | | | — | | | 1,268 | | | 1,425 | | | 158 | | | 6,031 |
| Earnings from operations | | $ | 172,167 | | $ | 195,929 | | $ | 243,346 | | $ | 24,538 | | $ | 10,554 | | $ | 646,534 |
Note: As of December 31, 2023, our Pinelli Universal entity was transferred to our Retail segment from our International segment (grouped in All Other) due to changes in our management structure. Prior year figures have been updated to reflect the change for comparability purposes in every applicable table in this filing.
The following tables present the components of our operating results as a percentage of net sales by segment for December 28, 2024 and December 30, 2023.
| | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Year Ended December 28, 2024 | | ||||||||||
| | | | | | | | | | | ||||
| | | Retail | | Packaging | | Construction | | All Other | | Corporate | | Total | |
| Net sales | | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | N/A | | 100.0 | % |
| Cost of goods sold | | 85.0 | | 81.6 | | 79.3 | | 80.7 | | — | | 81.6 | |
| Gross profit | | 15.0 | | 18.4 | | 20.7 | | 19.3 | | — | | 18.4 | |
| Selling, general, administrative expenses | | 8.1 | | 11.7 | | 12.4 | | 13.4 | | — | | 11.0 | |
| Net loss (gain) on disposition and impairment of assets | | 0.1 | | 0.4 | | — | | — | | — | | 0.1 | |
| Other (gains) losses, net | | (0.1) | | 0.0 | | — | | (1.2) | | — | | (0.1) | |
| Earnings from operations | | 6.9 | % | 6.3 | % | 8.3 | % | 7.1 | % | — | | 7.4 | % |
Note: Actual percentages are calculated and may not sum to total due to rounding.
| | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Year Ended December 30, 2023 | | ||||||||||
| | | | | | | | | | | ||||
| | | Retail | | Packaging | | Construction | | All Other | | Corporate | | Total | |
| Net sales | | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | N/A | | 100.0 | % |
| Cost of goods sold | | 86.8 | | 77.4 | | 75.8 | | 70.2 | | — | | 80.3 | |
| Gross profit | | 13.2 | | 22.6 | | 24.2 | | 29.8 | | — | | 19.7 | |
| Selling, general, administrative expenses | | 7.2 | | 11.9 | | 12.9 | | 19.9 | | — | | 10.6 | |
| Net loss (gain) on disposition and impairment of assets | | — | | — | | — | | (0.1) | | — | | — | |
| Other losses, net | | 0.1 | | — | | 0.1 | | 0.5 | | — | | 0.1 | |
| Earnings from operations | | 5.8 | % | 10.7 | % | 11.3 | % | 9.5 | % | — | | 9.0 | % |
Note: Actual percentages are calculated and may not sum to total due to rounding.
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NET SALES
We design, manufacture and market:
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | Wood and wood-alternative products, primarily used to enhance outdoor living environments which are sold to national home centers and other retailers; |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | Engineered wood components, concrete forms, structural lumber and panels, and other building materials used to construct factory-built and site-built homes and concrete structures; |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | Customized interior fixtures used in a variety of retail stores, commercial, and other structures; and |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | Structural wood packaging, pallets, and packing materials for various industries. |
Our strategic long-term sales objectives include:
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | 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 attributable to changes in overall selling prices versus changes in units shipped by segment. |
| | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|
| | | % Change | |||||||||
| | | 2024 versus 2023 | |||||||||
| | | in Sales | in Selling Prices | in Units | Acquisition Unit Change | Organic Unit Change | |||||
| Retail | | (12.1) | % | (5.1) | % | (7.0) | % | — | % | (7.0) | % |
| Packaging | | (11.0) | % | (8.0) | % | (3.0) | % | — | % | (3.0) | % |
| Construction | | (2.2) | % | (7.2) | % | 5.0 | % | — | % | 5.0 | % |
| All Other | | 15.0 | % | (4.0) | % | 19.0 | % | 6.0 | % | 13.0 | % |
| Corporate | | 53.5 | % | — | % | 53.5 | % | — | % | 53.5 | % |
| Total Sales | | (7.8) | % | (6.8) | % | (1.0) | % | — | % | (1.0) | % |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | Expanding geographically in our core businesses, domestically and internationally. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | 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 “commodity-based” products. We estimate that approximately 80% of our sales consist of products we manufacture at our locations, while 20% of our sales consist of products manufactured by suppliers that we inventory and distribute to customers. |
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The following table presents, for the periods indicated, our percentage of value-added and commodity-based sales to total sales by our segments.
| | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | | | | | |
| | | Year Ended December 28, 2024 | | Year Ended December 30, 2023 | | ||||||||
| | Value-Added | Commodity-Based | Value-Added | Commodity-Based | |||||||||
| Retail | 52.8 | % | | 47.2 | % | 51.1 | % | | 48.9 | % | | ||
| Packaging | | 75.5 | % | | 24.5 | % | | 76.9 | % | | 23.1 | % | |
| Construction | | 82.0 | % | | 18.0 | % | | 83.2 | % | | 16.8 | % | |
| All Other | | 76.6 | % | | 23.4 | % | | 80.0 | % | | 20.0 | % | |
| Corporate | | 58.8 | % | | 41.2 | % | | 27.5 | % | | 72.5 | % | |
| Total Sales | | 68.6 | % | | 31.4 | % | | 68.1 | % | | 31.9 | % | |
| | | | | | | | | | | | | | |
| 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. |
Our overall unit sales of value-added products decreased approximately 7% in 2024 compared to 2023. Our overall unit sales of commodity-based products decreased approximately 6% compared to 2023.
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | 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 and meet our internal definition of value-added products. New product sales in 2024 decreased 11% compared to the prior year, primarily due to a decline in unit sales in our structural packaging business unit. Approximately $155.1 million of new product sales for 2023, while still sold, were sunset in 2024 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 $510 million in 2024. Our short-term goal is to achieve annual new product sales of at least $550 million for 2025. On a long-term basis, our goal is for new product sales to comprise at least 10% of our total net sales. |
The table below presents new product sales in thousands:
| | | | | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | New Product Sales by Segment | | | ||||||||||||
| | | Year Ended | | | ||||||||||||
| | December 28, | | % of Segment | December 30, | | % of Segment | % Change | | ||||||||
| | | 2024 | | Net Sales | | 2023 | | Net Sales | | in Sales | | |||||
| Retail | | $ | 216,081 | | 8.3 | % | | $ | 213,238 | | 7.2 | % | 1.3 | % | | |
| Packaging | | 197,119 | | 12.0 | % | | | 273,192 | | 14.9 | % | (27.8) | % | | ||
| Construction | | | 87,974 | | 4.2 | % | | | 81,371 | | 3.8 | % | | 8.1 | % | |
| All Other and Corporate | | 3,564 | | 1.2 | % | | | 495 | | 0.2 | % | 620.0 | % | | ||
| Total New Product Sales | | 504,738 | | 7.6 | % | | | 568,296 | | 7.9 | % | (11.2) | % | | ||
| | | | | | | | | | | | | | | | | |
| 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. |
Retail Segment:
Net sales from the Retail segment decreased 12% in 2024 compared to 2023 due to a 5% decrease in selling prices, a 2% decrease due to the transfer of certain sales to the Construction and Packaging segments, and a 5% decline in units. Unit changes within this segment consisted of decreases of 3% in Deckorators, 6% in UFP Edge, and 5% in ProWood. 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 decreased approximately 4%, while unit sales to independent retailers decreased approximately 7%. Within our Deckorators business unit, our sales of wood-plastic composite decking, mineral-based-composite decking and railing systems increased 4%.
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Gross profits remained consistent and totaled $388.8 million in 2024 compared to $389.4 million in 2023. Although there was a decline in unit sales and selling prices, the stability in our gross profits was attributable to a variety of factors including the decline in lumber costs, production efficiencies, and operating improvements such as SKU rationalization, all of which contributed to an improved gross margin compared to the prior year.
Selling, general and administrative (“SG&A”) expenses decreased by approximately $3.7 million, or 2%, in 2024 compared to 2023. Accrued bonus expense, which varies with the overall profitability and return on investment of the segment, increased approximately $1.5 million and totaled approximately $47.3 million in 2024. The increase was offset by a decrease in professional fees of $1.6 million and many smaller decreases spread over several accounts.
Earnings from operations of the Retail segment increased in 2024 compared to 2023 by $6.9 million, or 4%, as a result of the factors mentioned above, as well as an increase in the net loss on disposition and impairment of assets which comprised of lease impairment charges of $1.4 million and intangible asset impairments of $1.2 million, partially offset by foreign exchange gains totaling $3.0 million.
Packaging Segment:
Net sales from the Packaging segment decreased 11% in 2024 compared to 2023 due to an 8% decrease in selling prices and a 5% decrease in unit sales, partially offset by a 2% increase due to the transfer of sales from the Retail segment. Unit changes consist of a decrease of 10% in structural packaging and 6% in protective packaging, primarily due to a decline in demand, partially offset by unit growth of 9% in PalletOne due to market share gains. The decline in prices is due to competitive price pressure as well as lower lumber costs.
Gross profits decreased by $114.0 million, or 27%, to $301.3 million in 2024 compared to 2023. The decrease in gross profits was attributable to the following:
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | The gross profit of our structural packaging business unit decreased by a total of $83.6 million, in spite of the transfer of certain sales from the Retail segment. The decline in gross profit is attributable to competitive price pressure due to lower demand as well as lower unit sales and resulting unfavorable cost variances due to fixed manufacturing costs. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | The gross profit of our PalletOne business unit decreased by $26.7 million primarily due to competitive price pressure which more than offset the favorable impact from unit sales growth. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | The gross profit of our protective packaging business unit decreased by $3.7 million due to a decline in unit sales and fixed manufacturing costs resulting in unfavorable cost variances. |
SG&A expenses decreased by approximately $27.6 million, or 13%, in 2024 compared to 2023. Accrued bonus expense, which varies with the overall profitability and return on investment of the segment, decreased approximately $22.8 million, and totaled approximately $31.1 million for 2024. Additionally the decline in SG&A was due to sales incentives which decreased by $4.2 million, travel and entertainment expenses which decreased by $1.6 million, and many smaller decreases spread over several accounts.
Earnings from operations of the Packaging segment decreased by $93.0 million in 2024, or 47.5%, compared to 2023 due to the factors discussed above, as well as an increase in the net loss on disposition and impairment of assets which is comprised of intangible asset impairments of $4.2 million and lease impairment charges of $1.7 million.
Construction Segment:
Net sales from the Construction segment decreased 2% in 2024 compared to 2023 due to a 7% decrease in selling prices, partially offset by an increase in unit sales of 4% and a 1% increase due to the transfer of sales from the Retail segment. Unit changes within this segment consisted of an increase of 16% in factory-built housing, primarily due to an increase in industry production, partially offset by decreases of 6% in concrete forming and 6% in commercial construction due to lower demand.
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Gross profits decreased by $85.2 million, or 16% to $438.5 million in 2024 compared to 2023. The decrease in our gross profit was comprised of the following factors:
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | The gross profit of our site-built construction business unit decreased by $77.2 million, primarily due to reduced margins on multi-family construction projects earlier in the year as these projects were priced and commenced during the peak period of the pandemic and favorably impacted our 2023 results, and more competitive price pressure throughout 2024. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | The gross profit of our concrete forming business unit decreased by $5.4 million in spite of the transfer of sales from the Retail segment due to lower unit sales and more competitive pricing. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | The gross profit of our commercial construction business unit decreased by $7.4 million as a result of lower unit sales. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | The above decreases were offset by an increase in the gross profit in factory-built of $4.8 million as a result of increased unit sales and favorable cost variances resulting from fixed manufacturing costs, as well as the transfer of sales from the Retail segment. |
SG&A expenses decreased by approximately $16.6 million, or 6%, in 2024 compared to 2023. Accrued bonus expense, which varies with the overall profitability of the segment and return on investment, decreased approximately $19.6 million compared to last year and totaled approximately $45.4 million for 2024. The decline in SG&A was also due to decreases in sales incentive of $4.0 million and several smaller decreases in many accounts. The overall decrease was partially offset by an increase in salaries, wages, and benefits of approximately $8.7 million as well as an increase in severance charges totaling $1.3 million.
Earnings from operations of the Construction reportable segment decreased by $67.7 million in 2024 compared to 2023, or 27.8%, 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.
Corporate:
The Corporate segment consists of over (under) allocated costs that are not significant.
INTEREST EXPENSE
Interest expense in 2024 was similar to 2023 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 $20.6 million in 2024 compared to 2023 due to the increase in cash and a higher interest rate on those deposits.
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 22.5% in 2024 compared to 23.4% in 2023. The decrease in our overall effective tax rate was primarily due to an increase in our estimated tax deduction associated with stock-based compensation accounted for as a permanent difference.
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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 28, 2024 (in thousands).
| | | | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Payments Due by Period | |||||||||||||
| | Less than | 1 – 3 | 3 – 5 | After | | | |||||||||
| Contractual Obligation | | 1 Year | | Years | | Years | | 5 Years | | Total | |||||
| Long-term debt and finance lease obligations | | $ | 4,093 | | $ | 748 | | $ | 43,820 | | $ | 185,294 | | $ | 233,955 |
| Estimated interest on long-term debt and finance lease obligations | | 8,419 | | 16,064 | | 13,428 | | 19,562 | | 57,473 | |||||
| Operating leases | | 33,151 | | 51,750 | | 26,576 | | 33,769 | | 145,246 | |||||
| Capital project purchase obligations | | 142,758 | | — | | — | | — | | 142,758 | |||||
| Total | | $ | 188,421 | | $ | 68,562 | | $ | 83,824 | | $ | 238,625 | | $ | 579,432 |
As of December 28, 2024, we also had $39.7 million in outstanding letters of credit issued during the normal course of business, as required by some vendor contracts.
LIQUIDITY AND CAPITAL RESOURCES
The table below presents, for the periods indicated, a summary of our cash flow statement (in thousands):
| | | | | | | | |
|---|---|---|---|---|---|---|---|
| | | December 28, | | December 30, | | ||
| | 2024 | 2023 | |||||
| Cash from operating activities | $ | 642,571 | $ | 959,890 | |||
| Cash used in investing activities | | (270,750) | | (240,164) | |||
| Cash used in financing activities | | (307,120) | | (162,860) | |||
| Effect of exchange rate changes on cash | | (7,363) | | 5,767 | |||
| Net change in cash and cash equivalents | | 57,338 | | 562,633 | |||
| Cash, cash equivalents, and restricted cash, beginning of year | | 1,122,256 | | 559,623 | |||
| Cash, cash equivalents, and restricted cash, end of year | | $ | 1,179,594 | | $ | 1,122,256 | |
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.
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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 to 60 days in 2024 from 63 days in 2023.
| | | | | | | | |
|---|---|---|---|---|---|---|---|
| | | Year Ended | | ||||
| | | December 28, | | December 30, | | ||
| | | 2024 | | 2023 | | ||
| Days of sales outstanding | | 35 | | 33 | |||
| Days supply of inventory | | 38 | | 41 | | ||
| Days of payables outstanding | | (13) | | (11) | | ||
| Days in cash cycle | | 60 | | 63 | |
The decrease in our days supply of inventory in 2024 is due to improvements in inventory turns in our Construction and Packaging segments. The increase in our days of sales outstanding is primarily due to our Retail and Packaging segments. We continue to focus on past due account balances with customers, and the percentage of our accounts receivable that are current was 90% in 2024 compared to 91% in 2023.
Our cash flows from operating activities in 2024 was $643 million, which was comprised of net earnings of $419 million, $173 million of non-cash expenses, and a $51 million decrease in working capital since the end of December 2023. Our cash flows from operations decreased by $317 million compared to last year primarily due to a $237 million decrease in our investment in net working capital compared to the prior year period and a decrease in our net earnings and non-cash expenses of $80 million. In 2023 our net working capital declined significantly as a result of demand normalizing from the peak of the pandemic period.
Purchases of property, plant, and equipment of $232 million comprised most of our cash used in investing activities during 2024. Capital spending primarily consists of several projects to expand capacity to manufacture new and value-added products, primarily in our Packaging segment and Site-Built, Deckorators and ProWood business units, achieve efficiencies through automation in all segments, and make improvements to a number of facilities. On December 28, 2024, we had outstanding purchase commitments on capital projects of approximately $142.8 million. We intend to fund capital expenditures and purchase commitments through our operating cash flows. Cash used for acquisitions during the year totaled $30 million compared to $52 million in 2023. In 2024, we made one acquisition, C&L Wood Products. See Notes to Consolidated Financial Statements, Note C, “Business Combinations” for additional information.
Cash flows used in financing activities primarily consisted of:
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | Cash paid for repurchases of common stock of $159 million. We repurchased 1,399,944 shares of our common stock for the year at an average share price of $113.55. Of this amount, 154,196 shares were repurchased in order to settle tax withholding obligations of long-term stock incentive plan participants’ awards which vested in February. The shares were purchased at an average price of $115.69 per share, totaling $17.8 million. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | Dividends paid during 2024 totaled $81 million, reflecting a quarterly rate of $0.33 per share, a 10% increase over the prior year. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | Repayments of senior note debt of $40.0 million. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | Distributions to noncontrolling interests of $11.8 million. |
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As of December 6, 2022, we entered into a five-year, $750 million unsecured revolving credit facility with a syndicate of U.S. banks. This facility includes 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 28, 2024, we had no amount 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 $712.7 million in remaining availability. We also had approximately $2.3 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 28, 2024.
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 28, 2024, the fair values exceeded 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.
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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.
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 improvements in demand in the end markets we serve and effectively executing our strategies will allow us to achieve our long-term goals below. However, in the short-term, demand in our markets has contracted, primarily due to higher short and long-term interest rates, which will continue to impact our results and vary depending on the severity and duration of this cycle. As a result of these more challenging conditions, we have developed and are executing plans to reduce or eliminate capacity of locations that are not meeting our profitability targets and reduce our SG&A costs. Our goal through these actions is to lower our cost structure and improve our operating profits by $60 million by 2026. We anticipate benefits of approximately $40 million in 2025, including approximately $26 million from planned SG&A cost reductions and $14 million from planned capacity reductions.
The following factors should be considered when evaluating our future results:
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | 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 near current levels, and experience more typical seasonal trends, until there is a substantial change in the balance of supply and demand. In the event higher duties on Canadian softwood lumber and new tariffs are enacted on imports generally, we anticipate lumber prices will increase accordingly. We believe we are currently in a strong position to adapt quickly to duties and tariffs without adverse financial impact after a short adjustment period. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | Retail segment sales accounted for 39% of our net sales in 2024. 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 slightly down in the first half of 2025. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | Packaging segment sales accounted for 25% of our net sales in 2024. 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 down in the first half of 2025. |
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| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | Construction segment sales accounted for 32% of our net sales in 2024. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| - | The site-built business unit accounted for approximately 13% of our net sales in 2024. Approximately one-third of site-built customers are multifamily builders. The industry consensus estimate of national housing starts for 2025 is 1.36 million, with estimates generally predicting slightly positive to slightly negative growth in the coming year with single-family generally performing better than multi-family. We anticipate demand in the regions we operate to be slightly down in the first half of 2025. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| - | The factory-built business unit accounted for 12% of our net sales in 2024. 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 2025 to be flat to slightly down. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| - | The commercial and concrete forming business units accounted for approximately 6% of our net sales in 2024. When evaluating future demand, we analyze data from non-residential construction spending. We anticipate overall demand in this business unit to be slightly down in the first half of 2025. |
LONG-TERM OUTLOOK
GOALS
Our long-term financial goals include:
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | Growing our annual unit sales by 7 to 10 percent (including smaller tuck-in acquisitions) with at least 10 percent of all sales coming from new products; |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | 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, expanding geographically in our higher margin business units, and achieving operating improvements; |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | Earning an incremental return on new investment over our hurdle rate; and |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | Maintaining a conservative capital structure. |
RETAIL SEGMENT
The Home Improvement Research Institute (“HIRI”) anticipates growth in home improvement spending and has forecasted 3.9% growth in 2025 and 4.1% annual growth through 2028. 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:
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | Increasing our market share of value-added products, including our Deckorators product line. Continued investment in capacity for Deckorators is expected to contribute to this increase. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | Developing new products and increasing our emphasis on product innovation and product differentiation in order to counter commoditization trends and influences. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | Acquiring businesses in core product categories when those opportunities exist. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | Adding new products and customers through strategic business acquisitions or alliances. |
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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.
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.
Market indicators that should be considered when evaluating future demand for our products in the packaging segment include industrial production, durable goods manufacturing, the Purchasing Managers Index, and U.S. GDP growth.
CONSTRUCTION SEGMENT
The industry consensus estimate of national housing starts for 2025 is 1.36 million, with estimates generally predicting slightly positive to slightly negative growth in the coming year with single-family generally performing better than multi-family. Housing starts are projected to increase low single-digits in both 2026 and 2027.
The National Association of Home Builders forecasts a 2% decrease in manufactured home shipments from 2024 to 2025 and a 2% compounded annual growth rate through 2027.
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
As a result of more challenging market conditions, we have developed and are executing plans to reduce or eliminate capacity of locations that are not meeting our profitability targets. We anticipate these actions will improve operating profits by $14 million in 2025.
In addition, we believe the following factors are likely to impact our gross profits and margins in the future:
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | End market demand and our ability to grow and leverage fixed costs and price our products based on the value we offer our customers. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | 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. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | Sales mix of value-added and commodity products and our ability to sell new products. We anticipate significant growth in our Deckorators branded products that use our patented SureStone technology. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | 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.”) |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | Fuel and transportation costs. |
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| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | Rising labor and benefit costs. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | 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. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | Changes in the cost of complying with new or increased government regulations. |
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
As indicated above, we are taking actions to reduce our cost structure to better align it with current demand. We are also investing in the resources needed to achieve our long-term objectives for growth, product innovation, building brand awareness for certain products, and improving our efficiency through technology. With these considerations in mind, we have targeted selling, general, and administrative expenses (SG&A) totaling approximately $565 million in 2025, excluding highly variable sales incentive and bonus expenses tied to profitability and return on investment. This target amount is comparable to our 2024 expenses and is comprised of approximately $26 million of planned cost reductions offset by $6 million of increases primarily associated with new greenfield operations, technology improvements and product innovation, and a $20 million increase in our Deckorators advertising expenses as we invest in building the SureStone brand. Additionally, we anticipate sales incentives will range from 3% to 4% of gross profits and bonus expense will range from 16% to 18% of pre-bonus operating profits plus approximately $31 million associated with the vesting expense of shares granted in prior years under our bonus plan. 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:
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | 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. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | 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. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | Our incentive compensation programs which are tied to gross profits, pre-bonus earnings from operations and threshold levels of return on investment. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | Our growth and success in achieving continuous improvement objectives designed to improve our productivity and leverage our fixed costs as we grow. |
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 $300 million to $350 million on capital expenditures, incur depreciation of approximately $133 million, and incur amortization and other non-cash expenses of approximately $53 million in 2025.
On December 28, 2024, we had outstanding purchase commitments on capital projects of approximately $142.8 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.
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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 13, 2025, our board approved a quarterly cash dividend of $0.35 per share, which represents a 6% increase from December 2024. This dividend will be payable on March 17, 2025, to shareholders of record on March 3, 2025. 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.
We have a share repurchase program approved by our Board of Directors, and on July 24, 2024, our board authorized the repurchase of up to $200 million worth of shares of outstanding stock through July 31, 2025. As of February 19, 2025, we have approximately $191 million of remaining availability under this authorization. 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.