Good day, ladies and gentlemen, and welcome to the First Quarter 2014 Universal Forest Products Incorporated Earnings Conference Call. My name is Janita, and I will be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to Ms. Lynn Afendoulis, Director of Corporate Communications. Please proceed.

Thank you, and welcome to the Universal Forest Products First Quarter 2014 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 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 May 17, 2014. 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.

Thank you, Lynn. Good morning, ladies and gentlemen, and welcome to our first quarter 2014 earnings conference call. I was very excited to look out the window this morning and see a green grass instead of snow, perhaps spring has arrived in Michigan. As you know, the first quarter of the year is very unpredictable for us and others in our business. This year was no exception. But I'm proud to note that we delivered the best first quarter since 2006, with earnings per share of $0.36. And we accomplished that in spite of dealing with the equivalent of approximately 80 plant closure days, thanks to a winter that's been like a houseguest who has overstayed his welcome. During the long winter, our people bundled up, worked hard and delivered very good results under the circumstances. They were like [indiscernible] snowball, rolling through the snow, giving bigger and faster and gaining momentum. They are as motivated as ever having felt improved success in 2013, and working hard to achieve even better results in 2014. I believe we are on the right track as we'll discuss as we walk through our 4 key business metrics: sales, margin, inventory and accounts receivable. In our first quarter and year-to-date, sales dollars were up 0.3%. Sales activity was good, and our facilities are reporting strong order interest. However, due to excessive plant shutdowns based on weather and the inability of many projects to get started, sales fell short of our goal. When we factor in the negative impact of the lumber market, we still see positive unit growth in spite of the weather. For the first quarter, the lumber market was 5% lower year-over-year, and actually, today is approximately 20% below the same time in 2013. We are optimistic that we will recover most of the sales that were postponed in the first quarter, but also recognize that availability of installation labor, transportation and other factors may spread out the timeframe to recoup these lost sales. By market, sales results were as follows: retail was down 1.8% at $202.3 million; construction was down 2.8% at $190 million; and industrial was up 6.7% at $170.4 million. And gross profit was up 150 basis points overall. This improvement resulted from improved performance versus 2013, primarily in our framing operations, and also from an increase in value-added product sales. Our goal of double-digit profit growth was achieved during the quarter. Profit, measured by earnings per share, was up 38%. This percentage increase is even higher if we adjust 2013 EPS number for the higher effective tax rate we paid in 2014. Moving on to inventory. Inventory as a percent of, sales was 152% versus 143% in 2013. We have about a 10% safety stock at the end of the first quarter. And we are carrying this extra inventory due to market conditions and unpredictable transportation from mills caused by our railcar shortage and long delivery times for many Western species. These railcar challenges, many of which were stranded due to weather, are starting to ease somewhat, but they definitely impacted deliveries. We expect these issues to be resolved by the end of Q2, when we plan to return to more normal inventories between now and then. Moving along to accounts receivable. Our goal on accounts receivable is to have them at 95% current. We are currently at 93% current and we're working on improving that. Looking ahead through the balance of 2014 and beyond, I'd like to touch briefly on our strategic growth initiatives, including new product development and sales, organic and acquisition sales growth, and expansion in international markets. Our new product development effort continues to grow with new product sales for the first quarter of $21.2 million, an improvement of almost 13% over 2013. We plan to increase this more this year with additional products being introduced and improved sales of existing new products for the balance of the year. We continued to dedicate more marketing and product management resources to drive our key product brands. You'll see our first ever television ads for DecKorators' deck products and accessories on the popular DIY and HGTV networks, part of the new campaign to continue to enhance that brand. And you'll see the results of much improved design and marketing plans for many of our other brands as we seek to pull more sales through our customers. Our acquisition growth is yielding positive results as we closed 3 transactions during the first quarter. They were small, but strategically important for our local subsidiaries. We still see many opportunities to team up with good companies in our markets. Organically, we continue to add capacity and improve value-added production capabilities at most of our facilities. We are building our team to make sure we have enough talented individuals to support our growth plan. Our international business development initiative have identified several good potential business partners, and has created more purchasing and sales opportunities for our existing North American-based operations. We expect to add another $25 million in international sales and purchases in 2014, and if we can find common ground on valuations, to partner with a good company in a foreign market. We maintain our conservative approach and understand that in order to be successful, a venture must be able to provide an acceptable rate of return on our investment. We are also managing many other market dynamics as well. For example, labor shortages that affect our ability to hire strong candidates for job in production, sales and management and that affect the availability of adequate crews for job sites. As we grow, we need to create a deeper bench of talent to continue to improve operating performance. We continue to add sales, technical specialists and management personnel, and to take them through our training and development programs. We will continue to develop and upgrade existing management teams and organizational structures, making sure we have the right people in the right roles. These challenges are just part of a job and Universal can enhance its competitive advantage by trying to stay ahead of these issues and dealing directly with them when they arise. Once again, I'm pleased with our results this quarter and more proud of the people who delivered them. The good news is, I know we can do better which is our goal every day. Now I'd like to turn it over to Mike Cole to address some of the financial results.

Thanks, Matt. Before I review the financials, I should briefly address the impact of the lumber market this quarter. Year-over-year, lumber prices were down about 5% on average. The lower level of lumber prices impacted not only our sales, but our working capital, cash flow and ratios like margins. Starting with our income statement for the quarter. Our overall sales remained flat due to a 3% increase in unit sales, offset by a 3% decline in our prices. By market, our sales in the retail market declined 2% due to lumber prices. Within this market, sales to our big-box customers increased 7%, while sales to other retail customers declined 11%, which we believe was primarily weather related. Sales from the industrial market increased 7%, comprised of a 10% increase in unit sales, offset by a 3% decline in prices. We were very pleased with our unit sales growth this quarter, which reflects adding over 200 new customers and an increase in purchases of existing customers at 7%. Overall, sales to the construction market decreased 3%, comprised of a 3% decline in selling prices and flat unit sales. Within the construction market, our sales to manufactured housing customers decreased 7% due to an 8% decline in selling prices, offset by a 1% increase in units. By comparison, HUD-code home production increased about 4% during the quarter. Our unit sales growth trailed the market, primarily due to a vertical integration strategy recently employed by one of our customers. Finally, our sales to residential construction customers this quarter decreased by 2%. This -- the 2% decline was comprised of a 6% decline in units, offset by a 4% increase in prices. By comparison, national housing starts for the quarter increased about 2% year-over-year. Our unit sales change trailed the market as a result of being more selective in the business that we take, particularly in our framing operations. As a result of this and certain operational improvements, the profitability of our plants that primarily served this market improved significantly year-over-year. Moving down the income statement. Our first quarter gross profit as a percentage of sales increased by 150 basis points, and our gross profit dollars increased 14%, comparing favorably with our 3% increase in unit sales. The increase on our profitability this quarter was primarily driven by our framing operations and other operations that primarily serve residential construction customers. Our increase in unit sales to industrial customers also contributed to the gross margin and gross profit increase. These improvements were offset somewhat by unfavorable cost variances we experienced as a result of inclement weather and many lost production days in our plants. SG&A expenses increased by $5.7 million or 12%. This increase was primarily due to an increase in wages and benefits related to headcount, accrued bonuses and other incentives tied to profitability, and an increase in bad debt expense. I think it's important to note the majority of our headcount increases were in the area of sales and engineering, which will help us drive future sales growth. Overall, we are very pleased to report that these factors drove the $3.6 million increase in our operating profit this quarter, while our net earnings increased by almost $2 million. Moving on to our cash flow statement. In 2014, our cash flow used in operating activities improved by $10 million, and is comprised of a net earnings of almost $8 million, along with $8 million in noncash expenses, offset by a $70 million increase in working capital since last March due to seasonality of our business. Our investment in accounts receivable has increased, primarily due to a slight increase in our receivables cycle, while inventory has increased, primarily due to the impact of weather on sales. Investing activities included capital expenditures of $9 million, including expansionary CapEx of more than $1.2 million associated with -- primarily with investments in new products and expanding our capabilities to serve industrial customers. Investing activities also included $4 million of payments for previously announced acquisitions. Finally, we borrowed almost $59 million under our revolving credit facility to fund our seasonal working capital requirements. At the end of March, the facility had almost $200 million in availability after considering letters of credit. Our balance sheet continues to be in great shape. And we believe we could add over $100 million in debt and we feel very comfortable with our leveraging capital structure. That's all I have on the financials, Matt.

Thank you, Mike. We'd now like to welcome any questions that you may have.

[Operator Instructions] Your first question comes from the line of Jay McCanless with Sterne Agee.

I wanted to ask you, first, the framing operation that you referenced in the press release, would you be willing to let us know what percentage of, maybe, construction revenues that was in the first quarter? And in terms of the higher gross profitability, is that something we should expect to the rest of the year and with the revenue level on that be similar to what you saw in 1Q?

Yes. I think, Jay, if you look at it, it was an improvement versus last year. Last year, we suffered in that operation. And this year, it was a much better performance. So we would expect that it would be consistent going forward in terms of the performance. In terms of the percentage of the total revenues, I really couldn't give you that. I don't have that information.

Yes, maybe another way to slice that, Jay, would -- if I look at the component plants, our components plants increased their sales by about 8%. So I think I had mentioned earlier that residence -- overall residential construction decreased by 2%. And that there is -- that was comprised of a 6% decline in units and a 4% increase in prices. If I set aside framing, component plants were up 8%, 4% was prices, and they had a 4% unit increase. So that gives you a sense of how much the framing was actually.

Absolutely. Okay, great. That's very good color. The second question I had is, can you give us a little insight into the supply/demand picture into the framing lumber market? And what you guys are expecting in terms of sequential improvement or year-over-year improvement or decline in terms of lumber prices through the balance of the year?

I wish I had a good crystal ball for that one, Jay. I think what we're seeing right now, we've had a steady drop since about week 10 in the lumber market. I think the supply issues and the weather, I hate to keep complaining about the weather, but it is a factor. I think as it breaks, we've noticed in the areas of the country where the weather has been decent, the volumes have been good. So in the northern part of the country where the weather hasn't been good, there hasn't been an expected take away if that comes around. I think the demand really moves the needle on the market and it certainly will stabilize it.

Okay. And then the last question, just housekeeping. Are there any -- with the 3 acquisitions that I think you've done over the last couple of months, are there any SG&A costs or onetime costs we need to build into our model for the rest of the year or all those costs captured in the 1Q numbers?

No, they're all captured in the 1Q numbers.

Your next question comes from the line of Robert Kelly with Sidoti.

A question on, you called that weather being a drag, any way to quantify either the cost or lost sales due to adverse weather in 1Q?

Yes. The sales spread was pretty tough. I'm not sure I'll get a great answer for you on that, except to say, when we looked at the, at least the retail part of it, I looked at the independent retailers. And I think, I mentioned the sales number was down about 11%. I would've expected them to be up 9% or 10% those for the quarter, so versus down 11%. So that to me, speaks of weather. And then I guess, the cost side of it is maybe a little bit easier to quantify, though. I mentioned we had an adverse cost variances, we track actual versus the unit costs. We had negative cost variances about $1.7 million this quarter. And while we can't prove that all of that was weather, I would guess the vast majority of it would be weather related.

Okay, that's helpful. As far as the independent retailer discussion, have trends picked up more in line with that plus 9%, 10% expectation in March and April?

I don't know that I can answer that, Bob. I certainly haven't broken it down, but we received an overall improved sales here more recently, kind of consistent with what we would expect.

Okay. So there is some weight to the fact that that weather held back activity in 1Q '14?

Yes, absolutely.

Yes, and we've got some color to that. In places where the weather has broke, sales have improved.

Okay, fair enough. A question on the safety stock that you built. Is the average price of inventory that you are carrying coming out of 1Q at the market similar to market levels?

Yes. We are very comfortable with our current inventory carrying values.

Okay. And then just -- yes, I know that you mentioned the crystal ball earlier. If lumber prices were to, kind of, stabilize at these levels, you'd be relatively in line with lumber prices on average from a year ago. I know there was a lot more volatility in 2Q of '13. Assuming lumber is stable, I'm trying to get a sense of what the levers to gross margin would be in 2014 given the new product expansion, the fact that you're seeing some life in the retail channel, industrial strong, how do we think about gross margin expansion in a stable lumber environment?

Yes. I think as you try to put it into perspective, if we can have a stable lumber market, then we will be -- based on just our operating efficiencies, and then I think you'll see something more along what we've seen at historical market for us. Last year, I think we had a market decline in the second quarter of 2013. It's starting to trend that way right now. That they able to reverse, then we would -- we should see a better picture. I can't give you a whole lot more color than that, but you can probably infer from where the market goes as to what the impact would be.

Okay, okay, understood. And this is more of a longer-term question. You've talked about the 2017 sales goal of $3 billion, and I think that's indexed to a much lower lumber price. And then in last call, you referenced a return of to 4% to 6% on margins under a normalized demand conditions. What are the assumptions that you kind of built into, from a macro perspective, to get to those, whether it would be unit or sales levels? And then of course, on EBIT margin front?

I think from a housing start perspective, which was an indication, not just of construction activity, but also a general economic health, we had built in a $1.5 million housing start number. We also looked for relative stability in the lumber market, not big wild swings in it, and a generally stable labor and cash situation. So maybe, some of the major drivers that we consider as part of our program.

And as you -- one of the other drivers that you inferred to, Bob, was a lumber market. We used '12 lumber market as part of our forecast. And so I think in '13, we finished with EBITDA as a percent of sales were up 4.5%. I think we've, kind of, normalized that for lumber prices in '12, knowing how we price our products. We are actually at about 5% EBITDA margin last year. So we're making good progress on the goal.

Great, great color there. And then just want to follow-on on the price, improved pricing or even competitive pressures, particularly in the framing operations, that's something that's relatively new, it seems. Is it a matter of being able to walk away from or eschew really low margin projects, or is pricing overall from your competitors firming up with some line of sight for demand really turning the corner?

I would say it's a combination of both of those factors, plus just kind of an improved on-the-job performance as well. I think the market is definitely firmed up. The availability of labor has created some of that. And our internal policy of not working for practice is certainly being followed. So I think all of those factors have helped drive the improvement.

Sure. I guess you kind of called out plus 4% on pricing. I think in the res construction unit, is that really a function of just rolling out of or completing some low margin work, or is that reflecting, sort of, real-time pricing?

Again, I would say it's a combination. We think that's a forecast.

Your next question comes from the line of Steve Chercover with D.A. Davidson.

I want to talk about the loss of production as well. If you lost 80 days, how many theoretical production days do you have? I mean, do have plans to work on weekends, for instance?

Yes, some of them do, especially during times of the year, they're working almost 24/7 in some cases. But in terms of overall, within the first quarter, most of the facilities are not working weekends yet, so the impact is pretty significant of the 80 days.

So what I was trying to get that, I suppose, is in operating rate. Can you frame it that way? Were you operating at 85%, where it normally would be at 95% or give us some context?

Yes, I think, Steve, it's a -- trying to see what you're trying to do at it, tough one to, kind of, quantify that way because there are so many different locations and they're doing so many different things, operating at so many different rates. So if I try to give a number on that cost ranges that was just kind of a global number. So that what I would typically do is look at that $1.7 million in negative cost variances, assume a very high percentage of it was weather related, and then what we would do is to subtract taxes and bonuses that translated to a new net earnings number of -- on an EPS number of $0.04 to $0.05 a share.

Got it. Okay. And switching gears, what niches are your new products targeting? Is this more decking materials or what are you going for?

Actually, Steve, what we are trying to do is improve each one of our product categories. So it will be in each of our markets. Some are obviously easier to address than others, but the challenge for all of our operations is to develop new products and to improve existing product lines. So we're seeing it across a broad spectrum of our operations and our product lines, and we're going to continue to expand that so it's not limited to just one category.

And what prompted the change in segment presentation?

I think as we look at it, we tried to combine areas to basically make it easier to understand. We want to -- we know we are confusing diverse company when we talked about it with investors. We have the construction market people who want a look at housing starts, and say, "Well, you're all housing starts driven." And that's true for parts of our business, but it's not true for other parts of our business like the industrial and/or retail. So what we tried to do is create a situation which makes it easier for the investment community to look at us and say, okay, I get it, the residential housing start number ties in much better with construction market. We look at retail and that's more of a repair and remodel. And we look at industrial, and that tends to be industrial output or industrial activity. So we're trying to make it a little easier to understand.

Got it. Okay, last question. The sales through independents, is it your impression that they offer you on a just-in-time basis? I would think that they would be in an inventory build going into the spring because we know that sooner or later, the weather's going to break. Do you have a sense?

Yes. They're -- I guess, our view on that is, they're more apt to buy on a just-in-time basis and less to apt to go through that we had inventory build versus the big boxes as an example. The big box has their own distribution networks as well, whereas most of the independents do not, so we're their distribution point, we are carrying inventory for them in most cases.

So the big boxes were up in the quarter, so we could assume that their inventory levels are appropriate, but since the independents didn't buy presumably, they've -- that's going to be pent-up demand there?

Yes, that's what we believe.

And at this time, we have no further questions. I would now like to turn the call back over to Mr. Matt Missad for any closing remarks.

Once again, thank you for listening this morning and for your interest in our company. We are all hoping for blue skies and sunshine or at the very least, dry weather with temperatures above 50 degrees. Please have a great day, and good luck on the Easter egg hunt.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.