Universal Forest Products: Earnings Preview

| About: Universal Forest (UFPI)
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Universal Forest Products Inc. (NASDAQ:UFPI) is slated to release its financial results for the second quarter of the fiscal year 2011 on Thursday, July 14. The current Zacks Consensus Estimate for earnings per share (NYSEARCA:EPS) is 15 cents, which represents a negative annualized growth of 78.21%.

With respect to earnings surprises over the trailing four quarters, Universal Forest lagged behind the Zacks Consensus Estimate in all the four quarters. The average earnings surprise was a negative 649.09%, implying that the company underperformed the Zacks Consensus Estimate by the same magnitude over the last four quarters.

First Quarter Highlights

Universal Forest reported disappointing results for the first quarter of 2011. Earnings per share in the quarter were a loss of 19 cents compared with a 5 cent gain in the year-ago quarter. Earnings per share also fell short of the Zacks Consensus Estimate of one cent gain for the quarter.

Top line plummeted 1.5% year over year to $387.2 million and was below the Zacks Consensus Estimate of $418.0 million. The decline in sales can be attributed to lost production days owing to bad weather conditions. Site-built and manufactured housing sales also went down because of lower federal incentives and lower DIY/retail sales due to lower inventory stocking compared with prior-year period.

Agreement & Magnitude of Estimate Revisions

In the last 30 days, of the analysts providing estimates for the stock, all revised down their estimates for the second quarter of 2011 and for the fiscal year 2011 and 2012.

Second quarter estimate fell 75% from 61 cents estimated 30 days ago to 15 cents. While estimates for the fiscal year 2011 and 2012 were revised down by 86% and 39% to 14 cents and $1.01, respectively.

Our Take

Outlook seems gloomy for the Michigan-based company, as the company was recently forced to undertake stringent economic measures including job cuts to align its costs with the current business trend.

Results in the first five months of 2011 were disappointing as the company’s top line fell 9.5% year over year, including a 15% decline in net sales to retail customers. Moreover, weakness in lumber market coupled with higher fuel prices led to a decline in gross margin to 10.5%.

Despite the cost cutting measures deemed to save $10 million annually for the company, expectation of soft customer demand for the remainder of 2011 keeps us on the sidelines.

We currently maintain an Underperform recommendation on the stock.