Lynn Afendoulis - Director of Corporate Communications Matthew J. Missad - Chief Executive Officer and Director Michael R. Cole - Chief Financial Officer, Principal Accounting Officer and Treasurer

Steven Chercover - D.A. Davidson & Co., Research Division Robert J. Kelly - Sidoti & Company, LLC

Good day, ladies and gentlemen, and welcome to the Quarter 2 2013 Universal Forest Products Incorporated Earnings Conference Call. My name is Mark, and I'll be your operator for today's call. [Operator Instructions] And as a reminder, this call is being recorded for replay purposes. And now, I'd like to hand the call over to Lynn Afendoulis, Director of Communications. Please proceed, ma'am.

Thank you, and welcome to the Universal Forest Products Second Quarter 2013 Conference Call. Hosting the call today are CEO, Matt Missad; and CFO, Mike Cole. Matt and Mike will offer prepared remarks. Then we'll open up the call for questions. This conference call is available simultaneously in its entirety to all interested investors and news media through a webcast at www.ufpi.com. A replay will also be available at that website through August 16, 2013. Before I turn the call over to Matt Missad, let me remind you that yesterday's press release and today's presentations made by our executives include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, those factors identified in the press release and in our filings with the Securities and Exchange Commission. At this time, I would like to turn the call over to Matt Missad. Matthew J. Missad: Thanks, Lynn, and good morning, everyone. Thank you for joining us. I hope you are pleased as we are by the company's results for the quarter, with sales up nearly 25% over 2012 and healthy earnings increase we are on our way to meeting our robust growth goals. And it's an exciting time to be here and to be a part of this great workforce and management team. Many good things happened in the second quarter, some driven by improvements in our markets, better housing starts and consumers' willingness to invest in more outdoor projects. More, however, was driven by the tireless efforts of our people. For instance, we worked hard to manage through a challenging lumber market. Lumber prices dropped dramatically during the quarter, but we managed that and still were able to post a 24% increase in sales and a 19% increase in earnings from operations over 2012 numbers. Our earnings per share of $0.79 exceeded the expectations of the Street. We achieved these results because our people stayed focused on our goals: growing profitable sales, operating safely and efficiently and conducting business with integrity. They managed well, they grew sales, they kept an eye on costs. Now, they may not have been on the diamond Tuesday night, but they sure gave an all-star effort in the second quarter. Together, we're all working hard toward our goal of $3 billion in sales in 2017 and EBITDA percentages consistent with our historical norms. And we did well toward those goals in the second quarter, increasing sales by double digits in each of our 5 markets and growing unit sales in all markets as well. Just a highlight of the different markets. The retail building materials sales were up 12.9% over the second quarter of 2012. Although April sales to this market were not as good as we anticipated, May and June were much improved. We are pleased with the performance of some of our branded products, including ProWood-treated products and our Dura Color line of products. We're also pleased that we're growing our retail customer base and providing new and better products to meet consumer needs. And our industrial packaging and component sales totaled $193.4 million, up 20.6% over the second quarter. Again, not as robust in April, but improved in May and June. Our unit sales were up 5% over the same period in 2012. While sales were softer to our existing customers than we might have expected, we continue to add new customers, which help to drive sales gains and which indicate continued opportunity in this market. Manufactured housing sales increased 35.7% over the same period of 2012. Although some customers have chosen to vertically integrate certain product lines, we still were able to grow sales due to the growth of the overall market and through some of our strategies to sell more products for every manufactured home built. That said, we still have room for improvement in parts of our distribution business. On the residential construction side, we saw a tremendous growth. We had a 57.3% increase over the same period of 2012, primarily as a result of an increase in housing starts. We still not -- are not achieving the desired margins in this market and need to stay on top of our costs. The commercial construction and concrete forming business continues to expand. Our sales were up 56% over the second quarter of 2012. We continue to look at ways to grow in this market and to grow faster as well as leveraging the capabilities and resources that we bring to it. Our gross margins, unfortunately, did decline 1.2% from 2012 due to the falling lumber market and cost creep on certain framing jobs. As I noticed -- as I noted, the lumber market declined nearly $98 per thousand board feet from week 13 to week 26. In 2011, a similar, but not as drastic drop in lumber prices, took place during a very similar time period. But in 2013, we were able to reduce the impact of this market decline through inventory control, higher unit sales and better operating leverage in our facilities. As we look at our inventories, I wish I had a crystal ball to better predict what the lumber market was going to do. For now, we will continue to watch the market closely and expect modest margin impact to continue if the market stays at its current levels during Q3. Overall, our inventories are slightly higher than I would like them to be, but they are in line with 2012 as a percentage of our current month sales. On the accounts receivable side, our current accounts receivable are 2 percentage points lower than in 2012, due in large part to an increase in housing-related sales, which historically tend to be somewhat slower pay. Now, I'd like to talk a little bit about our performance towards our growth goals. All of our metrics point to more success and also indicate that we have opportunity for improvement. We are on the growth path we set out for our company. Our new product focus has brought additional sales of almost $43 million year-to-date in 2013 versus $34 million last year. We are filling our development pipeline. And while we recognize that all -- not all new products will be a home run, we can make a tremendous impact even if we only bat 300. Our international effort is starting to pay off as well, although a bit slower than we would like. We have added manufacturing in Durango, Mexico and Mexico City, which should generate another $12 million in annual sales. And we've added sales efforts in Europe, the Middle East and Northern Africa to go along with our improving sales in the Caribbean, Central and South America. The combination of our international purchases and sales, not including Canada, is over $100 million. And we need to capitalize on our existing relationships to grow that more rapidly. We also continue to aggressively search out good partners for ventures or acquisition, both domestically and internationally. We still maintain a valuation approach, which we expect will afford us the ability to earn a fair return on the venture or acquisition, not only for our partners, but also for our company. All of our efforts are focused on meeting our long-term growth objectives and creating a much more valuable company. Now, I would like to turn it over to Mike Cole to review some of the key financial statistics for the quarter. Michael R. Cole: Thanks, Matt. Before I review the financials, I should briefly address the impact of the lumber market this quarter. As you might recall, lumber prices rose to a peak at the end of March this year and then fell 29% over the next 11 weeks. Conversely, in 2012, we were selling into a rising market throughout the second quarter. In recent years, this type of negative sequential trend would adversely impact our profits. We're pleased to say that lost profits from the drop in the lumber market this quarter was more than offset by strong unit sales. Also, although lumber prices run a negative sequential trend this quarter, year-over-year lumber prices were up about 15% on average. The higher level of year-over-year lumber prices impacted not only our sales levels, but our working capital cash flow and ratios like margins. Starting with our income statement for the quarter, overall sales increased 24% due to a 15% increase in prices and a 9% increase in unit sales. By market, our sales to the retail market increased 13%, which was comprised of an 11% increase in prices and a 2% increase in units. Within this market, sales to our big-box customers increased 14%, while sales to our other retail customers increased 12%. Also, the trend line of sales within the quarter has left us feeling optimistic. After a significant decline in unit sales in April, units rebounded to strong increases in May and June. Our sales to the manufactured housing market increased 36% due to a 22% increase in price and a 14% increase in units. Our unit increase was primarily tied to an 11.5% increase in industry production of HUD-code homes. Our unit sales increased slightly more than the market due to our distribution business, which has continued to gain market share. Our sales to the residential construction market increased 15 -- or 57% due to a 30% increase in prices and a 27% increase in units, due to the continued increase in housing starts again this quarter. By comparison, housing starts increased year-over-year, 28% from March through May. We're also pleased to report that our plants that primarily serve this market had a year-over-year increase in operating profit of approximately $3.0 million this quarter. Finally, our sales to the industrial market increased 21%, comprised of a 16% increase in pricing and a 5% increase in unit sales due to acquisitions we recently completed. Moving down the income statement. Our second quarter gross profit, as a percentage of sales, decreased by 120 basis points, primarily due to the higher level of year-over-year lumber prices. As you might recall, we generally price our products to earn a fixed profit per unit with commodity costs being a pass through. Some periods of higher year-over-year lumber prices, our gross profit percentage will naturally decline. Taking this into account, a better analysis of our profitability lies in the comparison of the change in our gross profit dollars versus the change in our units shipped. We're pleased to report that our gross profit dollars increased over 11% this quarter, which compares favorably with our 9% increase in unit sales. The increase on our profitability and profit per unit this quarter, in spite of the significant decline -- sequential decline in lumber prices was due to strong unit sales and the operating leverage we have on labor and overhead costs. Selling, general and administrative expenses increased by $3.7 million or 7%. This increase was primarily due to an increase in wages, related to higher sales levels and incentive compensation expenses, offset by a decline in bad debt expense. As you may recall, in June last year, we reported a $6.9 million net gain on the sale of certain property plant and equipment. If we exclude the non-recurring gain from our prior-year results, our operating profit increased by almost $4.5 million, and our net earnings increased by almost $2.6 million for the quarter. Moving into our cash flow statement. Our cash flow used in operating activities in 2013 was comprised of net earnings of $22 million and $17 million in noncash expenses, offset by a $68 million increase in working capital since December. Our investment in working capital has increased primarily due to higher average lumber prices and overall sales levels. Investing activities include capital expenditures of $21.5 million and amounts spent for previously announced acquisitions totaling over $9 million. Expansionary CapEx, associated with new products in our industrial business, totaled over $7 million for the year so far. Finally, our operating and investing activities were funded through borrowings under our revolving credit facility, which has a remaining availability of $179 million. With respect to our balance sheet, our total net debt increased to $145 million compared to $68 million a year ago, which is again due to the impact of higher lumber prices on inventory and greater sales levels. As we move beyond the peak selling season, we expect that our working capital would decline for the balance of the year, resulting in strong cash flows and a reduction on our seasonal debt levels. That's all I have on the financials, Matt. Matthew J. Missad: Well, thank you, Mike. And now, I'd like to open it up for any questions that you may have.

[Operator Instructions] And our first question is coming from the line of Steve Chercover of D.A. Davidson. Steven Chercover - D.A. Davidson & Co., Research Division: So it appears that you guys really did manage your inventories really well because I was, for one, was concerned that you might have been hit with a write-down of some sort. So without revealing your secret sauce, can you -- is part of the success just the ability to move it on to job sites, so that someone else owns the inventory at the end of the quarter as opposed to you? Matthew J. Missad: Well, I think there's a couple of different things. I think a big part of it is our mix and the fact that the different markets we serve and the different pricing methodologies that we have to our customers. So that does help mitigate some of the impact of the declining market. Also, it tends to cut it somewhat when the market's going the other direction as well, so -- but that balance certainly helps. I think our guys did a great job of trying to maintain our inventories and not get too far out in front of themselves in terms of their purchases, so I think there's a combination of things. And again, without revealing any special sauce, I think it really was just a lot of hard work from our people. Michael R. Cole: The operating leverage had a big impact to, Steven, the -- if I look at our material cost percent of sales, that was down about 70 basis points. But our labor and overhead costs as a percent of sales had decreased by 110 basis points -- excuse me, our material costs were up 70 basis points, but our labor and overhead costs were down 110 basis points. So that is why we were able to help mitigate it as well. Steven Chercover - D.A. Davidson & Co., Research Division: So it's good to be busy and -- or at least busier. And I know that you guys don't really want to gamble on, taking big positions one way or the other. But did you feel kind of safe enough starting the third quarter that we might be in for a bounce that after the page on the calendar turned, you started buying a bit more aggressively? Matthew J. Missad: I think we're still watching the market very, very closely, Steve. We're not really sure what direction it's going to go, whether it's going to follow historical patterns or not. So I would say at this point, we're still very cautious on how we're approaching the purchasing side. Steven Chercover - D.A. Davidson & Co., Research Division: Okay. And then switching gears a bit, any readthrough from yesterday's rather lackluster housing data? I mean did you see a slowdown in June? I recognize that most of the weakness was on multifamily, and that's not your area of concentration, but just wondering how you're feeling about the summer. Matthew J. Missad: Again, we're kind of -- we're following the market. And as you all know, we're not in all of the national markets. We're in some pretty good markets, so we tend to see more regional results as opposed to national results. And the multifamily is something that has been heated up for quite some time. So we'll keep our eye on that closely because there does have to be somewhat of a pullback in that, over the next 18 to 24 months, we would expect. Steven Chercover - D.A. Davidson & Co., Research Division: Okay. Well, I generally try not to throw roses on these conference calls, but I was nervous. So good quarter.

The next question is coming from the line of Robert Kelly of Sidoti. Robert J. Kelly - Sidoti & Company, LLC: Mike, you called out materials were a 70 basis point drag on -- was that on the gross margin? Michael R. Cole: Correct. Robert J. Kelly - Sidoti & Company, LLC: And that was offset by labor and overhead, which was 110 basis points positive? Michael R. Cole: That's correct. Robert J. Kelly - Sidoti & Company, LLC: So what was the rest of the drag between what you did a year ago and what you put up in 2Q '13? Michael R. Cole: Well, I think the first -- the kind of the lead in to those 2 numbers is probably -- since year-over-year lumber prices are higher, the level of the lumber market's higher. If you adjust this year's sales to be equal to last year's price levels, that increases gross margin, right, by 160 basis points. So now what you're left with is adjusted gross margins of about 12.5% versus 12.1% last year. So it's really -- if you adjust for lumber prices to a level -- make them level, we're at 40 basis points increase in gross margin this quarter. And that 40 basis points comes from the operating leverage side. Robert J. Kelly - Sidoti & Company, LLC: Got it. And then so -- Matt put it perfectly, no one has a crystal ball. But based where you are with your inventory, and I believe the comment was made that there would be a little -- there would be some drag as we enter 3Q, or there will be some margin impact. I'm assuming that's a little bit of a drag on the margin from higher lumber costs, or how should we think about... Matthew J. Missad: That's correct, Bob. That's really the way I look at it for the next 30 to 45 days. I would expect that to be the case. Robert J. Kelly - Sidoti & Company, LLC: And that's assuming that lumber kind of flattens out in this... in the current range... Matthew J. Missad: Correct. Robert J. Kelly - Sidoti & Company, LLC: In the current range, the outlier [ph] range. Okay, great. As far as the volume growth you saw in big box, I mean that's not a number that we haven't heard from you again a long time -- a double-digit unit gain. What's happening there? Is that just a combination of the March weather and you had some catch-up, or are we starting to see DIY turn the corner? Matthew J. Missad: Well, I think earlier in the year, kind of the same-store sales results were actually down in units. And we've seen a little correction in that in May and June. We also picked up some additional volume, which has really helped in all of our customers in that market. So that has probably been the bigger driver for us. We picked up some market share. And I think the improvement in unit sales in May and June, and we hope that, that continues, but we don't know that for sure. Robert J. Kelly - Sidoti & Company, LLC: And just one question maybe just a point of clarification. Pricing in the residential construction business was up 30%, but lumber, on average, was only up 15%. Can you just help me understand why you did so well on the pricing side in res construction? Matthew J. Missad: Yes. Are you comparing, Bob, from earlier in the year? Robert J. Kelly - Sidoti & Company, LLC: You had said -- I believe Mike Cole had said that your price was a 30% benefit for the res construction side? Michael R. Cole: Yes, and really, Bob, that's because on the residential construction side, prices are held for a longer period of time. But the lumber prices were higher in Q1. Those prices are fixed for a period of time. So in earlier in the year in Q1, lumber prices were more than 30% higher year-over-year. Robert J. Kelly - Sidoti & Company, LLC: Okay. So that price tailwind for res construction will moderate in the second half? Michael R. Cole: Exactly.

Thank you for your question. I would like now to turn the call over to Matt Missad for closing remarks. Matthew J. Missad: Again, I'd like to thank you for your time this morning. I'd also like to thank all the members of the UFP family of companies for their hard work and all of the shareholders for their investment in our company. We see lots of opportunity on the horizon, and we will continue to devote our efforts to improving the returns and growing your company profitably. And as you enjoy the outdoors this summer, we'll be working to show how the purchase of UFP products can enhance your outdoor living environment and make time spent with family and friends even more enjoyable. Thank you, and have a great day.

Thank you for your participation in today's conference, ladies and gentlemen. That concludes the presentation, and you may now disconnect. Please enjoy the rest of your day.