Earnings Preview: Universal Forest

Universal Forest Products Inc. (UFPI) is slated to release its third-quarter 2010 results on Thursday, October 19. The current Zacks Consensus Estimate for the third quarter earnings per share (EPS) is 52 cents, representing an annualized growth of 2.45%.

With respect to earnings surprises, over the trailing four quarters, Universal Forest outperformed the Zacks Consensus Estimate in two quarters, lagged behind in one, and in line with one. The average earnings surprise was a positive 170.95%, implying that the company has outdone the Zacks Consensus Estimate by the same magnitude over the last four quarters.

Previous Quarter Highlights

Universal Forest reported disappointing results for the second quarter of 2010 with its net income falling despite a healthy top-line growth. Net income slipped 14.9% year over year to $13.7 million or 70 cents per share compared with $16.1 million or 83 cents per share in the second quarter of 2009, primarily due to higher costs. Earnings per share also fell short of the Zacks Consensus Estimate of 89 cents.

Net sales in the second quarter 2010 increased 24% year over year to $638.6 million, primarily based on healthy growth in all the markets served. Cost of goods sold increased to 88% compared with 84% of sales in the second quarter of 2009 due to volatile lumber prices resulting in lower gross margin at 12.2% versus 16.0% in the year-ago quarter.

Universal Forest expects challenging conditions to persist throughout 2010 and thus refrained from providing any financial guidance for the fiscal.

Detailed discussion on the second quarter results can be found here: Lackluster 2Q for Universal Forest

Agreement of Estimate Revisions

In the last 30 days, out of the 4 analysts covering the stock, none revised their earnings per share estimates for the fiscal year 2010 and 2011. Also, no revisions were made for the third quarter of 2010.

Magnitude of Estimate Revisions

Estimates over the last 30 days remained unchanged at 52 cents for the third quarter of 2010, $1.37 for the fiscal year 2010 and $2.12 for the fiscal year 2011.

The current Zacks Consensus Estimate for the year 2010 and 2011 reflects a year-over-year growth of 9.80% and 54.46%, respectively.

Magnitude – Consensus Estimate Trend

Our Take

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

Despite the company being comfortably positioned to expand into new markets, we see little share-driving catalysts, going forward, especially after the company’s disappointing second quarter results.

Moreover, Universal’s excessive dependence on general market conditions and growth in end markets exposes it to top-line risks in the event of any adverse conditions. Besides, volatility in the cost of lumber products from primary producers and high customer concentration risks are major causes of concern for the company’s financial health.

We currently maintain an Underperform rating on the stock, as supported by Zacks #5 (Strong Sell) Rank.

UNIVL FST PRODS (UFPI): Free Stock Analysis Report

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