Universal Forest Products, Inc. designs, manufactures, and markets wood and wood-alternative products for home centers and other retailers. The company offers preserved and unpreserved dimensional lumber; outdoor living products, including wood composite decking, and decorative lawn and garden products; and engineered wood components, which include roof and floor trusses, wall panels, engineered floor systems, I-joists, and lumber packages. It also provides roof trusses, lumber cut and shaped, plywood, particle board, and dimensional lumber products for use in the construction of manufactured housings. In addition, the company supplies siding, electrical, and plumbing products to manufactured housing and RV customers; and wood forms and related products to set or form concrete for various structures, including parking garages, stadiums, and bridges. Further, it provides framing services, as well as specialty wood packaging, components, and packing materials for various industries. The company offers its products and services to the retail, industrial, and construction markets in the United States and internationally. Universal Forest Products, Inc. was founded in 1955 and is headquartered in Grand Rapids, Michigan.
(Summary) (Company) (Chart)
23 January 2016
1yr Target $123.00
Payout Ratio 18.48%
1yr Cap Gain 22.30%
1yr Tot Return 23.19%
EPS (ttm) $4.87
EPS next yr $5.81
Forward P/E 17.31
EPS next 5yr 10.00%
1yr Price Support $58.10
Market Cap $2.05 Bil
Revenues $3.03 Bil
Earnings $97.80 Mil
Profit Margin 3.22%
Quick Ratio 1.40
Current Ratio 2.50
1yr RevGR 8.53%
3yr RevGR 11.88%
5yr RevGR 8.84%
1yr EarnGR 39.51%
3yr EarnGR 48.25%
5yr EarnGR 34.99%
1yr DivGR 34.42%
3yr DivGR 26.72%
5yr DivGR 15.43%
Universal Forest Products is a holding company with subsidiaries throughout North America and Australia that supply wood, wood composite and other products to three primary markets: retail, construction and industrial. The Company is headquartered in Grand Rapids, Mich., and was founded in 1955.
The company designs, manufactures and markets wood and wood-alternative products for national home centers and other retailers, structural lumber and other products for the manufactured housing industry, engineered wood components for residential and commercial construction, and specialty wood packaging, components and packing materials for various industries.
Retail. Customers comprising this market are national home center retailers, retail-oriented regional lumberyards and contractor-oriented lumberyards. Generally, terms of sale are established for annual or bi-annual periods, and orders are placed with regional facilities in accordance with established terms. One customer, The Home Depot, accounted for approximately 19% of total sales in fiscal 2015, 17% in 2014, and 17% in 2013.
The company supplies customers in this market from many locations. Regional facilities are able to supply mixed truckloads of products which can be delivered to customers with rapid turnaround. Freight costs are a factor in the ability to competitively service this market, especially with treated wood products because of their heavier weight. The close proximity of regional facilities to the various outlets of these customers is a factor when negotiating annual sales programs.
The products offered to customers in this market include dimensional lumber (both preserved and unpreserved) and various "value-added products," some of which are sold under the company's trademarks. In addition to conventional lumber products, Universal Forest Products offers a large portfolio of outdoor living products, including wood composite decking and decorative lawn and garden products. They also sell engineered wood components to this market, which includes roof trusses, wall panels and engineered floor systems.
Industrial Market. The industrial market is defined as manufacturers and agricultural customers who use pallets, specialty crates, wooden boxes, and other containers for packaging, shipping and material handling purposes. Many of the products sold to this market are produced from the by-product of other manufactured products, thereby allowing the company to increase their raw material yields while expanding their business. Competition in this area is fragmented and includes virtually every supplier of lumber.
Construction Market. The company's construction market is made up of customers in three submarkets - manufactured housing, residential construction and commercial construction.
The customers comprising the manufactured housing market are producers of mobile, modular and prefabricated homes and recreational vehicles (RVs). Products in this category consist primarily of roof trusses, lumber cut and shaped to the customer's specification, plywood, oriented strand board and dimensional lumber, all intended for use in the construction of manufactured housing. Sales are made by personnel located at each regional facility based on customer orders. The company's principal competitive advantages include product knowledge, the strength of their engineering support services, the close proximity of their regional facilities to their customers, their purchasing and manufacturing expertise and their ability to provide national sales programs to certain customers. These factors have enabled the company to accumulate significant market share in the products they supply. In addition, they also distribute other products such as siding, electrical and plumbing to manufactured housing and RV customers, and entered this business through acquisitions completed in 2010.
Universal Forest Products entered the residential and commercial construction market through a series of strategic business acquisitions beginning in 1998. The customers comprising the residential construction market are primarily large-volume, multi-tract builders and smaller volume custom builders. The company also supplies builders engaged in multi-family and commercial construction. In addition, the company supplies wood forms and related products to set or form concrete for various structures including large parking garages, stadiums and bridges.
Suppliers. Universal Forest Products is one of the largest domestic buyers of solid sawn softwood lumber from primary producers (lumber mills). We use primarily southern yellow pine in our pressure-treating operations and site-built component plants in the Southeastern United States, which the company obtains from mills located throughout the states comprising the Sunbelt. Other species they use include "spruce-pine-fir" from various provinces in Canada; hemlock, douglas fir and cedar from the Pacific Northwest; inland species of pine, plantation grown radiata and southern yellow pines from South America; and European spruce. The company's financial resources and size, in combination with their strong sales network and ability to remanufacture lumber, enables the company to purchase a large percentage of a primary producer's output thereby lowering the average cost of raw materials and allowing the company to obtain programs such as consigned inventory.
On December 26, 2015 and December 27, 2014, the company estimated that their backlog orders associated with their residential and commercial construction business approximated $65.6 million and $60.6 million, respectively.
I'm well known for liking farm and forest product companies and this company is just an extension of that obsession. So obviously I have a natural affinity toward this company. Timberland and wood products are a basic item in the construction industry so Universal Forest Products will be somewhat dependent on the housing market and the remodeling industry.
This company is also sporting great fundamentals and is reasonably priced based upon its P/E ratio and somewhat reasonable based on its PEG. While the analyst's estimates of earnings going forward may show a slowing of the growth rate, it's based upon only one analyst so that may not be as reliable as first thought. I am, however, encouraged by the company's low set and its level of coverage of that debt. Add in the low dividend payout level and it's a sure thing that the dividend will be increased several times in the future.
I like this company and the company's dividend history chart (see above). I wish the stock hadn't moved up so much in the last three years but it's still reasonable based upon its fundamentals. Therefore, I intend to start a position in this company very soon.
As always, I'll start small and then add to that position through dividend reinvestment, the sale of covered calls, and additional purchases at opportune prices. I expect to hold this company as long as it continues to increase its revenues, earnings and dividends which should be for years to come.