Good morning ladies and gentlemen. And welcome to the Universal Forest Products First Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder this conference call is being recorded. I would now like to turn the conference over to your host Mr. Brandon Froysland, Finance Director. Sir?

Welcome to the Universal Forest Products Incorporated first quarter 2019 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 May 25th, 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 first quarter 2019 investor call. Our goal in 2019 is to be exponentially greater than before and judging by the first quarter results, our teams like Christian Yelich are knocking the ball out of the park. They set sales records in the first quarter in spite of lumber market prices that were 27% below 2018 levels. And I want to thank each and every member of the UFP family of companies for their outstanding performance. A few highlights include; net sales reached a record $1.02 billion for the quarter, up 2% over 2018, unit sales grew nicely and were up 7% over 2018, earnings per share was $0.58 per share versus $0.53 in 2018, And excluding the $7 million gain in 2018, earnings were up 28% this year. EBITDA for the quarter was $65.9 million, up 25% over 2018. New product sales were $99.5 million for the quarter, up 8% over 2018. We use gross profit dollars per unit as a tool to measure performance because it takes out lumber market pricing as a variable. We were very pleased that gross profit dollars per unit grew by 18% more than double our unit sales increase. Now, I'd like to discuss our individual markets starting with the overall lumber market. The Southern Yellow Pine lumber market has been trending down slightly for several weeks and remains well below 2018 levels. For the quarter, the SYP market averaged 12.9% lower than 2018. More mill capacity has come online since last year from new mills as well as efficiency enhancements at existing mills. The Random Lengths Composite Index has fallen steadily for the last several weeks and it too is well below 2018 levels, down 26.5% on average from 2018. OSB and plywood…

Thanks Matt. Before discussing the financials, I'll briefly address lumber market trends impacting the quarter. First, overall prices dropped during the fourth quarter to reach a 12-month low by the end of 2018. And our people did a great job taking advantage of buying opportunities, which benefited our first quarter gross profits. Second, the overall level of lumber prices were down about 27% for the quarter. This reduced our selling prices in overall sales dollars, but had less impact on our profitability. Moving on to the income statement. Our overall sales for the quarter increased 2%, resulting from a healthy 7% increase in unit sales that was partially offset by a 5% decrease in selling prices due to the lumber market. We're pleased with organic unit growth of 4% during the quarter, with all markets reporting an increase except manufactured housing, which I'll talk about more in a minute. New products continued to be a bright spot and grew 8% this quarter, while continuing to contribute to the lift in our gross margins. Breaking down our sales by market. Sales to the retail market decreased $13 million or 3%, resulting from a decline in selling prices of 6%, offset by an organic unit increase of 3%, which was in line with our expectations. Gross profits on sales to this market increased by over 7% exceeding our unit growth with new products and inventory positioning being contributing factors. Moving on to the industrial market. Our sales to these customers increased 15% driven by a 16% increase in units, offset by a 1% decrease in selling prices. Acquisitions contributed 10% to unit growth, while organic growth was 6%, which is in line with previous quarters and slightly above plan. The organic unit increase was primarily driven by adding 94 new customers, 146…

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

[Operator Instructions] Our first question is from Ketan Mamtora with BMO Capital Markets. Your line is open.

Thank you. Good morning Matt and Mike and congrats on a strong start to 2019.

Good morning Ketan. Thank you.

Thank you. Good morning.

Thank you. First question I just want to talk a little bit more about the lumber markets. You talked about it in your prepared remarks. But to the extent that you can comment a little more, I mean we are in late April almost getting into May and lumber pricing is still falling pretty unusual for this time of the year. So, what are you guys seeing right now in terms of the key drivers for this price decline? And then as we think about Q2, if you can just help us understand how does this impact your results from a gross profit standpoint? Because as I understand Q2 is seasonally strong for your variable-priced products. So, to the extent that you can comment even if just qualitatively that will be helpful.

Sure. Well, I'll start with the first part of it Ketan. And the key drivers for us -- I think what we're hearing from our suppliers is that the demand really just hasn't caught up and partly because of the added capacity in the marketplace. So, it makes it a little more difficult for them. One of the Canadian mills just announced a curtailment up in Canada. So, that's more FPS stuff, but they're definitely to the spot now where they're trying to firm up the market pricing. So, obviously, for us, the best type of market is a gently rising market through Q2. So, right now, obviously, gross margin percentages are benefitting from lower pricing, but we expect that these two will get more aligned. And by that I mean demand and supply during Q2. There was a little bit of a late start because of February, so we're seeing very positive trends on the demand side. But they may not meet the expectations that all the mills combined at. I think they just added too much capacity and they thought that the overall market was going to grow a lot more than it actually was going to grow.

Okay, that's helpful. And then just in terms of kind of your end market demand, what are you seeing thus far in Q2? You talked about kind of late start. But in terms of what you've seen more recently, any color you can provide there?

Yes. Right now everything appears to be very good and kind of more of the same in terms of demand. We've got very good order files. The construction markets that we are in are doing very well. They're extremely busy. And they're very optimistic at least through the visibility we have which is through Q3.

Got it, that's helpful. And then just one more on sort of your M&A pipeline. You talked about there was one deal, but that didn't kind of materialize. But how does your M&A pipeline look like and kind of your general expectations for 2019?

Yes, I think the pipeline is very strong. There's a lot of targets in there. Obviously, we're engaged in many conversations. And we still maintain our expectation that we're going to put together transactions this year and that would be a big contributing factor to our 2020 growth.

Got it. And Matt is it fair to say that the vast majority of this is likely to be on the industrial side?

Yes, that's certainly a focus area for us is industrial targets. And then there'll be some other consolidation or geographic type expansions we'll call smaller bolt-on type acquisitions in potentially other markets.

Got it. That's very helpful. I'll turn it over. Good luck and -- for the rest of the year.

Thank you, Ketan.

Thank you. And our next question is from Reuben Garner with Seaport Global Securities. Your line is open.

Thanks. Good morning and congrats on the Christian Yelich quarter.

Thanks Reuben.

Yes. So, I guess maybe we could start -- you guys have a pretty broad exposure to the U.S. economy. Can you maybe for the year talk about in all your end markets, where you see the most upside or where you're most positive on? And then maybe on the flipside which of your markets maybe will have a softer 2019?

Yes. Kind of as we looked at it in overall retail terms, kind of, we're still on track with what we talked about before which is kind of a low to mid single-digit organic type growth in the retail space. New products and product mix can help us there as well as market share gains will help us there. And you go to industrial, very strong first quarter performance, we expect that to continue. Again, a lot of more value-add product sales, and a lot more packaging solution type sales will help us in that market. On the construction side, again, we think modest growth in the areas that we're in on site built, with respect to manufactured housing that the unit sales, we'll see if they are able to bounce back in Q2 from Q1 levels. And then I think there's going to be -- we're rationalizing how we look at some of the lower margin business on the MH side. So we may voluntarily or take a different look at some of these low-margin items that we do for that space. On concrete forming and commercial construction side, we expect that to be a good growth area for us again throughout the balance of the year.

Okay. And then I know gross margin is not the right way to look at you guys, but just from a modeling perspective, is how Q1 played out from a unit growth and a profit per unit growth at least on the gross line? Is that the right way to kind of think about the rest of the year as we progress through 2019? Or is there any other puts and takes that you'd keep in mind? I mean, I know lumber can change things, but just assuming lumber kind of acts normal from a seasonal perspective, what do you think the year looks like modeling-wise?

Yes. So Reuben I'll have Mike give you a little more color on this piece. But I think kind of generally the way I would look at it is, we -- our gross profit dollars per unit grew nicely. Part of that was due to, I think, what was very strategic purchasing, and what we call position buying. Some of that will continue, but I think there should be continued strength in the gross profit dollars per unit, given kind of a reasonable lumber market. But mike you want to add some color there?

Yes. Just adding on to that if we’re -- we would expect and plan for gross profits to grow at a greater rate than unit sales as we continue to move up value-added sales mix. This quarter was a little bit unique, and -- because of the inventory positioning, so obviously that contributed a lot more than gross profits. But that's certainly part of plan for gross profit dollars to increase at a greater rate than unit sales.

Okay, great. That's helpful. And then two quick ones, if I could sneak them in. So your Deckorators brand, we've learned you guys had some wins. Can you talk about have you started to realize the benefits of that? I know it's not the biggest business right now, but growing pretty nicely. Have you started to realize the benefits of some of your market share gains? Or is that something that we'll see that there's some seasonality that will lead to that showing up later in the year? Or just help me with how that sell-in works?

Yes. That's a good question. So we would probably see initial stocking orders that have gone in many locations kind of March early April. We are not fully implemented yet with all of the new locations. So we would expect that to kind of continue through Q2. And then what we are seeing is very good trends, thus far, in the stores where product is in. So year-over-year comparisons are very good versus the prior product. So we're excited about that, kind of difficult to predict. But I would say, if you're looking at the first quarter really only maybe March would have any kind of significant impact from that yet.

Great. And then last one a quick one. I think I heard you say, insulated metal panels. Can you maybe just elaborate more on that? Maybe I missed what detail you gave, but just talk about how you got involved in that business, if I heard it correctly? And what your kind of strategy is there? And then next for the time, I’d appreciate it.

Absolutely. So basically, it is a laminated panel with insulative material as a substrate. And we laminate on a exterior metal product on both sides. And it is going to be used for commercial building applications, can be used for transportation applications, and a number of other items. But the big factor we're really excited about is that Class A fire rating, which basically makes it usable pretty much anywhere in the commercial space. So that's something we're excited about. And we see that as a good growth market for us. And it's really a testament to our guys, who've put that together and made it work from the research side. And as they've looked for solutions for a customer, this is a good example of finding the solution and bringing it to the bear.

Thank you. Our next question comes from the line of Dan Jacome with Sidoti. Your line is open.

Good morning.

Good morning, Dan.

Good morning, Dan.

Just a couple questions. Can you just first talk a little bit more about the new mill capacity, you said you're seeing on the Southern Yellow Pine? I know that's been an increasing trend so far this year. Do you have any visibility just where these new mills are right now? Or on the cost curve how efficient are they? What do you they look like if you look at all the processes like kilns and log bucking automation? That was my first question. And then wondering maybe a little bit more color to that regarding, how it's going to impact you think lumber prices in the next couple quarters?

Yes, good question Dan. So if we just kind of take a look -- and one of the things I called out was our at least four new mills that I can think of. I'm not going to name any of them, but there's four new mills that came online. And they're not totally 100% capacity utilization yet. But I expect that will happen between now and the end of the year. And then there's a number of other mills that have spent significant capital to upgrade their production capability make their mills more efficient. So I think that combination added a significant capacity to the market. And I think that's what I was referring to. They're going to have to make some decisions, if the demand curve doesn't really kick in that they were expecting it to be. So hard to say what impact that'll have on the market. But I think most of the mills are showing a very quick willingness to adjust their capacities to keep their prices at a stable level.

Okay. That's helpful. My concern was just general rationalization over the next couple of years. Because obviously no one has a crystal ball. All right. Fair enough. And then my other question was -- saw you bumped up the dividend by 11%, which is encouraging. And I'm just wondering really at a high level, are you open to widening that dividend to a quarterly rate? And if you can't give us too many details on that, just maybe you could answer this: What would it take for you to reconsider how you're thinking about the dividend? And how is it?

Yes. So I think the question is really about would be pay the dividend quarterly instead of semiannually. Yes, I think for us, it's really been is the dollar amount significant enough for a shareholder to deal with the administrative burden of doing it twice more a year? I don't really think that's a big concern overall. It's not something we occupy our time with. But I think if the investors and shareholders believe that a quarterly dividend is better once we get to the level that we're at where it makes sense from a per-shareholder kind of return level we'd certainly be open to that.

Lovely. Thank you.

Thank you. And our next question is from Steve Chercover with D.A. Davidson. Your line is open.

Good morning, Matt and Mike.

Good morning, Steve.

Good morning, Steve.

So we know that you guys focus on margin dollars. But I got to tell you I was a little concerned about your investment in lumber in Q1. Thought it might burn you, but obviously it didn't. And I'm just wondering as such a large buyer, you kind of provide a service to the mills. You give them liquidity when other people aren't buying lumber. Is it possible that you're not really paying the price that we would be tracking in Random Lengths whether it's for Southern Yellow Pine or the composites?

I would certainly hope so, Steve.

I mean yes, you deserve a volume discount. Okay. So that's probably one of the elements. And lumber did not get the spring rally that we're so accustomed to and it's still showing some weakness. But it appears that -- is it even safe to say that we are going to be de-risking the inventory situation almost by the time we exit Q2? Because I think you said you'll be back to normal levels?

That's correct.

Okay. That's terrific. And don't need to belabor other things. But I noticed that you didn't buy any stock back in Q1 I don't think. And is that just because you had other capital allocation priorities? Because I would've thought it was a pretty compelling level.

Yes, I think the challenge we have is kind of open window periods given the way our year-end release happens. And our own prohibitions for insider buying shares basically left a very short window period. So it was difficult.

Yes you actually -- your Q4 release was a lot later than I think normal. But…

Correct.

Got you. Okay. Well, thanks and good luck going forward.

All right. Thank you, Steve.

Thank you. And I'm not showing any further questions. So I'll now turn the call back over to Matt for closing remarks.

Thank you. As you can tell, we're off to a great start in 2019 and our goal of exponential improvement. We're very encouraged by unit sales growth and gross profit dollar growth. But as the Virginia Cavaliers showed us, good things happen when you work hard the whole game. And I'm confident that no one will outwork our team. Great earnings and a little extra cash dividend for the shareholders is a terrific way to start the year. Thank you for your investment and trust in us. And have a great day.

Ladies and gentlemen, this does conclude the program. You may now disconnect. Everyone have a great day.