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Universal Forest Products, Inc. (NASDAQ:UFPI)

Q3 2007 Earnings Call

October 18, 2007 8:30 AM ET

Executives

Lynn Afendoulis - Director of Communications

William G.  Currie - Executive Chairman & CEO

Michael B.  Glenn - President

Michael Cole - CFO

Analysts

Robert Kelly - Sidoti & Company

Greg Halter - Great Lakes Review

Jay McCanless - FTN Midwest

Christopher Bennett - Wachovia Securities

David Liebowitz - Burnham

John Emerich - Iron Works Capital

Operator

Good day ladies and gentlemen, and welcome to the Third Quarter 2007 Universal Forest Products Incorporated earnings conference call.  My name is Dan, and I will be your operator for today.

I would now like to turn the call over to Ms.  Lynn Afendoulis, Director of Communications.  Please proceed.

Lynn Afendoulis

Good morning and welcome to Universal Forest Products' Third quarter 2007 Conference Call.  On the call today are William G. Currie, Executive Chairman and CEO, and President, Michael B. Glenn, and CFO Michael Cole.

Please be aware that any statements included in this call that are not historical are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended.  Such forward-looking statements are based on the beliefs of the Company's management as well as on assumptions made by and information currently available to the Company at the time such statements were made.

The Company does not undertake to update forward-looking statements to reflect facts; circumstances, assumptions or events 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 are the following: Adverse lumber market trends, competitive activity, negative economic trends, government regulations and weather.  These risk factors and additional information are included in the Company's reports on Form 10-K and 10-Q on file with the Securities and Exchange Commission.

This call is the property of Universal Forest Products.  Any redistribution, retransmission or rebroadcast of the call in any format without the expressed written consent of Universal is strictly prohibited.

At this time, I would like to turn the call to Bill Currie.

William G. Currie

Good morning, and thanks a lot for joining us on our Third Quarter Conference Call.  Today, we will talk about our performance under some of the toughest markets and conditions we have ever faced, and we will tell you about our successes despite the challenges and what we are doing to turn in stronger results in the coming quarters in years.

From my perspective, there are four takeaways from this quarter:  First, Mike Glenn and his sales and management team have done a great job.  They turned in double-digit sales growths in three of our four business areas and grew market share in all four in a time when the markets cut them no slack.  Their years of experience, their knowledge and relationships equipped them to make good things happen in hard times.

Second, we are focused on improving our margins and profitability.  We have not yet seen the impact of our ongoing efforts to right size our organizations to our opportunities.  We also have not seen the impact of efficiencies we are achieving as a result of our focus on CI as we get better at manufacturing new products we had sold.

Third, the problems in the housing market are here to stay, at least for a good while.  We have done a good job stabilizing our business by diversifying into light commercial and multi-family construction, which currently are stronger opportunities than single-family.

And fourth, we think Universal is the best investment we can make; so we will keep an underleveraged balance sheet, healthy liquidity and allow us to step up our buy-back program in the very near future.

Like I said, these are some of the toughest markets and times that we have seen, and I am pleased with our results even though I look forward to better days ahead.  Mike Glenn will talk to you about our performance and strategy for the remainder of the year into 2008.

But first I will turn it to Mike Cole for a review of our numbers, Mike?

Michael Cole

Thanks, Bill, and good morning everyone.  I will start by reviewing our income statement for the quarter.  As you noticed in the press release, our total sales for the quarter increased by 1%.  We estimate this was comprised of a 4% increase in unit sales offset by a 3% decline in overall selling prices due to a soft lumber market and pricing pressure on the site-built market.

Reviewing by market, our sales for the DIY market increased 11% compared to the third quarter last year, primarily due to unit sales growth as a result of acquisitions.  Sales out of existing facilities were flat with last year in spite of challenging market conditions as a result of significant market share gains we realized with big box retailers.

Our sales to the big boxes increased 19% during the quarter, while our sales to other retailers whose business is more closely correlated with housing starts was off 7%.

Our sales to the manufactured housing market increased 18% for the quarter due to a 20% increase in unit sales, partially offset by a 2% decline in selling prices.  Our acquisition of Banks Lumber provided unit sales growth of 29% this quarter and made up for soft market conditions, which resulted in a 9% decline in unit sales out of existing facilities, which was in line with the decline in modular and HUD-code industry production.

Our sales from the site-built construction market decreased 24% this quarter, due to an 8% decrease in unit sales out of existing plants, a 4% decline due to our decision to exit the Las Vegas framing market and a 12% decrease in our average selling prices due to a soft lumber market and intense pricing pressure.

Finally, our sales to the industrial market increased by 10% for the quarter primarily due to an increase in unit sales.  Unit sales growth this quarter was a result of acquisitions and continuing to add new customers including concrete forming, which helped offset the effect of a decline in sales for certain of our customers that supply the housing market.

Moving down the income statement, our third-quarter gross margin decreased to 12.1% from 14.7% last year, and our gross profit dollars decreased almost 17%.  These declines were primarily due to a combination of lower unit sales out of existing plants and fixed manufacturing costs, greater pricing pressure in the site-built market, sales incentives offered to gain market share and a decline in our value added sales ratio from 62% last year to 59% this year.

Selling, general and administrative expenses decreased over $7 million or almost 11% for the quarter.  Acquired operations cost our SG&A to increase by almost $4 million, but this was offset by decrease in SG&A expenses of existing operations and operations we closed this year of almost $11 million.

Our operating income was off approximately $9.5 million for the third quarter due to our site-built operations.

Moving onto our cash flow statement; our cash flow from operations totaled $80 million in the first nine months of 2007; despite a difficult market condition due in part to sale of receivables program, which provided an additional $25 million of cash flow in 2007 compared to 2006.

Our year-to-date capital expenditures totaled almost $27 million.  We are still planning on capital expenditures for the year of up to $40 million, which includes real estate purchases of approximately $6.5 million.

A few points I would like to make about the balance sheet, including long-term debt, there was $47 million outstanding on our five-year credit facility, which has a remaining availability of $219 million.  Our leverage ratio was 26.5% compared to 25.5% a year ago and our trailing 12-month average debt-to-EBITDA was 1.8 times versus 1.1 times a year ago.

I will conclude with a review of our revised 2007 targets.

We continue to gain market share in the third quarter, and as a result, we have increased our annual sales target to a range of $2.48 billion to $2.52 billion, which implies a fourth quarter sales target of $480 million to $520 million, compared to $499 million a year ago.

Unfortunately, pricing pressure in the site-built market worsened, so we have lowered our annual net earnings target to a range of $32 million to $35 million.  This implies a fourth quarter range of break even to $3 million compared to $5.8 million last year, which excludes certain non-recurring tax adjustments.

That completes my comments on the financial statements.

William G. Currie

Thank you, Mike.  Now we will turn the call to Mike Glenn for a business review and for an outlook into the markets, Mike?

Michael B. Glenn

Thanks Bill and good morning everyone.  I think it is fair to say that this quarter was a disappointment for us.  We had our share of disappointment, but we also had our share of encouragement.  While we are encouraged by our sales in three or four markets, we were disappointed in our earnings and at the housing market, the only way to put it, is a train wreck.  It has severely impacted our earnings.

In the third quarter, we picked up share in all our markets and increased our sales to three markets by adding new customers, products and opportunities.  And we continue to ensure our size appropriately for our business.  And we are committed to our new and continuous improvement initiative, which has helped us to eliminate waste, increase our efficiencies, and help us focus on our long-term strength.

What I like about continuous improvement is that it empowers our people to make change.  It gives them the tools and encouragement they need to make a difference to help improve our company.  Our people know we are in a tough market, and now they know they have the power to create change.

In the past six months, I have visited at least 30 of our plants and the proof of continuous improvement in lean manufacturing practices is there on the plant floor.  Our plants look, run, and feel better than ever, and our people are energized and enthused about their role in the company and their future.

Now I would like to review our performance in our markets and talk about what we are doing to grow our success.

Let me start out with the site-built.

Like I stated earlier, this market is nothing but a train wreck.  In August, the housing starts were down more than 24% from 2006.  Single-family housing starts were down 27%, and the seasonally adjusted rate of starts in August was $988,000.00.

Last week, we were with the CEO of one of the major production builders and his comment to us was, do not be surprised, if you see housing starts drop as low as $800,000.00 next year.  Markets like Florida, Southern California and Colorado are at a virtual standstill.  And we do not think this market will turn around until 2009.

So, we are focusing on growing our business with multi-family and commercial builders.  While the starts of multi-family housing were down 11% for the quarter, it is trending up, and the annual rate of starts is up 18% in the year.

The truth of the matter is that that we have a small percent of this market.  Like a lot of other folks, we fell in love with production builders, but we forgot about maintaining balance in our business like we have in all our other markets.

So, we are going to go back and we are going to concentrate on these commercial builders and the multi-family.  The outlook is, we do not expect much improvement of single-family until 2009.  Most industry analysts have lowered their forecast based on existing inventories, the impact of foreclosures and more stringent lending standards.

When the market does return, it will be at a more modest pace than the highs of 2004 and 2005, but we believe it will be at a sustainable pace, and we look forward to being one of the strong survivors and player in the market.

And the reason I think that is, there is a number of factors that favor Universal, first: we have other markets in which we deploy our resources during a downturn.  And the reality is, is that many players cannot afford to stay in the market much longer.

As they exit, we are certain to pick up share and see some relief in the price pressure we are facing.  No matter what markets they serve or the size of their business, builders need the stability of a reliable, financially sound supplier that can take care of many of their building needs in one stop, and there is not a lot of companies that fit that bill.

Now, let us talk about our DIY business.  We continue to pick up share with the big box and independent retailers in many product categories, including outdoor living accessories like post caps and balusters.  The homeowners who had significant equity in their homes cannot afford large projects anymore like additions or new decks and fences, and we are starting to feel the impact.

So, we have had to work hard to get new business with existing customers and to add new customers and we have done that.

Our DIY sales in the third quarter were enhanced by the Aljoma Lumber, and even though the foreign market is as bad as it has been in years, Aljoma is opening the door to the export sales in the Bahamas and the Caribbean.  Maybe a side note, we just picked up a large order for Jamaica to take care of recovery from the hurricane that hit there this summer.

And when spending in housing improvements of Florida returns, we have the only treating plant in South Florida and that puts us in a solid position for growth.

In addition, we are getting into industrial business in that market with all our manufacturers and exporters near the Port of Miami; we are excited about our industrial craning and packaging opportunities, and also our concrete forming opportunities.

Our composite business remains strong.  We continue to take market share and we continue to increase our penetration overseas.  In addition, our people have come up with innovative ways to gain efficiencies in our extruding operations that others find difficult to achieve.  And we have also created a solid, industrial business by creating profitable products from the waste generated from our composite operations.

The outlook for DIY, analysts expect little, if any growth in DIY markets in 2008.  But mostly a healthy gain in 2009 and beyond as home ownership and turnover begin to increase again.  We are going into our negotiations for the 2008 season and we are confident that we will continue to grow our share with new and existing retailers, thanks to our strong portfolio of products.

Now let us look at manufactured housing.

While this market remains soft compared to a few years ago, we are seeing signs of health in some areas of the country.  In the third quarter, our HUD-code business increased by 10%.  This was fueled by acquisition of Banks Lumber, and although the August HUD-code shipments were 23% lower than 2006, we are seeing a pick-up in our business, most notably in Texas, Indiana, and North Carolina, and the seasonally adjusted rate of shipments in August topped $100,000.00 for the first time in a year.  So, we believe that there is reason for optimism.

The outlook, we are seeing evidence of a move of sub-prime buyers from low-end site built to the lower end manufactured homes and given our market share, we are well positioned for this growth.  We continue to look for opportunities to move deeper into the home with products like interior doors and mill work.  This provides opportunity for growth as we maintain a commanding share with the products that we have traditionally offered to this market.

Let us talk about industrial.

I know every time we chat I say the same thing over and over again, but this market is just a terrific place to be.  It remains a bright spot for our business and on the horizon, and I am glad we made the decision, seven years to go after this business in a very organized manner.

We continue to add new customers, but we are also starting to see new sales, see sales with existing customers grow into multi-plant deals, and it is something we anticipated and worked toward, and after seven years, it is starting to pay-off.

National manufacturers are learning how we can cut costs and improve their packaging at one plant and they are asking us to expand our work to other locations.

The outlook, looking ahead, we continue to see great promise and opportunity for strong growth in this market.  We are adding capacity in many plants and we are increasing our sale’s firepower because the opportunity is abundant.  We are expanding into the new market of concrete forming.  This market has huge opportunities.  We believe this market is much larger than we initially predicted, and some actually estimate that this is a $4 billion market and our early success is giving us reason for optimism.  We have a dedicated sales force that spent the last half of the year organizing and learning the markets in the product.

Concrete forming is a lot like industrial; it is fragmented with maybe one or two national players and the customers are looking for a low-cost provider and a national partner that will benefit from our knowledge, capacity and purchasing leverage.

Just last week, I was with a buyer from one of the major concrete companies and I asked them what were one of the obstacles and one of the problems that they had with their current supplier base, and his comment to me was kind of surprising.  And it was not centered around price or quality, but it was centered around service and innovation.  And that really fits right into our wheel house.

We have already achieved over $30 million in concrete forming sales in 2007.  It is an exciting opportunity that is already contributing to our bottom-line.

So, in summary, single-family housing is terrible and we do not see that changing in the near future, so we are growing around it in multi-family and commercial construction.  We are gaining share in each of our markets, and we grew our DIY and manufacturing and industrial.

We are benefiting from new business with big box and independent retail customers, and we are confident that 2008 will provide new opportunities in DIY.  Our composite decking and railing products and accessories are helping to lead our growth in that market.  The wild cards in DIY are the consumer spending and as always, weather.  Our manufacturing and housing business has picked up in a few areas in the country and we are positioned for growth in this market as it returns.  We just need to focus on profitability.  Industrial is a bright spot.  We are continuing to enjoy our increasing growth of existing customers who are asking us to work with their multiple manufacturing locations.  And we believe that concrete forming holds significant opportunity.

We are putting a lot of effort into our continuous improvement initiative and it is paying off in efficiencies in the spirit of enthusiasm and collaboration in our plants nationwide.  I visit our plants on almost a weekly basis.  And let me assure you, that the people in this company are rolling up their sleeves from Riverside, California to Belchertown, Massachusetts to create success in these tough times.  And I have the confidence that we will do just that.  Bill?

William G. Currie

Thank you, Mike.  As I told you, we are a little disappointed in the profitability, but we are very pleased with the quarter, our company, and our results and especially, our management team.  I thank all of you for your interest.  And now, we will open it up for questions.

Question-and-Answer-Session

Operator

(Operator Instructions)

Your first question comes from the line of Robert Kelly from Sidoti & Company.  Please proceed.

Robert Kelly - Sidoti & Company

Just had a question, the pricing pressure that you are seeing, is that confined now to the site-built market?

Michael B.  Glenn

Well, certainly, that is where most of our pressure is coming from.  The hard part about it is we have had the site-built builders, the production builders have a new tactic, and that is, you kind of quote their business and then you get it and you design it.  And then you get ready to build the product for them and if the lumber market moved down like it did in the third quarter, they ask you to re-quote it.

So, any margin that you thought you had in there, because the market moved or you took advantage and did some things, they are taking it away from you.  So, it is a very difficult situation for us right now, but the other markets are holding up just quite well.

Robert Kelly - Sidoti & Company

Okay, great.  So, it is kind of a moving target on the site built side for the near-term?

Michael B.  Glenn

Yes.

Robert Kelly - Sidoti & Company

And then the cost improvement initiatives undergoing, any timeframe for when that starts to kick in?

Michael B. Glenn

Well, there are a couple things, some of it already has kicked in small pieces.  But it is really predicated on driving volume to your plants.  The whole premise we took with this initiative is we are going to be able to produce twice as much product next year with the same amount of people that we have and that is where efficiency is going to start to come.

It is not so much as we are going to see big efficiencies in December, it is we are able to drive more volume through our plants with the same amount of people.

Robert Kelly - Sidoti & Company

And then just quickly on the balance sheet, do you guys have a target as far as where you want the debt-to-cap to be?

Michael Cole

In the normal environment, we have used up 45% debt-to-cap, debt-to-EBITDA, 2 to 2.25.

Robert Kelly - Sidoti & Company

Great, thank you.

Operator

Your next question comes from the line of Greg Halter from Great Lakes Review.  Please proceed.

Greg Halter - Great Lakes Review

Can you bring us up to speed on where you stand in terms of plant count and where you see that going over the next year or so?

Michael B. Glenn

Well, I cannot give you a plant count, what I can tell you is that we are rightsizing our company right now for the business environment that we are in, and I will give you an example.  In the case of Texas, we were manufacturing trusses and distributing lumber in Dallas and we are also manufacturing trusses in a little suburb called Burleson.

Well, what we did was we consolidated that and took the truss production that was done in Dallas and moved it all to Burleson because it was a more efficient plant.  So, that is the kind of moves we are making right now.  We are just right sizing our company.  We have maybe a half a dozen plants that we have mothballed at the present time.

Greg Halter - Great Lakes Review

Okay.  And also on your capital spending, Mike, I know you had mentioned about $40 million or as much as $40 million for 2007.  Can you give your thoughts or expectations for 2008, 2009, 2010 and so forth on what you see going forward given the challenging markets?

Michael Cole

2008 will be considerably lower than 2007.  We are not prepared to give a specific target yet.  We will do that with year-end numbers, but it will be considerably lower.

Greg Halter - Great Lakes Review

Okay.  And looking forward beyond that even, are there any new large projects, which would keep that number at 40, or do you expect it to remain at a lower level?

Michael Cole

Are you talking about beyond 2008?

Greg Halter - Great Lakes Review

Correct.

Michael Cole

We do not have any specific projects at this time.  That is a pretty far time horizon to look out for CapEx for 2009 and 2010.  I am just comfortable right now saying that for 2008, it will just be considerably lower.

Greg Halter - Great Lakes Review

Okay.

William G. Currie

Greg, I think it is important to note that we do not use CapEx when we want to do acquisitions.  That is something that is done internally for our existing plants, but we still are actively pursuing acquisitions that make sense for us.

Greg Halter - Great Lakes Review

All right, and then relative to the share repurchase, I believe, there was a comment made about possibly being more aggressive in this current quarter.  And, I guess the question is, at least for the third quarter it appeared there was not much done in the way of repurchase and just wondering why that is and why you are changing your tone going into the fourth quarter?

Michael B. Glenn

Greg, during the third quarter we started to buy back shares.  I think, we bought back 80,000 or 90,000 shares.  And then, we had a couple of opportunities that we were investigating that caused inside information to stop.  We were counseled to stop buying back our shares, so we did.

Those have passed, the quiet time is over tomorrow morning, and as Mike said, we will be aggressively acquiring back our shares.

Greg Halter - Great Lakes Review

Okay, great, thank you.

Operator

Your next question comes from the line of Jay McCanless from FTN Midwest.  Please proceed.

Jay McCanless - FTN Midwest

Good morning, everyone.  First question I have on the site-built side, I am starting to hear more rumors and some news stories about some of the smaller builders getting their lines pulled from the bank et cetera.  Just want to get your views from credit risk from some of your smaller customers through the rest of this year and into ‘08?

Michael B. Glenn

Jay, that whole industry is a little bit of a credit risk right now to be honest with you.  We have weekly phone calls right now where we see if anybody steps outside of their payment terms.  If they do, then we get on the call, we either put a lien in or we stop shipment.  But, our take is something will happen here in the next six months.

Jay McCanless - FTN Midwest

And should we expect a large reserve on your part or just expect?

Michael Cole

It is a reserve that we have been more conservative with this year considering the credit environment we are in.

Jay McCanless - FTN Midwest

Okay.  And then, I want to swipe over to manufactured housing real quick.  I know that you had converted some of the banks plants over to industrial, how many dedicated manufactured housing plants do you have right now?

William G. Currie

Hold on a second, we are counting them up.

Jay McCanless - FTN Midwest

Okay.

William G.  Currie

Somewhere between 10 and 12.

Jay McCanless - FTN Midwest

Okay.

Michael B.  Glenn

No plant is 100% manufactured housing, but some of them are majority of that.  Others we have multiple lines in the same plant.

Jay McCanless - FTN Midwest

Okay.  And so, is the geographic concentration in the three states you were talking about earlier are Texas, Indiana and North Carolina, or there are other areas of the country where you have significant manufacturing presence?

William G. Currie

We have other ones in Southern California.

Michael B. Glenn

Georgia, Alabama, Florida, we have such a high market share, Jay we are pretty much wherever they are at now.

William G. Currie

Throughout the United States, Jay.

Jay McCanless - FTN Midwest

Yeah.  That is what I was wondering, just because you all mentioned Texas, Indiana and North Carolina which we had heard about before.  But I was surprised that you did not mention that Georgia and Alabama corridor.  Can you give me some insight on what is going on there?

William G. Currie

It is picking up there also.

Michael B. Glenn

The reason we mentioned those three, as those are the hottest markets right now; those are where we seem to have backlogs that will take us into December, and then we will go through their normal seasonal shutdowns.  But that is the first time in a couple years where these plants have been out for four to six to eight weeks.

Jay McCanless - FTN Midwest

Great.  Well thank you, guys, I appreciate it.

Operator

Your next question comes from the line of Christopher Bennett from Wachovia.  Please proceed.

Christopher Bennett - Wachovia Securities

I had a couple questions here.  Mike, you talked about the year-over-year decline in gross margin, and mentioned maybe four or five reasons for that.  I was wondering if you could weight those toward which reason was the biggest driver, and when you also talked about the SG&A, the savings in the existing plants, if you could possibly talk about how they broke out by sales, general and such?

Michael Cole

With regard to the first question, the biggest item by far was the site-built pricing pressure in the margins there and then I would put the unit sales volumes being off and then the sales incentives.

Christopher Bennett - Wachovia Securities

Okay.  And then when you guys look, two to three, maybe five years out, what do you guys see the concrete forming business being, I think you mentioned about $30 million in '07 so far.  What do you guys see that being as a contributor to your top line?

Michael B. Glenn

The reason we talked about industrial being a seven-year initiative is that it really kind of surprisingly took us seven years to get where we are at.  We do not think it is going to take us that long with concrete forming because we learned a lot through that process, but we think that within those four years, we are certainly going to have somewhere around a 25% to 30% market share.

Christopher Bennett - Wachovia Securities

Great, thanks guys.

Operator

Your next question comes from the line of David Liebowitz from Burnham.  Please proceed.

David Liebowitz - Burnham

A few unrelated items, first what percentage of total revenue were Home Depot and Lowe's in the most recent quarter?

Michael Cole

Let us see here, David.  Depot I believe is about 27% of sales this quarter.

David Liebowitz - Burnham

Okay, and Lowe's?

Michael Cole

I do not have Lowe's, I am sorry.

David Liebowitz - Burnham

Okay, that is all right.

Michael Cole

That is a single-digit number, David it is much, much smaller.

David Liebowitz - Burnham

Understood.  Second question, what is the total cost of the rightsizing of the business as we look at '08 calendar year?

Michael Cole

In other words, what is the cost savings?

David Liebowitz - Burnham

What will your expenses be to accomplish it first and then coming out the other side, what might that add to the income statement in terms of earnings?

Michael Cole

In terms of cost-to-accomplishment David, I think those are fairly minor.

David Liebowitz - Burnham

Okay.

Michael Cole

In terms of the cost savings for '08.

William G. Currie

Yes, that is a hard one to quantify, David.  We are not enamored about '08, but we feel pretty positive that we will do substantially better than we did in '07 due to our rightsizing and due to our CI initiative.

Michael Cole

It is going be several million dollars David, in terms of cost benefits for next year.

David Liebowitz - Burnham

Okay, you said just now that you feel you can out earn '07 in '08, because of rightsizing and other items.  To accomplish that, what is your estimate on housing?  The single-family housing market for '08 vis-à-vis '07?

William G. Currie

I think Mike gave you a good answer.  I would not be a bit surprised to see it at $800,000.00 or $850,000.00 but understand as he said, we are making huge strides in turnkey, light commercial and multi-family packages and we do not anticipate whatever the housing market does to have a hell of a lot of impact on any kind of growth we have in the site-built market.

David Liebowitz - Burnham

And the last question, we are now, I guess, entering year three of the five-year plan or year two of the five-year plan? Mike, correct me on the status.

Michael B. Glenn

Year two.

David Liebowitz - Burnham

Okay.  That being said and given the dramatic decline in single-family home building, do you still stand by the projections for the five-year program or are you going to have to push out the results by a year?

William G. Currie

Well, David, we are only into year two and we are not quitters.  If housing comes back, even at a modest rate of $1,500.00 to $1,800.00 in some of our other initiatives and if the lumber market moves up a little bit, it is not unreasonable to think that we will hit our goals and certainly we evaluate all that every year when we have our annual budget and planning meetings.

David Liebowitz - Burnham

Okay.  And the last thing, if ‘08 can out earn ‘07, do you expect to be able to do that in each of the four quarters or is that going to be back-end loaded?

Michael Cole

I think it is too early to say, David.  We will come out with our targets for ‘08 when we release our December numbers.

David Liebowitz - Burnham

Thank you, very much.

Michael Cole

You are welcome.

Operator

Your next question comes from the line of John Emerich from Iron Works Capital.  Please proceed.

John Emerich - Iron Works Capital

Can you give me a ballpark of what the organic growth rate was like in each of the four segments as you break them out?

Michael Cole

Organic growth overall was actually down 6%, so it was not growth.  Manufacturing housing organic was down 9%, which was industry production.  DIY was flat even though the market was down.  Site-built was off by 12%, for that was because of exiting the Las Vegas framing market, and industrial was flat.

John Emerich - Iron Works Capital

Okay, versus a market that was flat or up slightly.

Michael Cole

Probably also off.

John Emerich - Iron Works Capital

Okay.  And do you have organic growth.  I mean, I know it is too early to provide specific ‘08 guidance, but would you expect in a flat, for instance, DIY market that analysts are projecting for ‘08 that you would actually be able to grow because you are gaining share?

Michael Cole

Yes.

John Emerich - Iron Works Capital

So you have organic growth there.  And industrial, would you expect organic growth next year?

Michael Cole

Yes.

John Emerich - Iron Works Capital

And it is sounds like manufactured housing you are especially optimistic.

William G.  Currie

Yes.

John Emerich - Iron Works Capital

Okay.  So, that is great.  Thank you very much.

Operator

Your next question comes from the line of Greg Halter from Great Lake Review.  Please proceed.

Greg Halter - Great Lakes Review

Within your release you talked about the targets based on the following assumptions, one of those including no events occurred that resulted in asset impairment charges and I am just wondering, what type of events would cause that or dollar amounts that you may be looking at there that could be at risk?

Michael Cole

We are not afraid to talk about of any of the dollar amounts that would be at risk, Greg, but if we permanently closed the plant and sold it, many times in a situation like that the plant cannot be sold for what we have into it, and so those are the types of things that can happen that could cause an impairment.  If we permanently close it and made a decision to exit that market and sell the plant.

Greg Halter - Great Lakes Review

Okay.  All right, thank you.

Operator

Your next question comes from the line of Jay McCanless from FTN Midwest.  Please proceed.

Jay McCanless - FTN Midwest

One more question I had in looking at the lumber markets.  The government data has been telling us that the wholesale inventories of lumber have been declining for the last roughly five to six months.  I wanted to get some historical perspective on when and how we should expect lumber prices to turn.  Are there any signs that we can look for out there?  Just get a little historical read from you guys.

Michael B.  Glenn

Hey Jay, I would say almost categorically that all of the lumber and wafer board manufacturers are operating at a loss.  Now what normally happens in a lumber cycle like that is it is going to cause some shutdowns and it is going to cause some permanent closures.  That is on the supply side.

The other side of the equation that you have to look at is that the wood baskets are expanding.  A 100% of our wood used to come out of Canada or the United States.  Now there is a wood basket that we bring in from Chile, from Brazil, from China, from Eastern Europe and now there is expanding wood baskets, so it is all going to be a matter of how much pain can the manufacturers stand before the prices go up.  But obviously they have to move up in order for there to be any profitability in any of the primary wafer board or lumber manufacturers.  So we do look for a little price help next year.

Jay McCanless - FTN Midwest

Okay, and has there historically been any tie-in between what we see on the wholesale side relative to how it comes out? I mean, how do I relate the wholesale lumber decreases that we have seen so far back to how you all can go out and price it to your customers? How does that relationship work?

Michael B. Glenn

Are you saying that there is an increase in wholesale lumber of inventories or a decrease?

Jay McCanless - FTN Midwest

Decrease.

Michael B.  Glenn

The reason that there is a decrease is that there is no market opportunity for them to make any money.

You always see the wholesale inventories increase in a rising market and you see them shrink in a falling market.  That is what keeps more pressure on the downward pricing.

Jay McCanless - FTN Midwest

Okay.  And so, at this point we have not reached a level where the decrease in the supply is going to cause a rise in the price?

William G. Currie

That is correct.

Jay McCanless - FTN Midwest

Okay, great.  Thank you.

Operator

At this time, there are no further questions in the queue.  I would now like to turn the call back over to management for closing remarks.

William G.  Currie

Okay and thanks a lot.  Once again, Mike Glenn, thanks again for a great performance in tough times.  Thank you all very much for your interest in the company, we will work hard to outperform the market and we will be very active in buying back our own shares because we think it is the very best investment we can put our money in.  Thank you very much.

Operator

Thank you for your participation in today's conference.  This concludes the presentation.  You may now disconnect.  Good day.

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Source: Universal Forest Products Q3 2007 Earnings Call Transcript
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