Universal Forest Products: Earnings Preview

Apr.11.11 | About: Universal Forest (UFPI)

Universal Forest Products Inc. (NASDAQ:UFPI) is slated to release its financial results for the first quarter of the fiscal year 2011 on Wednesday, April 13. The current Zacks Consensus Estimate for earnings per share (EPS) is one cent, which represents a negative annualized growth of 87.50%.

With respect to earnings surprises, over the trailing four quarters, Universal Forest lagged behind the Zacks Consensus Estimate in three quarters, while outperforming only in one quarter. The average earnings surprise was a negative 24.09%, implying that the company underperformed the Zacks Consensus Estimate by the same magnitude over the last four quarters.

Fourth Quarter Highlights

Universal Forest reported disappointing results for the fourth quarter of 2010 with its net income falling despite a healthy top-line growth. Earnings per share in the quarter were a loss of 12 cents as compared with a loss of 3 cents in the year-ago quarter. Earnings per share also fell short of the Zacks Consensus Estimate of a loss of 2 cents.

Top line registered an 11.9% growth to reach $378.7 million versus $338.6 million in the year-ago quarter. The increase was driven by healthy growth in all the markets served and higher selling prices due to higher lumber prices.

Agreement of Estimate Revisions

In the last 30 days, of the analysts providing estimates for the stock, none revised their estimates for the first quarter of 2011 and the fiscal year 2011 and 2012.

Magnitude of Estimate Revisions

Estimates, over the last 30 days, remained intact for the first quarter of 2011 at one cent per share, representing a year-over-year decline of 87.50%. For fiscal year 2011, estimate was at $1.45, up 90.79% year over year and for 2012 at $1.91, up 31.38% year over year.

Our Take

Universal Forest Products based in Michigan, engineers, manufacturers, treats, distributes, and installs lumber, composite wood, plastic and other building products for its do-it-yourself (DIY), site-built construction (homebuilders), manufactured housing, and industrial markets.

The adverse effects of the recent economic crisis were quite palpable on Universal Forest’s financial because of its heavy exposure to the U.S. housing market. Though slowly, things have started stabilizing, with the company being well poised to leverage from its industrial and manufactured housing businesses in the quarters to come.

Higher cost of sales due to volatile lumber prices can be a cause of concern and can even upset results in the first quarter. Moreover, competitive pressure from its peers like Bluelinx Holdings Inc. (NYSE:BXC) and Builders FirstSource Inc. (NASDAQ:BLDR) can be a hurdle to growth.

We currently maintain an Underperform recommendation on the stock.