Good day, ladies and gentlemen, and welcome to the Fourth Quarter Universal Products, Inc. Earnings Conference Call. [Operator Instructions] As a reminder, today’s conference is being recorded. I would now like to introduce this conference call to Mr. Brandon Froysland, Director of Finance. You may begin in one moment.

Welcome to the Universal Forest Products, Inc. Fourth Quarter 2018 Conference Call. Hosting the call today are CEO, Matt Missad; and CFO, Mike Cole. Matt and Mike will offer prepared remarks, and then the call will be opened up for questions. This conference call is available simultaneously and in its entirety to all interested investors and news media through our webcast at www.ufpi.com. A replay will also be available at that website through March 21, 2019. Before I turn the call over to Matt Missad, let me remind you that yesterday’s press release and today’s presentation 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 the company’s expectations and projections. These risks and uncertainties include, but are not limited to, those factors identified in the press release and in the filings with the Securities and Exchange Commission. At this time, I’d like to turn the call over to Matt Missad.

Thank you, Brandon, and good morning, everyone. Welcome to our fourth quarter 2018 investor call. As you know, our challenge for 2018 was to be greater than before. And once again, our operations met the challenge and set annual records for sales and profits. We also set sales records for the fourth quarter and posted pretax results from operations, which were a fourth quarter record. Like the New Orleans Saints, we know that the final score is what matters, and Q4 net income was not a record. Rather than trying to justify why it should be counted, we will use it as motivation to start a new streak of profit records in 2019. A few highlights for the quarter include, sales reached a record $988.2 million for the quarter and unit sales were up 4%. Annual sales were $4.49 billion, up 14% over 2017. Earnings per share was down 1% for the quarter to $0.50 per share versus 2017. For the year, earnings per share was $2.40, a 24% increase over 2017. EBITDA for the quarter was $63.6 million, up 11% over 2017. For the year, EBITDA was $266 million, up 12% over 2017. New products sales were $103 million for the quarter and $513 million for the year. For 2019, we have sunset approximately 40 million of new products, which we still sell, but won’t consider new and established a new target of 525 million for the year. As you know, we use gross profit dollars per unit as a tool to measure performance. This metric takes out lumber market pricing as a variable. We were very pleased that gross profit dollars per unit grew at more than double the rate of unit growth in the fourth quarter. Also during the fourth quarter, we closed on the acquisition of…

Thanks, Matt. Before reviewing the financial, I’ll briefly address the lumber market this quarter. The fourth quarter ended up being another challenging quarter for lumber market volatility, as prices dropped significantly from September through November and then remained flat through the end of the year. This trend impacted our profit per unit on products we sell with fixed and variable prices. Fortunately, the strong balance we have in our product mix, along with other positive factors, allowed us to overcome the impact of this volatility and reported an improvement in our profit per unit again this quarter. The downward trend in lumber prices did impact our overall sales levels though, which I’ll walk through now. Overall sales for the quarter increased 1%, resulting from a 4% increase in unit sales, that was offset by a 3% decrease in selling prices. Organic unit growth this quarter was only 1% though, coming in below what we’ve reported in previous quarters this year, primarily due to the impact of hurricanes that lifted our retail and manufactured housing unit volumes in the fourth quarter of 2017. Our new product sales initiative was another bright spot this quarter, as new product sales grew 13% and experienced 50 basis points of gross margin improvement. Breaking down our sales by market. Sales to the retail market decreased $27 million or 8%, resulting from a decline in selling prices of 4%, combined with a unit decrease of 4%. Our unit sales decline was due to hurricane-related volume in the fourth quarter of 2017. Excluding the sales decreases we experienced in our Gulf and Texas regions, which were impacted by hurricanes, we estimate our organic unit growth to the retail market was about 3.5% which is in line with results of previous quarters this year. Our sales to the…

Thank you, Mike. Now I’d like to open it up for any questions you may have.

[Operator Instructions] Our first question comes from Ketan Mamtora with BMO Capital Markets.

Good morning, Matt, Mike.

Good morning, Ketan.

Good morning, Ketan. How are you?

I’m good. First question, I want to touch upon, sort of, a high-level what you’re seeing in housing? Q4 wasn’t great we know that, H2 also, back half of last year also had some affordability issues. But we’ve also seen now rates fall quite a bit in the last three months, so obviously, a lot of cross currents. Can you talk about what you guys are seeing in your various businesses as you look into the spring season?

Yes, I think that’s a great question, Ketan. And I just was out at the International Builders Show and talking to a lot of builders. And there’s still good optimism. They seem to have a pretty steady flow. The size of the units and other things are things that are adjusting to make it more affordable. But they seem pretty bullish on 2019 still.

Okay. Are you seeing, sort of, at least from a board standpoint any regions within the U.S. that are doing either better or worse than you had expected?

Yes, I think, as we talk about it, so our – on our site-built side, we do very well in the markets that tend to be more stable. During the downturn many years ago, we exited from, what we call, the boom and bust markets, and we haven’t gone back in there. For example, California, I think, has probably been impacted more than others in a negative way. But we don’t have a huge exposure there. So it’s not a concern for us. But where we are heavily concentrated with our site-built operations, again, we feel very good about those particular markets.

Got it. That’s helpful. And then, turning to the lumber market. As Mike mentioned, we saw a big drop in Q4. It seemed like pricing, at least, on the Western SPF grades rallied in the last six to eight weeks, but seems like they are plateauing. What are you guys seeing out there in terms of either inventories or, kind of, just activity?

Yes, I think, what we’re seeing is, kind of a typical seasonal uptick. And in conversations with a variety of our vendors, they’re not looking to see the highs that occurred in 2018. But they look at this being a more typical year. And obviously, the reorder process, which will happen over the next 30 days will help indicate whether inventories in the supply chain at the appropriate levels or not. But they all feel pretty comfortable about where the inventories are in the chain today.

Got it. That’s helpful. And then, final question from my side. What are you all expecting in terms of CapEx for 2019?

We are planning for about $95 million, Ketan.

$95 million. And how much of that on average is kind of just maintenance capital versus more discretionary or expansionary CapEx?

We’re planning for about $55 million to $60 million in maintenance CapEx, and about $35 million to $40 million then in expansionary and efficiency CapEx.

Got it. That’s very helpful. I’ll turn it over. Good luck in 2019.

Thank you, Ketan.

Thank you, Ketan.

Our next question comes from Dan Jacome with Sidoti.

Good morning.

Good morning, Dan.

Hi, Dan.

Just a couple of questions. Thanks for your time. First on the construction segment, I saw the price is down 4%. Obviously, your lumber prices volatility. I just – could you give us a sense in terms to – on that change versus last year, how much was lumber prices? just for making sure it wasn’t anything else I’m missing.

Yes, I think it’s primarily driven by just year-over-year lumber market. At least, that’s what we’re seeing.

All right. Okay. I figured. And then, SG&A, obviously, you mentioned some discretionary SG&A expenditure. Do you have a sense of what SG&A dollars might be up, I’m not looking for something exact, but would you – similar cadence to this year in the mid-single digit range? Or should we expect some sort of outlier moving in that?

No, I think you’re exactly right, kind of mid-single digit is about the right level.

Got it.

And it would be impact unit sales too, Dan, just to be clear, in case lumber market differences.

Sorry, I missed that last point.

Based on the unit sales bases. So...

Right, right. Yes, okay. And then, on the Wolverine deal, I don’t know if you can comment on it yet. Any thoughts there, I was just wondering what percent of their, maybe, revenue or business is the hospitality segment per se and how much might be other industries?

Yes, I think, for the most part, they are a furniture component supplier. And we’re really excited about the technology that they have. So for us, that’s what we’re more focused on. And hopefully, we’ll get that transaction completed here in the next 30 to 60 days. And we’re excited about it.

Terrific. It sounds like the management is going to stay into the Universal family for the long term or for the next foreseeable future?

Yes, we certainly hope it’s for the long term.

Okay. Great. And then lastly, I just wanted to pick your brain here on the infra-spending, I don’t know if you have any insights on what’s happening on the hill? How likely do you think we’ll see something in the next 18 months, just because of what’s happening now and then that was it.

Yes, I think the infrastructure spending. Obviously, there seems to be a consensus that more infrastructure spending is needed. Your guess is better than mine, as to whether they can come together and agree on anything. But I would expect that there’ll be something that happens midyear or certainly end of Q3, but the scope of it, I couldn’t tell you.

Okay, thank you, guys.

Thank you.

Thanks, Dan.

Our next question comes from Steve Chercover with Davidson.

Thanks. Good morning, Matt and Mike.

Good morning, Steve.

Good morning, Steve.

So Matt, you indicated that retail had a tough comp versus 2017. How is it trending through the first half of Q1 2019? And do you expect to post the mid-single digit growth that you enjoyed through the first three quarters of last year?

I can’t really comment on the specifics there, Steve. But I can tell you just, kind of, our outlook. Our outlook is that, it’s going to be, kind of in that mid-single-digit range of growth. So we’d expect, again, on a unit sales basis obviously because of the lumber pricing being down. If you – if we’re focused on unit sales growth that’s kind of what we’re looking at. And my conversations with the retail community indicate that, that’s what their expectation is.

Yes, I don’t know how the market will react to the tiny EPS miss, but I thought your EBITDA performance was really good, and I know that’s how you focus on margin dollars. Switching to inventories, they were up 21% year-over-year, which, I guess, is a little surprising given how lumber fell in the quarter. So would you say that maybe, you took a bigger advantage of what was a pretty compelling lumber market that you had in the last several years?

Yes, I think we were fairly aggressive on our positioned buying this year. Obviously, we can take long positions because we are going to deliver the products, and we feel very comfortable with what we’ve done so far. And the takeaway, so far, has been consistent with what we expected. So we would expect our inventory levels to drop, as they typically would by end of Q3 or first part of Q – end of Q2 or first part of Q3.

Yes, I mean, I know you don’t speculate. So that’s a testament to your comfort, I suppose. And then finally, with – buying in stock at an average price of $29 seems pretty darn compelling to me. So would you say that your shares, even up a wee bit, remain more compelling than most of the deals you’re seeing in the marketplace?

Yes. I think if you, kind of, look at the EBITDA multiples out there. Although, they’ve moderated a fair bit since, kind of, mid-last year, they’re still aggressive for any deals of significant size. So obviously, we love our company. And we believe the value is there, so that’s certainly something that we look at all the time.

Yes, well the integration risk is pretty low too. Alright, that’s it from me. I get back in the queue.

And I’m not showing any further question at this time.

Well, thank you again. And as you can tell, we are very excited about the future and the opportunities for both unit sales improvement and profit growth. Our focus is on providing an excellent return to our shareholders over the long term. And fortunately, we have an outstanding team of over 12,000 members, who work hard every day to achieve that goal. I am very proud of what they have accomplished so far and know that we are capable of much, much more in the future. And you can tell from our share repurchases last quarter, that we see great value in our company, especially when we can purchase at a significant discount to what we believe the fair value to be. Thank you again for your investment and trust in us. Have a great day.

Ladies and gentlemen, this concludes today’s presentation. You may now disconnect and have a wonderful day.