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

Robert J. Kelly - Sidoti & Company, LLC Steven Chercover - D.A. Davidson & Co., Research Division James McCanless - Sterne Agee & Leach Inc., Research Division

Good day, ladies and gentlemen, and welcome to the Q3 2013 Universal Forest Products and Earnings Conference Call. My name is Charoll, and I'll be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. And I'd like to turn over to Lynn Afendoulis, Director of Corporate Communications. Please proceed.

Thank you. Welcome to the Universal Forest Products Third Quarter 2013 Conference Call. Hosting the call today are CEO, Matt Missad; and CFO, Mike Cole. Matt and Mike will offer prepared remarks, and then we'll open up the call for questions. This conference call is available simultaneously and 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 November 15, 2013. Before I turn the call over to Matt Missad, let me remind you that today's press conference and presentations and yesterday's release 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 to everyone on the call. Thank you for joining us this morning. I know you have a busy schedule, and we appreciate you taking the time to spend with us. I've been scratching my head the last several days trying to come up with an eloquent or clever superlative to describe how proud and impressed I am with our Universal team. I revisited our past references to Batman movies, voyages to the Moon and beyond, as well as all-star sports references. However, these all occurred when the economy was booming. This time, it's different. And, in many ways, I think it's better. The economy has improved, but it's hardly robust. Housing starts are still below 1 million annually, yet our employees posted the best third quarter results since 2006. Many of you who are familiar with the movie, The Princess Bride, may think our performance is inconceivable. I, however, believe the performance is the logical result of the efforts of our team and our diversified business model. So first and foremost, I'd like to thank and congratulate our team. They worked incredibly hard and smart, and the results prove it. While we are very encouraged by the results, we also know we still have plenty of room for improvement. As we look at the results for the quarter, we see double-digit sales growth in each of our markets. While we had some help from the lumber market in increasing sales dollars, we're also encouraged by the unit growth we were able to achieve. A quick review by market shows that retail building materials sales increased 21.6% to $247 million. The company is seeing the results of its strategy to grow sales with both independent and big box retailers by diversifying product mix and providing enhanced service and innovation. We saw increased consumer spending in the repair and remodel space. And we continue to focus on innovation and providing new products and excellent service and quality. In the industrial packaging market, sales grew 20.8% to $187.3 million. We were able to increase market penetration and added 402 customers in the third quarter of 2013. Manufactured housing increased 12.3% to $100 million. This market grew more slowly in the last half of the third quarter, yet we still see potential to improve. Better consumer financing options would certainly help this market. Residential construction expanded 29.3% to $89.7 million. The company is well positioned in the core markets it serves in this market. And although we made good strides, we still need to improve our performance in turnkey projects. Commercial construction and concrete forming jumped 51.7% to $36.7 million. By focusing on providing more value to our customers, and with the expected addition of the Southeast Panel business, we hope to capture an increasing portion of this market. Moving along, these sales increases will keep us on schedule for our 2017 target of $3 billion in sales, and we are making very good progress towards increasing our operating margins to historical norms. Our overall gross margins increased almost 1.7% over 2012 for the quarter due primarily to better operating leverage and improved performance at the operations which struggled 1 year ago. Going through some of the other key metrics we focus on, first is inventory. The lumber market has steadily been rising over the past -- over the last part of the quarter, and our inventories are up just over $23 million as a result primarily of higher prices. As a percent of sales, inventories are actually down to 170 -- 117% of sales versus 128% 1 year ago. We continue to monitor the market closely and adjust our purchases accordingly. Accounts receivable are up $50 million due to higher sales. Unfortunately, our percent of current dropped to 87% versus 90% 1 year ago. We continue to watch accounts closely during the balance of the year as they deal with their seasonal slowdowns. This is the time of year when we have to be even more vigilant about collecting our accounts receivable and following up with our customers. While we continue to push our sales goals by market, even more important is continuing our progress towards our strategic goals. One of those key growth areas is new product development. We have been investing much more heavily in this area, and we are very encouraged by our results. New product sales for 2013 are just over $67 million year-to-date compared with a little over $46 million in 2012. We are increasing our product pipeline. And while we know that not all products will be successful, by strengthening our product offering, we will continue to grow these new product sales while enhancing our overall product mix. Our international sales and purchasing efforts continue to grow, and we continue to seek joint venture partners in areas where it makes sense. We will stick to our conservative approach in choosing a partner and are focused on expanding our core business for our global customers. Our domestic acquisition efforts continue also, and we're always looking for good businesses in our core markets or with natural product line extensions to enhance our new product offerings. And as we continue to grow, we are increasing our recruiting efforts to make sure that we have highly motivated and talented employees to execute our strategy. We recognize that great people make a great business. We recently concluded a training class that saw more than 50 new employees get in-depth training on our business and culture. These new employees left the training very energized and ready to help us grow more profitably. And as you all know, all of our efforts to improve performance are focused on meeting our long-term growth objectives and creating a more much valuable company for our shareholders. Now I'd like to turn it over to Mike Cole to review some of the key financial statistics for the quarter. Michael R. Cole: Thanks, Matt. I'll start with our income statement for the quarter. Our overall sales increased 22% due to a 9% increase in prices and a 13% increase in unit sales. To review by market. Our sales for the retail market increased 22%, which was comprised of a 10% increase in prices and a 12% increase in units. Our unit increase was due to a combination of stronger same-store sales growth with our customers and share gains we reported to you at the beginning of the year. Our sales in the manufactured housing market increased 12% due to a 3% increase in prices and a 9% increase in units. Our unit increase was primarily tied to an 8.5% increase in industry production. Our sales to the residential construction market increased 29% due to a 17% increase in prices and a 12% increase in units due to the continued increase in housing starts again this quarter. By comparison, national housing starts experienced a year-over-year increase of 15% from June through August. We're also pleased to report that our plants that primarily serve this market had a substantial increase in operating profit again this quarter. Finally, our sales to the industrial market increased 21% comprised of a 9% increase in pricing and a 12% increase in unit sales. Moving down the income statement, our third quarter gross profit as a percentage of sales increased by 160 basis points, and our gross profit dollars increased 42% this quarter, comparing favorably to a 13% increase in unit sales. The increase in our profitability and profit per unit this quarter was primarily due to strong unit sales and the operating leverage we have on labor and overhead costs in our plants. Selling, general and administrative expenses increased by $7.8 million or 17% this quarter. This increase was primarily due to an increase in wages and incentive compensation expenses tied to profitability. Excluding accrued bonuses, SG&A was up 8% for the quarter. Overall, these factors drove a $16 million increase in our operating profit this quarter, while our net earnings increased by almost $10 million. Moving on to our cash flow statement. Our cash flow from operating activities has increased by over $45 million this year and is comprised of net earnings of $37 million, $26 million in noncash expenses, offset by a $15 million increase in working capital since last December. Our investment in working capital has increased primarily due to higher overall sales and, therefore, receivables levels. Investing activities include capital expenditures of about $32 million, including expansionary capital expenditures of almost $10 million associated with new products and growing our industrial business. Investing activities also include $9.3 million of payments for previously announced acquisitions. Finally, as we move beyond our peak selling season, we used remaining cash flow to pay off the balance on our revolving credit facility and to pay our semiannual dividend in Q2. The revolving credit facility has $255 million in availability after considering letters of credit. With respect to our balance sheet, our total net debt increased to $79 million compared to $51 million 1 year ago, which is, again, due to higher working capital resulting from higher sales levels. We're very pleased with the condition of our balance sheet and feel we have substantial debt capacity to fund our future growth. That's all I have on the financials, Matt. Matthew J. Missad: Thanks very much, Mike. Now I'd like to open it up for any questions you may have.

[Operator Instructions] First question comes from Kelly, Robert from Sidoti. Robert J. Kelly - Sidoti & Company, LLC: Just a -- would you just repeat the price and units data for the retail building materials segment? I missed that. Michael R. Cole: Sure. Yes, no problem. Retail was up 22% overall. 10% of it was prices and 12% increase was in units. Robert J. Kelly - Sidoti & Company, LLC: Okay, great. And so, I mean, can you just talk about the unit performance throughout the quarter? Was that fairly consistent? Did you see any ill effects from the noise surrounding the government shutdown and the recent spike in interest rates? Just how that flowed throughout the quarter? Matthew J. Missad: I think overall, the quarter was fairly level. We didn't see a whole lot of decline. There was a -- manufactured housing tailed off just a little bit. But I think, by and large, it was pretty consistent throughout the quarter. Michael R. Cole: Yes, and retail itself, too, was consistent. Robert J. Kelly - Sidoti & Company, LLC: That's good to hear. The performance at the gross margin line was real solid and kind of more in line with what you've done historically. Can you just talk to the drivers of the year-over-year improvement and the sequential improvement, how much it had to do with the volumes being strong or just the fact that lumber didn't do a roller coaster on you? Matthew J. Missad: Yes, I think the lumber market consistency certainly helps, but I also think you're seeing the results of some of the operating leverages. We're able to increase the production levels at the individual facilities. I think the other helpful driver for us is that our people have done a great job improving performance in some areas that struggled. So you're seeing a blend of all those things really helped drive the improvement. Robert J. Kelly - Sidoti & Company, LLC: Sure, sure. And you called out in the release some operational improvements. I remember 1 year ago you had some productivity issues that were a $2 million drag. Are those now behind you? And where -- what part of the overall business were those issues tied to? Matthew J. Missad: Yes, I'm not going to tie into the individual business areas. But yes, those issues are behind us. I mean, we'll always face challenges in the future. But those types of challenges, we don't need to see again. Robert J. Kelly - Sidoti & Company, LLC: Okay. And then just as far as the inventory position, lumber began to kind of creep up towards the end of the quarter. I don't know if you said this during your prepared remarks. Where are you -- where's your inventory position relative to the market price? Matthew J. Missad: I think we're in good shape with our inventories. We're in line with market. And so we should be well positioned.

The next question comes from Steve Chercover, D.A. Davidson. Steven Chercover - D.A. Davidson & Co., Research Division: First of all, can you tell us how you outgrew the residential market almost by a factor of 2x? Is it the geographic locations that you're operating in or just your excellence? Matthew J. Missad: Well, thank you for that. I don't think we'll take credit for the excellence. But I do you think the markets that we're in are very strong markets. And again, we're seeing the benefit of increased utilization of our facilities in those areas. That's really helped us. Steven Chercover - D.A. Davidson & Co., Research Division: Yes. That would actually lead into one of my other questions, so I'll go out of order. But what do you think your sustainable growth -- gross margins are? Do you have a target for that? Would it be in the low teens? Matthew J. Missad: Yes, I think what we try to focus on, Steve, is the operating margin line, and that's what we're looking at. And we believe we can get to our historical norms, and that's our target. Steven Chercover - D.A. Davidson & Co., Research Division: And you did put up some 13% and 14s in the better year -- better years? So... Matthew J. Missad: And that's the gross margin line. Steven Chercover - D.A. Davidson & Co., Research Division: Okay. Matthew J. Missad: Yes. Steven Chercover - D.A. Davidson & Co., Research Division: And if I recall, I think you had some kind of military barracks or something you were working on, that might have even been in the Boston area. Am I utterly wrong? Because I guess I was wondering if there was -- I thought there was some sort of governmental work. And I also want to know if the shutdown had had any implications or it might in the current quarter. Matthew J. Missad: I don't know how far back you're going with that, Steve, but the -- in terms of current projects like that, I don't think we have any that are significant in scope. So I do think I know what you're talking about, which was a couple of years ago. That project's completed. Steven Chercover - D.A. Davidson & Co., Research Division: Okay, fine. And finally, the antidumping charge. Was that associated with the softwood lumber dispute? Or was it some Asian product? Matthew J. Missad: Yes, the antidumping is related to imported product, to metals product. And then there's probably been a little bit of confusion, I will say, with respect to whether certain items were subject to duty or not. So that was the cause of the charge. Steven Chercover - D.A. Davidson & Co., Research Division: And will that persist or is that behind us? Matthew J. Missad: No, we think that's behind us.

The next question comes from Jay McCanless from Sterne Agee. James McCanless - Sterne Agee & Leach Inc., Research Division: So first question. When I look at the unit growth in the 4 business lines you disclosed, it looks like all of those were below the average for the company. So am I correct to think that commercial and concrete forming had a fairly strong performance this quarter, above average performance? Is that the best way to look at it? Michael R. Cole: Yes, that's right. But I didn't give that one, Steve. It -- they grew their unit sales 42%, so they had an outstanding quarter. James McCanless - Sterne Agee & Leach Inc., Research Division: Okay, great. I guess, and to follow on the last question about the government shutdown. Just tactically, for the fourth quarter, what are you hearing from the field? Are you seeing any delays in business? Anybody pulling back? Or is everyone looking through the shutdown? Matthew J. Missad: Yes, we haven't seen a lot of change in anybody's perception at this point. It's our normal seasonal slower quarter, but we don't see anything different than typical, at least at this point. James McCanless - Sterne Agee & Leach Inc., Research Division: Okay. No, it's good to hear. And then I wanted to ask you a question. I know you all gave the customer sign-ups on the industrial business. But what about in residential construction? Are you seeing that private builder customer get financing and coming in to perhaps fill out a credit app? What's happening there? Matthew J. Missad: I think the portion of our business that's more the custom homebuilder, which as I say -- what I think you're referring to, they're still doing very well. And we have a nice niche with them with complex products, and that's what we try to focus on with them. To date, at least for them, the financing hasn't been a big issue or an impediment to what they're trying to accomplish. They're not doing a lot of spec building still, so they usually have these things presold. James McCanless - Sterne Agee & Leach Inc., Research Division: Okay, okay. And then if you could, just some commentary about the MH market and how you all are evaluating that market for '14. Matthew J. Missad: Yes, I think in talking with our customers there, they're predicting a kind of a steady, not a big increase, maybe a 5% to some -- to 10%. But we're probably more comfortable with the lower end of that range in terms of their growth.

Thank you. You have no other questions at this time, so I'd now like to turn the call over to Matt Missad for closing remarks. Matthew J. Missad: Again, thank you. I'd like to thank all of you for your time this morning. I'd also like to do a special thank you to all the members of the UFP family of companies for their hard work and for all the shareholders for your investment in our company. We see lots of opportunities on the horizon, and we continue to devote our efforts to improve returns and to grow the company's profitability. It's really an exciting time to be a part of the UFP family. And as a closing note, with all due respect to our good friends in Boston, we'd like to wish the Detroit Tigers well. The people of Detroit need something positive to cheer about, so let's hope for a championship for the Tigers. Have a great day.

Thank you for your participation in today's conference. This completes today's presentation. You may now disconnect. Have a good day.