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UFPI Q2 Sales, Profits Decline; Weak Market Conditions Impact Results

Weak retail sales posed a major challenge for the Company in the second quarter. Additionally, a declining lumber market in 2011 until June hurt the Company’s margins. However, after 11 straight weeks of decline, the lumber market stopped its fall and remained stable through the month. The composite lumber price was down approximately 16% in the second quarter of 2011 compared to the same period of last year, but was just 1.9% lower in June 2011 from June 2010.

“In June of this year, the lumber market began to stabilize and we began to see improvement in our year-over-year comparisons,” Glenn explained. “While we still have our challenges – a soft economy, rising fuel costs, uncertain markets – we are as well-positioned as ever with a solid balance sheet, efficient operations, highly skilled employees and a diversified business model.”

By market, Universal posted the following gross sales results for the second quarter (the following reflects the Company’s recent reclassification of customers into five categories, from the previous four, to more accurately depict the growing scope of its work):

Retail building materials: $287.5 million, a decrease of 18.6% from the same period of 2010. (This category includes Do-It-Yourself retailers as well as distributors, pro-dealers and other retail customers.) Unit sales were down approximately 8%, coupled with an 11% decrease in selling prices due to the lumber market. The quarter’s results were affected by weak retail sales in some of the Company’s larger product categories, such as decks and fencing. As housing prices have dipped and homeowners have struggled to maintain equity in their real estate investments, they have delayed plans to build larger-ticket items like decks and fences. The Company believes this business will rebound as the economy improves. The Company also remains dedicated to diversifying its customer base by continuing to grow sales with independent retailers and distributors.

Industrial packaging/components: $126.5 million, a decrease of 2.0% from the same period of 2010. (This category still includes packaging, crating and other products for manufacturers; however, it no longer includes concrete forming, which has been grouped with commercial construction.) An increase in unit sales of 7% was offset by a 9% decrease in selling prices due to the lumber market. While growth in this market slowed during the quarter, it remains an area of enormous opportunity for sales and profitability for the Company, and an area of focus. The Company netted approximately 300 new customers in this category during the second quarter of 2011; however, our rate of growth of business with existing customers declined somewhat, reflecting soft manufacturing output in the United States. The Company continues to pick up market share and is focused on growing its business in this still-largely fragmented industry.

Manufactured housing: $64.6 million, down 22.0% from the same period of 2010. (As indicated, this category includes manufactured housing and RV business.) An 11% decline in unit sales was coupled with an 11% decrease in selling prices. The industry saw a 14% decline in HUD-code shipments for the combined months of April and May 2011, the latest statistics available. Second-quarter shipment statistics for modular homes were not available, although the first quarter saw a decline of 3.2% from the same period of 2010. The Company continues to expand the products it offers to customers in this category through its expanded distribution business.

Residential construction: $56.7 million, a decrease of 15.5% from the same period of 2010. (This category includes builders of single- and multifamily homes.) Unit sales were down approximately 7% and selling prices were down approximately 8%, due to the lumber market. The most recent statistics available indicate that single family housing starts were down 20% from March through May 2011 from the same period of 2010, while multifamily starts increased 34% from March through May 2011 over 2010. The Company remains focused on multifamily and government projects, where it sees more opportunity for growth than in single-family residential construction.

Commercial construction and concrete forming: $20.8 million, up 23.2% over the second quarter of 2010. (This includes non-residential construction and concrete forming.) A 39% increase in unit sales was offset by a 16% decrease in selling prices, due to the lumber market. Industry wide, nonresidential construction projects were down 6.3% year-to-date in May 2011 from the same period of 2010, indicating the Company is picking up share in this market and substantiating the validity of its focus on growing business in commercial construction and concrete forming.

OUTLOOK

The Company believes continued challenging economic conditions and uncertainties in the housing market limit its ability to provide meaningful guidance for ranges of likely financial performance; therefore, the Company will not resume the practice of providing guidance in the foreseeable future.

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