Building materials manufacturer UFP Industries (NASDAQ:UFPI) missed Wall Street’s revenue expectations in Q1 CY2025, with sales falling 2.7% year on year to $1.6 billion. Its non-GAAP profit of $1.30 per share was 16.9% below analysts’ consensus estimates.
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UFP Industries (UFPI) Q1 CY2025 Highlights:
- Revenue: $1.6 billion vs analyst estimates of $1.63 billion (2.7% year-on-year decline, 1.9% miss)
- Adjusted EPS: $1.30 vs analyst expectations of $1.57 (16.9% miss)
- Adjusted EBITDA: $142.2 million vs analyst estimates of $159.3 million (8.9% margin, 10.8% miss)
- Operating Margin: 5.8%, down from 8.2% in the same quarter last year
- Free Cash Flow was -$197.4 million compared to -$89.69 million in the same quarter last year
- Sales Volumes fell 2% year on year (-13% in the same quarter last year)
- Market Capitalization: $5.88 billion
StockStory’s Take
UFP Industries' first quarter was shaped by ongoing macroeconomic uncertainty and persistent margin pressure, with management citing unfavorable manufacturing variances, competitive pricing, and higher input costs as key contributors. CEO Will Schwartz emphasized that while business activity improved sequentially through the quarter, overall sales trends remained challenging, particularly in the packaging and construction segments. The company also pointed to a temporary customer transition in its Deckorators business as a factor in retail volumes.
Looking ahead, management expects these headwinds to persist, with limited visibility into the second half of the year. They noted continued caution on demand, competitive pricing, and the potential impact of tariffs on Canadian lumber. Still, Schwartz reiterated a commitment to cost reduction initiatives and capacity investments, stating, “We are on track with our cost-out programs and have levers to pull should a market recovery fail to materialize.”
Key Insights from Management’s Remarks
UFP Industries' first quarter performance was largely influenced by weak demand, margin challenges from cost inflation, and product transitions within its retail division. Management focused on cost control, segment-specific performance, and capacity investments as levers to improve future results.
- Margin pressure from input costs: Management highlighted that higher material and transportation costs, coupled with unfavorable manufacturing variances, weighed on margins, particularly in the packaging and construction segments. CFO Mike Cole stated these headwinds were difficult to offset fully in a soft demand environment.
- Deckorators transition and outlook: The retail segment experienced an 11% decline in Deckorators units due to a customer shift, but management expects this to reverse as new store placements ramp up through Q2. CEO Will Schwartz noted that Surestone decking sales rose 24% and now represent more than half of composite sales.
- Cost reduction initiatives: The company is progressing toward $60 million in structural cost savings by 2026 through capacity reductions, SG&A cuts, and automation investments. These are expected to improve margins over time, even if demand recovery is delayed.
- Diversification and M&A pipeline: Management underscored a diversified business mix and an active pipeline of acquisition opportunities across business units. They reiterated flexibility to pivot capital from organic expansion to M&A based on market conditions and return thresholds.
- Capacity expansion: UFP Industries continued to invest in expanding manufacturing for new products, particularly Surestone, and announced a new Deckorators facility in the Northeast. These investments aim to support market share growth and improved efficiency as market conditions evolve.
Drivers of Future Performance
Management's outlook for the coming quarters centers on persistent demand and pricing headwinds, ongoing cost and efficiency initiatives, and selective growth investments, all shaped by macroeconomic uncertainty and industry-specific risks.
- Market demand and pricing: The company expects competitive pricing and subdued demand to remain across most segments, with particular caution in construction and packaging. Management noted limited visibility into the second half of the year and flagged tariffs as a potential risk to input costs and downstream pricing.
- Retail momentum and efficiency gains: Improvements in retail, especially as Deckorators' new store placements and recent capacity investments come online, are expected to partially offset weakness in other segments. Management believes margin recovery in retail could be realized as operational disruptions ease.
- Cost control and capital allocation: UFP Industries plans to continue structural cost reductions and adjust its capital allocation between organic projects and M&A, depending on market conditions. Management stated that maintaining a strong balance sheet and disciplined investment remain top priorities.
Top Analyst Questions
- Kurt Yinger (D.A. Davidson): Asked if competitive pressures and pricing challenges are likely to intensify or remain stable. Management replied they expect current challenges to persist, with some stabilization in packaging margins but ongoing pressure in construction.
- Reuben Garner (Benchmark): Questioned whether Deckorators' customer transition is complete and if growth can resume in 2025. CEO Will Schwartz said most disruptions are behind them, expecting improvement and year-over-year gains in the second half.
- Ketan Mamtora (BMO Capital Markets): Sought clarity on the EBITDA impact from Deckorators' volume decline and timing of margin recovery. CFO Mike Cole indicated manufacturing variances negatively impacted Q1 but expects normalization and margin improvement as capacity ramps up.
- James McCanless (Wedbush Securities): Asked about competitive changes from industry M&A and opportunities for Deckorators and Surestone. Management noted potential distribution disruptions and the need to strengthen direct distribution but gave no specifics.
- Kurt Yinger (D.A. Davidson): Inquired about ProWood pricing mechanisms and the effect of recent price increases. CEO Will Schwartz explained price increases have now been implemented and expects more stable margins in Q2 and beyond.
Catalysts in Upcoming Quarters
The StockStory team will monitor (1) the pace of Deckorators' new store load-ins and resulting retail volume recovery, (2) execution of cost reduction programs and their effect on margins, and (3) the company's ability to offset ongoing demand and pricing headwinds through market share gains and operational improvements. Progress on M&A and the impact of tariffs will also be important to track as potential drivers of results.
UFP Industries currently trades at a forward P/E ratio of 13.6×. Is the company at an inflection point that warrants a buy or sell? See for yourself in our free research report.
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