UFP INDUSTRIES INC - Quarter Report: 2022 June (Form 10-Q)

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 25, 2022


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 0-22684

UFP INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)


	Michigan		38-1465835
	(State or other jurisdiction of incorporation or		(I.R.S. Employer Identification Number)
	organization)

	2801 East Beltline NE, Grand Rapids, Michigan		49525
	(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (616) 364-6161


	NONE
	(Former name or former address, if changed since last report.)

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large Accelerated Filer ⌧	Accelerated Filer ◻	Non-Accelerated Filer ◻	Smaller Reporting Company ☐
			Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with a new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by checkmark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ☐ No ⌧

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:


	Class		Outstanding as of June 25, 2022
	Common stock, $1 par value		61,622,527


Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class	Trading Symbol	Name of Each Exchange On Which Registered
Common Stock, no par value	UFPI	The Nasdaq Stock Market, LLC

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UFP INDUSTRIES, INC.

TABLE OF CONTENTS

PART I.		FINANCIAL INFORMATION.	Page No.

	Item 1.	Financial Statements	3

		Condensed Consolidated Balance Sheets at June 25, 2022, December 25, 2021 and June 26, 2021	3

		Condensed Consolidated Statements of Earnings and Comprehensive Income for the Three and Six Months Ended June 25, 2022 and June 26, 2021	4

		Condensed Consolidated Statements of Shareholders’ Equity for the Three and Six Months Ended June 25, 2022 and June 26, 2021	5

		Condensed Consolidated Statements of Cash Flows for the Three and Six Months Ended June 25, 2022 and June 26, 2021	7

		Notes to Unaudited Condensed Consolidated Financial Statements	8

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	34

	Item 4.	Controls and Procedures	35

PART II.		OTHER INFORMATION

	Item 1.	Legal Proceedings – NONE

	Item 1A.	Risk Factors - NONE	35

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35

	Item 3.	Defaults upon Senior Securities – NONE

	Item 4.	Mine Safety Disclosures – NONE

	Item 5.	Other Information – NONE	35

	Item 6.	Exhibits	36

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UFP INDUSTRIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


(in thousands, except share data)
	June 25,		December 25,		June 26,
	2022		2021		2021
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	138,071	$	286,662	$	44,286
Restricted cash		729		4,561		629
Investments		35,475		36,495		33,827
Accounts receivable, net		1,046,543		737,805		980,571
Inventories:
Raw materials		490,923		416,043		540,289
Finished goods		615,379		547,277		486,199
Total inventories		1,106,302		963,320		1,026,488
Refundable income taxes		13,083		4,806		—
Other current assets		36,241		39,827		36,699
TOTAL CURRENT ASSETS		2,376,444		2,073,476		2,122,500
DEFERRED INCOME TAXES		3,568		3,462		2,362
RESTRICTED INVESTMENTS		19,885		19,310		18,896
RIGHT OF USE ASSETS		107,825		96,703		97,597
OTHER ASSETS		32,186		31,876		29,631
GOODWILL		320,532		315,038		318,108
INDEFINITE-LIVED INTANGIBLE ASSETS		7,350		7,369		7,401
OTHER INTANGIBLE ASSETS, NET		117,869		109,017		98,601
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment		1,286,037		1,212,113		1,120,381
Less accumulated depreciation and amortization		(660,873)		(623,093)		(587,194)
PROPERTY, PLANT AND EQUIPMENT, NET		625,164		589,020		533,187
TOTAL ASSETS		3,610,823		3,245,271		3,228,283
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Cash overdraft	$	11,926	$	17,030	$	34,229
Accounts payable		386,833		319,125		359,484
Accrued liabilities:
Compensation and benefits		252,723		289,196		213,655
Income taxes		—		—		11,188
Other		107,112		84,853		90,153
Current portion of lease liability		24,903		23,155		22,511
Current portion of long-term debt		40,496		42,683		97
TOTAL CURRENT LIABILITIES		823,993		776,042		731,317
LONG-TERM DEBT		276,315		277,567		571,856
LEASE LIABILITY		86,464		76,632		78,564
DEFERRED INCOME TAXES		63,389		60,964		34,983
OTHER LIABILITIES		35,594		37,497		52,000
TOTAL LIABILITIES		1,285,755		1,228,702		1,468,720
SHAREHOLDERS’ EQUITY:
Controlling interest shareholders’ equity:
Preferred stock, no par value; shares authorized 1,000,000; issued and outstanding, none	$	—	$	—	$	—
Common stock, $1 par value; shares authorized 80,000,000; issued and outstanding, 61,622,527, 61,901,851 and 61,850,733		61,623		61,902		61,851
Additional paid-in capital		275,061		243,995		235,309
Retained earnings		1,950,922		1,678,121		1,440,833
Accumulated other comprehensive loss		(7,458)		(5,405)		(1,464)
Total controlling interest shareholders’ equity		2,280,148		1,978,613		1,736,529
Noncontrolling interest		44,920		37,956		23,034
TOTAL SHAREHOLDERS’ EQUITY		2,325,068		2,016,569		1,759,563
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	3,610,823	$	3,245,271	$	3,228,283

See notes to consolidated condensed financial statements.

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UFP INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

AND COMPREHENSIVE INCOME

(Unaudited)


(in thousands, except per share data)
	Three Months Ended				Six Months Ended
	June 25,		June 26,		June 25,		June 26,
	2022		2021		2022		2021
NET SALES	$	2,900,874	$	2,700,541	$	5,390,187	$	4,525,545
COST OF GOODS SOLD		2,397,422		2,279,247		4,408,372		3,817,697
GROSS PROFIT		503,452		421,294		981,815		707,848
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		214,538		184,539		434,688		334,637
OTHER GAINS, NET		3,348		(180)		2,536		(1,211)
EARNINGS FROM OPERATIONS		285,566		236,935		544,591		374,422
INTEREST EXPENSE		3,395		3,899		6,697		7,050
INTEREST AND INVESTMENT LOSS (INCOME)		4,154		(1,689)		5,247		(3,985)
EQUITY IN EARNINGS OF INVESTEE		1,017		835		1,532		1,465
		8,566		3,045		13,476		4,530
EARNINGS BEFORE INCOME TAXES		277,000		233,890		531,115		369,892
INCOME TAXES		69,147		58,530		130,131		90,281
NET EARNINGS		207,853		175,360		400,984		279,611
LESS NET EARNINGS ATTRIBUTABLE TO NONCONTROLLING INTEREST		(4,735)		(1,978)		(8,163)		(2,918)
NET EARNINGS ATTRIBUTABLE TO CONTROLLING INTEREST	$	203,118	$	173,382	$	392,821	$	276,693

EARNINGS PER SHARE – BASIC	$	3.24	$	2.79	$	6.25	$	4.46
EARNINGS PER SHARE – DILUTED	$	3.23	$	2.78	$	6.22	$	4.45

OTHER COMPREHENSIVE INCOME:
NET EARNINGS		207,853		175,360		400,984		279,611
OTHER COMPREHENSIVE GAIN (LOSS)		(4,383)		2,720		(1,199)		524
COMPREHENSIVE INCOME		203,470		178,080		399,785		280,135
LESS COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST		(4,640)		(2,698)		(9,017)		(3,112)
COMPREHENSIVE INCOME ATTRIBUTABLE TO CONTROLLING INTEREST	$	198,830	$	175,382	$	390,768	$	277,023

See notes to consolidated condensed financial statements.

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UFP INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)


(in thousands, except share and per share data)
	Controlling Interest Shareholders’ Equity
							Accumulated
			Additional				Other
	Common		Paid-In		Retained		Comprehensive		Noncontrolling
	Stock		Capital		Earnings		Earnings		Interest		Total
Balance on December 26, 2021	$	61,902	$	243,995	$	1,678,121	$	(5,405)	$	37,956	$	2,016,569
Net earnings						189,703				3,428		193,131
Foreign currency translation adjustment								2,930		949		3,879
Unrealized loss on debt securities								(695)				(695)
Distributions to noncontrolling interest										(2,053)		(2,053)
Cash dividends - $0.20 per share - quarterly						(12,541)						(12,541)
Issuance of 9,734 shares under employee stock purchase plan		10		653								663
Issuance of 787,045 shares under stock grant programs		787		8,959								9,746
Issuance of 79,973 shares under deferred compensation plans		80		(80)								—
Repurchase of 44,442 shares		(45)				(3,499)						(3,544)
Expense associated with share-based compensation arrangements				6,883								6,883
Accrued expense under deferred compensation plans				6,134								6,134
Balance on March 26, 2022	$	62,734	$	266,544	$	1,851,784	$	(3,170)	$	40,280	$	2,218,172
Net earnings						203,118				4,735		207,853
Foreign currency translation adjustment								(3,660)		(95)		(3,755)
Unrealized loss on debt securities								(628)				(628)
Cash dividends - $0.25 per share - quarterly						(15,474)						(15,474)
Issuance of 13,875 shares under employee stock plans		14		781								795
Issuance of 28,154 shares under stock grant programs		28		1,092								1,120
Issuance of 11,605 shares under deferred compensation plans		12		(12)								—
Repurchase of 1,165,268 shares		(1,165)				(88,506)						(89,671)
Expense associated with share-based compensation arrangements				5,556								5,556
Accrued expense under deferred compensation plans				1,100								1,100
Balance on June 25, 2022	$	61,623	$	275,061	$	1,950,922	$	(7,458)	$	44,920	$	2,325,068

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UFP INDUSTRIES, INC.


(in thousands, except share and per share data)
	Controlling Interest Shareholders’ Equity
							Accumulated
			Additional				Other
	Common		Paid-In		Retained		Comprehensive		Noncontrolling
	Stock		Capital		Earnings		Earnings		Interest		Total
Balance on December 27, 2020	$	61,206	$	218,224	$	1,182,680	$	(1,794)	$	22,836	$	1,483,152
Net earnings						103,311				940		104,251
Foreign currency translation adjustment								(374)		(526)		(900)
Unrealized loss on debt securities								(1,296)				(1,296)
Distributions to noncontrolling interest										(2,914)		(2,914)
Cash dividends - $0.15 per share - quarterly						(9,274)						(9,274)
Issuance of 5,816 shares under employee stock purchase plan		6		357								363
Net issuance of 536,970 shares under stock grant programs		537		3,888		5						4,430
Issuance of 89,690 shares under deferred compensation plans		89		(89)								—
Expense associated with share-based compensation arrangements				2,936								2,936
Accrued expense under deferred compensation plans				5,795								5,795
Balance on March 27, 2021	$	61,838	$	231,111	$	1,276,722	$	(3,464)	$	20,336	$	1,586,543
Net earnings						173,382				1,978		175,360
Foreign currency translation adjustment								1,759		720		2,479
Unrealized gain on debt securities								241				241
Distributions to noncontrolling interest												—
Additional purchase of noncontrolling interest												—
Cash dividends - $0.15 per share - quarterly						(9,276)						(9,276)
Issuance of 9,282 shares under employee stock plans		9		564								573
Net forfeitures of 5,718 shares under stock grant programs		(6)		(224)		5						(225)
Issuance of 8,913 shares under deferred compensation plans		10		(10)								—
Expense associated with share-based compensation arrangements				2,728								2,728
Accrued expense under deferred compensation plans				1,140								1,140
Balance on June 26, 2021	$	61,851	$	235,309	$	1,440,833	$	(1,464)	$	23,034	$	1,759,563

See notes to consolidated condensed financial statements.

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UFP INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


(in thousands)	Six Months Ended
	June 25,		June 26,
	2022		2021
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net earnings	$	400,984	$	279,611
Adjustments to reconcile net earnings to net cash from operating activities:
Depreciation		44,034		38,342
Amortization of intangibles		8,740		7,193
Expense associated with share-based and grant compensation arrangements		12,542		5,742
Deferred income taxes		179		177
Unrealized loss (gain) on investments and other		6,181		(2,784)
Equity in earnings of investee		1,532		1,465
Net loss (gain) on sale and disposition of assets		766		(1,577)
Changes in:
Accounts receivable		(304,715)		(336,094)
Inventories		(134,653)		(329,577)
Accounts payable and cash overdraft		56,120		143,018
Accrued liabilities and other		(1,313)		78,751
NET CASH FROM (USED IN) OPERATING ACTIVITIES		90,397		(115,733)
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchases of property, plant and equipment		(71,675)		(79,028)
Proceeds from sale of property, plant and equipment		2,029		6,673
Acquisitions and purchases of non-controlling interest, net of cash received		(39,343)		(433,239)
Purchases of investments		(15,166)		(14,581)
Proceeds from sale of investments		8,221		6,885
Other		(2,829)		(708)
NET CASH USED IN INVESTING ACTIVITIES		(118,763)		(513,998)
CASH FLOWS (USED IN) FROM FINANCING ACTIVITIES:
Borrowings under revolving credit facilities		570,700		849,944
Repayments under revolving credit facilities		(571,075)		(589,695)
Repayments of debt		(2,485)		—
Contingent consideration payments and other		(2,553)		(1,464)
Proceeds from issuance of common stock		1,457		936
Dividends paid to shareholders		(28,015)		(18,550)
Distributions to noncontrolling interest		(2,053)		(2,914)
Repurchase of common stock		(90,805)		—
Other		(184)		(331)
NET CASH (USED IN) FROM FINANCING ACTIVITIES		(125,013)		237,926
Effect of exchange rate changes on cash		956		112
NET CHANGE IN CASH AND CASH EQUIVALENTS		(152,423)		(391,693)
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, BEGINNING OF YEAR		291,223		436,608
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, END OF PERIOD	$	138,800	$	44,915

RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH:
Cash and cash equivalents, beginning of period	$	286,662	$	436,507
Restricted cash, beginning of period		4,561		101
Cash, cash equivalents, and restricted cash, beginning of period	$	291,223	$	436,608

Cash and cash equivalents, end of period	$	138,071	$	44,286
Restricted cash, end of period		729		629
Cash, cash equivalents, and restricted cash, end of period	$	138,800	$	44,915

SUPPLEMENTAL INFORMATION:
Interest paid	$	7,008	$	7,107
Income taxes paid		138,420		73,174
NON-CASH INVESTING ACTIVITIES
Capital expenditures included in accounts payable		2,856		—
NON-CASH FINANCING ACTIVITIES:
Common stock issued under deferred compensation plans		7,563		6,064

See notes to consolidated condensed financial statements.

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UFP INDUSTRIES, INC.

NOTES TO UNAUDITED

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

A. BASIS OF PRESENTATION

The accompanying unaudited interim consolidated condensed financial statements (the “Financial Statements”) include our accounts and those of our wholly-owned and majority-owned subsidiaries and partnerships, and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, the Financial Statements do not include all the information and footnotes normally included in the annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States. All intercompany transactions and balances have been eliminated.

In our opinion, the Financial Statements contain all material adjustments necessary to present fairly our consolidated financial position, results of operations and cash flows for the interim periods presented. All such adjustments are of a normal recurring nature. These Financial Statements should be read in conjunction with the annual consolidated financial statements, and footnotes thereto, included in our Annual Report to Shareholders on Form 10-K for the fiscal year ended December 25, 2021.

Seasonality has a significant impact on our working capital from March to August, which historically results in negative or modest cash flows from operations in our first and second quarters. Conversely, we experience a substantial decrease in working capital from September to February which typically results in significant cash flow from operations in our third and fourth quarters. For comparative purposes, we have included the June 26, 2021 balances in the accompanying unaudited condensed consolidated balance sheets.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The ASU requires that an acquirer recognize and measure contract assets and contract liabilities in a business combination in accordance with Topic 606. The ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We are currently evaluating the impact of the new guidance on our consolidated financial statements.

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UFP INDUSTRIES, INC.

B. FAIR VALUE

We apply the provisions of ASC 820, Fair Value Measurements and Disclosures, to assets and liabilities measured at fair value. Assets measured at fair value are as follows (in thousands):


	June 25, 2022								June 26, 2021
	Quoted		Prices with						Quoted		Prices with
	Prices in		Other			Prices with			Prices in		Other			Prices with
	Active		Observable			Unobservable			Active		Observable			Unobservable
	Markets		Inputs			Inputs			Markets		Inputs			Inputs
	(Level 1)		(Level 2)			(Level 3)	Total		(Level 1)		(Level 2)			(Level 3)	Total
Money market funds	$	19	$	4,170	$	—	$	4,189	$	19	$	2,840	$	—	$	2,859
Fixed income funds		2,684		16,654		—		19,338		244		17,610		—		17,854
Treasury securities		342		—		—		342		307		—		—		307
Equity securities		17,249		—		—		17,249		19,014		—		—		19,014
Alternative investments		—		—		4,079		4,079		—		—		3,304		3,304
Mutual funds:
Domestic stock funds		12,723		—		—		12,723		10,037		—		—		10,037
International stock funds		1,378		—		—		1,378		1,463		—		—		1,463
Target funds		21		—		—		21		22		—		—		22
Bond funds		134		—		—		134		145		—		—		145
Alternative funds		510		—		—		510		501		—		—		501
Total mutual funds		14,766		—		—		14,766		12,168		—		—		12,168
Total	$	35,060	$	20,824	$	4,079	$	59,963	$	31,752	$	20,450	$	3,304	$	55,506
Assets at fair value	$	35,060	$	20,824	$	4,079	$	59,963	$	31,752	$	20,450	$	3,304	$	55,506

From the assets measured at fair value as of June 25, 2022, listed in the table above, $35.5 million of mutual funds, equity securities, and alternative investments are held in Investments, $4.0 million of money market funds are held in Cash and Cash Equivalents, $0.6 million of money market and mutual funds are held in Other Assets for our deferred compensation plan, and $19.7 million of fixed income funds and $0.2 million of money market funds are held in Restricted Investments.

We maintain money market, mutual funds, bonds, and/or equity securities in our non-qualified deferred compensation plan, our wholly owned licensed captive insurance company, and assets held in financial institutions. These funds are valued at prices quoted in an active exchange market and are included in “Cash and Cash Equivalents”, “Investments”, “Other Assets”, and “Restricted Investments”. We have elected not to apply the fair value option under ASC 825, Financial Instruments, to any of our financial instruments except for those expressly required by U.S. GAAP.

In accordance with our investment policy, our wholly-owned captive, Ardellis Insurance Ltd. (“Ardellis”), maintains an investment portfolio, totaling $55.2 million as of June 25, 2022, which has been included in the aforementioned table of total investments. This portfolio consists of domestic and international equity securities, alternative investments, and fixed income bonds.

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UFP INDUSTRIES, INC.

Ardellis’ available for sale investment portfolio, including funds held with the State of Michigan, consists of the following (in thousands):


	June 25, 2022						June 26, 2021
			Unrealized						Unrealized
	Cost		Gain		Fair Value		Cost		Gain		Fair Value
Fixed Income	$	20,875	$	(1,537)	$	19,338	$	17,066	$	788	$	17,854
Treasury Securities		342		—		342		—		—		—
Equity		15,668		1,581		17,249		14,760		4,254		19,014
Mutual Funds		13,405		742		14,147		8,769		2,740		11,509
Alternative Investments		3,053		1,026		4,079		2,953		351		3,304
Total	$	53,343	$	1,812	$	55,155	$	43,548	$	8,133	$	51,681

Our fixed income investments consist of a blend of US Government and Agency bonds and investment grade corporate bonds with varying maturities. Our equity investments consist of small, mid, and large cap growth and value funds, as well as international equity. Our mutual fund investments consist of domestic and international stock. Our alternative investments consist of a private real estate income trust which is valued as a Level 3 asset. The net unrealized gain of the portfolio was $1.8 million. Carrying amounts above are recorded in the investments and restricted investments line items within the balance sheet as of June 25, 2022 and June 26, 2021.

C. REVENUE RECOGNITION

Within the three primary segments (Retail, Industrial, and Construction) that the Company operates, there are a variety of written agreements governing the sale of our products and services. The transaction price is stated at the purchase order level, which includes shipping and/or freight costs and any applicable governmental authority taxes. The majority of our contracts have a single performance obligation concentrated around the delivery of goods to the carrier, Free On Board (FOB) shipping point. Therefore, revenue is recognized when this performance obligation is satisfied. Generally, title and control passes at the time of shipment. In certain circumstances, the customer takes title when the shipment arrives at the destination. However, our shipping process is typically completed the same day.

Certain customer products that we provide require installation by the Company or a third party. Installation revenue is recognized upon completion. If we use a third party for installation, the party will act as an agent to us until completion of the installation. Installation revenue represents an immaterial share of our total net sales.

We utilize rebates, credits, discounts and/or cash-based incentives with certain customers which are accounted for as variable consideration. We estimate these amounts based on the expected amount to be provided to customers and reduce revenues recognized. We believe that there will not be significant changes to our estimates of variable consideration. The allocation of these costs are applied at the invoice level and recognized in conjunction with revenue. Additionally, returns and refunds are estimated on a historical and expected basis which is a reduction of revenue recognized.

Earnings on construction contracts are reflected in operations using over time accounting, under either cost to cost or units of delivery methods, depending on the nature of the business at individual operations, which is in accordance with ASC 606 as revenue is recognized when certain performance obligations are performed. Under over time accounting using the cost to cost method, revenues and related earnings on construction contracts are measured by the relationships of actual costs incurred relative to the total estimated costs. Under over time accounting using the units of delivery method, revenues and related earnings on construction contracts are measured by the relationships of actual units produced relative to the total number of units. Revisions in earnings estimates on the construction contracts are recorded in the accounting period in which the basis for such revisions becomes known. Projected losses on individual contracts are charged to operations in their entirety when such losses become apparent.

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Our construction contracts are generally entered into with a fixed price, and completion of the projects can range from 6 to 18 months in duration. Therefore, our operating results are impacted by, among many other things, labor rates and commodity costs. During the year, we update our estimated costs to complete our projects using current labor and commodity costs and recognize losses to the extent that they exist.

The following table presents our net sales disaggregated by revenue source (in thousands):


	Three Months Ended					Six Months Ended
	June 25,		June 26,			June 25,		June 26,
	2022		2021		% Change	2022		2021		% Change
Point in Time Revenue	$	2,850,409	$	2,669,159	6.8%	$	5,300,690	$	4,466,558	18.7%
Over Time Revenue		50,465		31,382	60.8%		89,497		58,987	51.7%
Total Net Sales		2,900,874		2,700,541	7.4%	$	5,390,187	$	4,525,545	19.1%

The Construction segment comprises the construction contract revenue shown above. Construction contract revenue is primarily made up of site-built and framing customers.

The following table presents the balances of over time accounting accounts which are included in “Other current assets” and “Accrued liabilities: Other”, respectively (in thousands):


	June 25,		December 25,		June 26,
	2022		2021		2021
Cost and Earnings in Excess of Billings	$	6,413	$	5,602	$	4,201
Billings in Excess of Cost and Earnings		10,046		10,744		8,239

D. EARNINGS PER SHARE

The computation of earnings per share (“EPS”) is as follows (in thousands):


	Three Months Ended				Six Months Ended
	June 25,		June 26,		June 25,		June 26,
	2022		2021		2022		2021
Numerator:
Net earnings attributable to controlling interest	$	203,118	$	173,382	$	392,821	$	276,693
Adjustment for earnings allocated to non-vested restricted common stock		(8,270)		(5,670)		(15,045)		(8,807)
Net earnings for calculating EPS	$	194,848	$	167,712	$	377,776	$	267,886
Denominator:
Weighted average shares outstanding		62,766		62,242		62,889		62,087
Adjustment for non-vested restricted common stock		(2,555)		(2,035)		(2,409)		(1,976)
Shares for calculating basic EPS		60,211		60,207		60,480		60,111
Effect of dilutive restricted common stock		205		156		220		121
Shares for calculating diluted EPS		60,416		60,363		60,700		60,232
Net earnings per share:
Basic	$	3.24	$	2.79	$	6.25	$	4.46
Diluted	$	3.23	$	2.78	$	6.22	$	4.45

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E. COMMITMENTS, CONTINGENCIES, AND GUARANTEES

We are self-insured for environmental impairment liability, including certain liabilities which are insured through a wholly owned subsidiary, Ardellis Insurance Ltd., a licensed captive insurance company.

In addition, on June 25, 2022, we were parties either as plaintiff or defendant to a number of lawsuits and claims arising through the normal course of our business. In the opinion of management, our consolidated financial statements will not be materially affected by the outcome of these contingencies and claims.

On June 25, 2022, we had outstanding purchase commitments on commenced capital projects of approximately $80.4 million.

We provide a variety of warranties for products we manufacture. Historically, warranty claims have not been material. We also distribute products manufactured by other companies, some of which are no longer in business. While we do not warrant these products, we have received claims as a distributor of these products when the manufacturer no longer exists or has the ability to pay. Historically, these costs have not had a material effect on our consolidated financial statements.

As part of our operations, we supply building materials and labor to site-built construction projects or we jointly bid on contracts with framing companies for such projects. In some instances, we are required to post payment and performance bonds to ensure the products and installation services are completed in accordance with our contractual obligations. We have agreed to indemnify the surety for claims properly made against these bonds. As of June 25, 2022, we had approximately $13.8 million in outstanding payment and performance bonds for open projects. We had approximately $26.7 million in payment and performance bonds outstanding for completed projects which are still under warranty.

On June 25, 2022, we had outstanding letters of credit totaling $60.0 million, primarily related to certain insurance contracts and industrial development revenue bonds described further below.

In lieu of cash deposits, we provide irrevocable letters of credit in favor of our insurers to guarantee our performance under certain insurance contracts. As of June 25, 2022, we have irrevocable letters of credit outstanding totaling approximately $50.1 million for these types of insurance arrangements. We have reserves recorded on our balance sheet, in accrued liabilities, that reflect our expected future liabilities under these insurance arrangements.

We are required to provide irrevocable letters of credit in favor of the bond trustees for all industrial development revenue bonds that have been issued. These letters of credit guarantee principal and interest payments to the bondholders. We currently have irrevocable letters of credit outstanding totaling approximately $7.1 million related to our outstanding industrial development revenue bonds. These letters of credit have varying terms but may be renewed at the option of the issuing banks.

Certain wholly owned domestic subsidiaries have guaranteed the indebtedness of UFP Industries, Inc. in certain debt agreements, including the Series 2012, 2018 and 2020 Senior Notes and our revolving credit facility. The maximum exposure of these guarantees is limited to the indebtedness outstanding under these debt arrangements and this exposure will expire concurrent with the expiration of the debt agreements.

We did not enter into any new guarantee arrangements during the second quarter of 2022 which would require us to recognize a liability on our balance sheet.

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F. BUSINESS COMBINATIONS

We completed the following acquisitions in fiscal 2022 and since the end of June 2021, which were accounted for using the purchase method. Dollars below are in thousands unless otherwise noted:


					Net
Company	Acquisition		Intangible		Tangible		Operating
Name	Date	Purchase Price	Assets		Assets		Segment
	May 9, 2022	$15,386 cash paid for 100% asset purchase	$	4,801	$	10,585	Retail
Cedar Poly, LLC	Located in Tipton, Iowa, Cedar Poly is a full-service recycler of high-density and low-density polyethylene (HDPE and LDPE) flakes and pellets used in various products, including composite decking. The company also recycles corrugate and operates its own transportation fleet. Cedar Poly had 2021 sales of approximately $17.3 million and will operate in UFP’s Deckorators business unit.
	December 27, 2021	$24,057 cash paid for 100% stock purchase, net of acquired cash	$	17,484	$	6,573	Retail
Ultra Aluminum Manufacturing, Inc. (Ultra)	Located in Howell, Michigan and founded in 1996, Ultra is a leading manufacturer of aluminum fencing, gates and railing. The company designs and produces an extensive selection of ornamental aluminum fence and railing products for contractors, landscapers, fence dealers and wholesalers. The Company had sales of approximately $45 million in 2021.
	December 20, 2021	$20,754 cash paid for 100% stock purchase	$	11,417	$	9,337	Industrial
Advantage Labels & Packaging, Inc. (Advantage)	Based in Grand Rapids, Michigan, Advantage provides blank and customized labels, printers, label applicators and other packaging supplies. Key industries served by the company include beer and beverage; body armor; food production and processing; greenhouse and nursery; hobby and craft; manufacturing; and automotive. The company had trailing 12-month sales through November 2021 of approximately $19.8 million.
	November 22, 2021	$11,155 cash paid for 70% stock purchase	$	9,562	$	1,593	Other
Ficus Pax Private Limited (Ficus)	Headquartered in Bangalore, India, Ficus manufactures mixed-material cases and crates, nail-less plywood boxes, wooden pallets and other packaging products through 10 facilities located in major industrial markets throughout southern India. Ficus also owns a majority stake in Wadpack, a manufacturer of corrugated fiber board containers, corrugated pallets and display solutions. The company had trailing 12-month sales through August 2021 of approximately $39 million USD.
	November 1, 2021	$5,984 cash paid for 100% asset purchase and estimated contingent consideration	$	5,681	$	303	Other
Boxpack Packaging (Boxpack)	Based near Melbourne, Australia, Boxpack specializes in flexographic and lithographic cardboard packaging, using the latest CAD design and finishing techniques. Boxpack serves multiple industries, including food and beverage, confectionary, pharmaceutical, industrial and agricultural. The company had trailing 12-month sales through June 30, 2021, of $6.2 million USD ($8.2 million AUD).

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					Net
Company	Acquisition		Intangible		Tangible		Operating
Name	Date	Purchase Price	Assets		Assets		Segment
	September 27, 2021	$6,443 cash paid for 100% asset purchase and estimated contingent consideration	$	4,039	$	2,404	Construction
Shelter Products, Inc. (Shelter)	Based in Haleyville, Alabama, Shelter operates its distribution and logistics business from an 87,800 sq.-ft. warehouse that specializes in manufactured housing industry customers. Shelter’s facility is adjacent to a UFP manufacturing facility that supplies trusses to manufactured housing builders, and the proximity will enable additional operational synergies. The Company had sales of approximately $11.4 million in 2020.

The intangible assets for the above acquisitions have not been finalized and allocated to their respective identifiable asset and goodwill accounts. In aggregate, acquisitions completed since the end of June 2021 and not consolidated with other operations contributed approximately $53.7 million in net sales and $3.2 million in operating profits during the first six months of 2022.

G. SEGMENT REPORTING

We operate manufacturing, treating and distribution facilities internationally, but primarily in the United States. Our business segments consist of UFP Retail Solutions, UFP Industrial and UFP Construction and align with the end markets we serve. This segment structure allows for a specialized and consistent sales approach among Company operations, efficient use of resources and capital, and quicker introduction of new products and services. We manage the operations of our individual locations primarily through a market-centered reporting structure under which each location is included in a business unit and business units are included in our Retail, Industrial, and Construction segments. In the case of locations which serve multiple segments, results are allocated and accounted for by segment.

The exception to this market-centered reporting and management structure is our International segment, which comprises our Mexico, Canada, Europe, India, and Australia operations and sales and buying offices in other parts of the world and our Ardellis segment, which represents our wholly owned fully licensed captive insurance company based in Bermuda. Our International and Ardellis segments do not meet the quantitative thresholds in order to be separately reported and accordingly, the International and Ardellis segments have been aggregated in the “All Other” segment for reporting purposes.

“Corporate” includes purchasing, transportation and administrative functions that serve our operating segments. Operating results of Corporate primarily consist of net sales to external customers initiated by UFP Purchasing and UFP Transportation and over (under) allocated costs. The operating results of UFP Real Estate, Inc., which owns and leases real estate, and UFP Transportation Ltd., which owns, leases and operates transportation equipment, are also included in the Corporate column. Inter-company lease and service charges are assessed to our operating segments for the use of these assets and services at fair market value rates. Total assets in the Corporate column include unallocated cash and cash equivalents, certain prepaid assets, certain property, equipment and other assets pertaining to the centralized activities of Corporate, UFP Real Estate, Inc., UFP Transportation, Inc., UFP Purchasing, Inc., and UFP RMS, LLC. The tables below are presented in thousands:


	Three Months Ended June 25, 2022
	Retail		Industrial		Construction		All Other		Corporate		Total
Net sales to outside customers	$	1,121,440	$	676,333	$	975,376	$	124,416	$	3,309	$	2,900,874
Intersegment net sales		67,612		21,487		31,866		125,893		(246,858)		—
Earnings from operations		24,527		94,210		132,832		22,748		11,249		285,566

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	Three Months Ended June 26, 2021
	Retail		Industrial		Construction		All Other		Corporate		Total
Net sales to outside customers	$	1,259,218	$	611,181	$	738,704	$	89,470	$	1,968	$	2,700,541
Intersegment net sales		65,147		24,985		20,034		126,054		(236,220)		—
Earnings from operations		62,051		79,526		67,107		16,304		11,947		236,935


	Six Months Ended June 25, 2022
	Retail		Industrial		Construction		All Other		Corporate		Total
Net sales to outside customers	$	2,114,672	$	1,287,702	$	1,761,847	$	219,983	$	5,983	$	5,390,187
Intersegment net sales		133,560		43,660		57,218		235,665		(470,103)		—
Earnings from operations		95,924		176,601		211,650		37,563		22,853		544,591


	Six Months Ended June 26, 2021
	Retail		Industrial		Construction		All Other		Corporate		Total
Net sales to outside customers	$	2,018,239	$	1,060,055	$	1,298,234	$	145,047	$	3,970	$	4,525,545
Intersegment net sales		112,733		42,891		34,495		223,450		(413,569)		—
Earnings from operations		115,596		119,936		100,125		24,282		14,483		374,422

The following table presents goodwill by segment as of June 25, 2022, and December 25, 2021 (in thousands):


	Retail		Industrial		Construction		All Other		Corporate		Total
Balance as of December 25, 2021	$	73,376	$	128,541	$	89,000	$	24,121	$	—	$	315,038
2022 Acquisitions		11,938		—		—		—		—		11,938
2022 Purchase Accounting Adjustments		293		(5,830)		(674)		595		—		(5,616)
Foreign Exchange, Net		—		—		(32)		(796)		—		(828)
Balance as of June 25, 2022	$	85,607	$	122,711	$	88,294	$	23,920	$	—	$	320,532

The following table presents total assets by segment as of June 25, 2022, and December 25, 2021 (in thousands).


	Total Assets by Segment
	June 25,		December 25,
Segment Classification	2022		2021		% Change
Retail	$	1,075,310	$	844,189	27.4	%
Industrial		835,735		741,672	12.7
Construction		912,507		736,157	24.0
All Other		341,877		343,363	(0.4)
Corporate		445,394		579,890	(23.2)
Total Assets	$	3,610,823	$	3,245,271	11.3	%

H. INCOME TAXES

Effective tax rates differ from statutory federal income tax rates, primarily due to provisions for foreign, state and local income taxes and permanent tax differences. Our effective tax rate was 25.0% in the second quarter of 2022 and 2021 and was 24.5% in the first six months of 2022 compared to 24.4% for the same period in 2021. Permanent tax differences and credits have remained relatively consistent from 2021 to 2022, which is the primary reason the rate increased only slightly.

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UFP INDUSTRIES, INC.

I. COMMON STOCK

Below is a summary of common stock issuances for the first six months of 2022 and 2021 (in thousands, except average share price):


	June 25, 2022
Share Issuance Activity	Common Stock		Average Share Price
Shares issued under the employee stock purchase plan	24	$	72.58

Shares issued under the employee stock gift program	2		78.57
Shares issued under the director retainer stock program	2		79.46
Shares issued under the bonus plan	755		82.73
Shares issued under the executive stock match plan	62		82.87
Forfeitures	(6)
Total shares issued under stock grant programs	815	$	82.72

Shares issued under the deferred compensation plans	92	$	82.59


	June 26, 2021
Share Issuance Activity	Common Stock		Average Share Price
Shares issued under the employee stock purchase plan	15	$	72.94

Shares issued under the employee stock gift program	1		79.64
Shares issued under the director retainer stock program	3		67.77
Shares issued under the bonus plan	468		53.68
Shares issued under the executive stock grants plan	77		60.24
Forfeitures	(18)
Total shares issued under stock grant programs	531	$	54.71

Shares issued under the deferred compensation plans	99	$	61.50

During the first six months of 2022, we repurchased approximately 1,210,000 shares of our common stock at an average share price of $77.06.

During the first six months of 2021, we did not repurchase any of our shares of common stock.

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J. INVENTORIES

Inventories are stated at the lower of cost or net realizable value. The cost of inventories includes raw materials, direct labor, and manufacturing overhead. Cost is determined on a weighted average FIFO basis. Raw materials consist primarily of unfinished wood products and other materials expected to be manufactured or treated prior to sale, while finished goods represent various manufactured and treated wood products ready for sale.

We write down the value of inventory, the impact of which is reflected in cost of goods sold in the Condensed Consolidated Statement of Earnings and Comprehensive Income, if the cost of specific inventory items on hand exceeds the amount we expect to realize from the ultimate sale or disposal of the inventory. These estimates are based on management's judgment regarding future demand and market conditions and analysis of historical experience. The lower of cost or net realizable value adjustment to inventory as of June 25, 2022 and June 26, 2021 was $9.3 million and $23.2 million, respectively.

K. SUBSEQUENT EVENTS

On June 27, 2022, we acquired 50% of the equity of Dempsey Wood Products, LLC, for $66.0 million. Based in Orangeburg, South Carolina, Dempsey Wood Products produces kiln-dried lumber, pallet lumber, and other industrial wood products.

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UFP INDUSTRIES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

UFP Industries, Inc. is a holding company with subsidiaries throughout North America, Europe, Asia, and Australia that supply wood, wood composite and other products to three markets: retail, industrial, and construction. We are headquartered in Grand Rapids, Michigan. For more information about UFP Industries, Inc., or our affiliated operations, go to www.ufpi.com.

This report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act, as amended, that are based on management’s beliefs, assumptions, current expectations, estimates and projections about the markets we serve, the economy and the Company itself. Words like “anticipates,” “believes,” “confident,” “estimates,” “expects,” “forecasts,” “likely,” “plans,” “projects,” “should,” variations of such words, and similar expressions identify such forward-looking statements. These statements do not guarantee future performance and involve certain risks, uncertainties and assumptions that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. The Company does not undertake to update forward-looking statements to reflect facts, circumstances, events, or assumptions that occur after the date the forward-looking statements are made. Actual results could differ materially from those included in such forward-looking statements. Investors are cautioned that all forward-looking statements involve risks and uncertainty. Among the factors that could cause actual results to differ materially from forward-looking statements are the following: fluctuations in the price of lumber; adverse or unusual weather conditions; adverse economic conditions in the markets we serve; government regulations, particularly involving environmental and safety regulations, government imposed “stay at home” orders and directives to cease or curtail operations; and our ability to make successful business acquisitions. Certain of these risk factors as well as other risk factors and additional information are included in the Company's reports on Form 10-K and 10-Q on file with the Securities and Exchange Commission. We are pleased to present this overview of the second quarter of 2022.

OVERVIEW

Our results for the second quarter of 2022 include the following highlights:

●

Our net sales were up 7% compared to the second quarter of 2021, which was comprised of a 4% increase in selling prices, a 1% increase in unit sales due to acquisitions completed since June of last year, and a 2% increase in organic unit sales. The overall increase in our selling prices is due to a combination of an improvement in our product mix of value-added products which tend to be sold on a fixed price, elevated end market demand, and our value-based selling initiatives. Organic unit growth of 17% in our construction segment was offset by an organic unit decline of 7% in our retail segment and 1% in our industrial segment.

●

Our gross profits increased by $82.2 million, or 19.5%, compared to the same period of the prior year. Acquired operations contributed $6 million to the increase in our gross profits. Excluding the impact of acquisitions, gross profits increased by $76.2 million and we estimate that value-added products contributed $131 million to the increase, which was offset by a decrease in gross profit of $55 million due to the impact of falling lumber prices on certain commodity-based products that are sold on a variable price formula.

●

Our operating profits increased $48.6 million, or 20%, compared to the second quarter of 2021. This increase resulted from a variety of factors including improved leveraging of our fixed costs in business units that experienced organic growth, increased sales of new and value-added products which have higher gross margins, and our ability to effectively include lumber and other cost increases in the selling prices of our products. In addition, our value-based selling practices have enabled us to improve our profit per unit. Acquisitions contributed approximately $2.5 million to our increase in operating profits.

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●

Our cash flows from operations for the first six months of 2022 increased to $90 million compared to $116 million of cash used in operations during the first six months of 2021. The improved cash flows resulted from net earnings and non-cash expenses totaling $475 million, compared to $328 million last year, offset by a $385 million increase in net working capital since the end of last year, compared to a $444 million increase in the prior year. Last year, our inventories increased more significantly from the beginning of the year until the end of June, primarily due to the increase in lumber prices, as reflected in the table below, which remained elevated at the end of the second quarter.

●

Our net debt (debt and cash overdraft less cash) at the end of June 2022 was $190.7 million compared to $561.9 million at the end of June 2021. Our unused borrowing capacity under revolving credit facilities and a shelf agreement with certain lenders along with our cash surplus resulted in total liquidity of approximately $1.2 billion at the end of the second quarter of 2022.

HISTORICAL LUMBER PRICES

We experience significant fluctuations in the cost of commodity lumber products from primary producers (“Lumber Market”). The following table presents the Random Lengths framing lumber composite price:


	Random Lengths Composite
	Average $/MBF
	2022			2021
January	$	1,112		$	890
February		1,225			954
March		1,321			1,035
April		1,051			1,080
May		948			1,428
June		670			1,344

Second quarter average	$	890		$	1,284
Year-to-date average	$	1,055		$	1,122

Second quarter percentage change		(30.7)	%
Year-to-date percentage change		(6.0)	%

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In addition, a Southern Yellow Pine (“SYP”) composite price, which we prepare and use, is presented below. Our purchases of this species comprise almost two-thirds of our total lumber purchases.


	Southern Yellow Pine
	Average $/MBF
	2022			2021
January	$	1,010		$	858
February		1,115			903
March		1,198			938
April		902			922
May		732			1,150
June		574			1,052

Second quarter average	$	736		$	1,041
Year-to-date average	$	922		$	971

Second quarter percentage change		(29.3)	%
Year-to-date percentage change		(5.0)	%

The decrease in overall lumber prices for the second quarter of the year was primarily due to demand in the retail and housing markets beginning to return to more normalized levels and improvements in supply chain constraints. A change in lumber prices impacts our profitability of products sold with fixed and variable prices, as discussed below.

IMPACT OF THE LUMBER MARKET ON OUR OPERATING RESULTS

We generally price our products to pass lumber costs through to our customers so that our profitability is based on the value-added manufacturing, distribution, engineering, and other services we provide. As a result, our sales levels (and working capital requirements) are impacted by the lumber costs of our products. Lumber costs were 54.8% and 63.7% of our sales in the first six months of 2022 and 2021, respectively. The decrease from the prior year ratio reflects an improvement in our sales mix of value-added products as well as our value-based selling practices.

Our gross margins are impacted by (1) the relative level of the Lumber Market (i.e. whether prices are higher or lower from comparative periods), and (2) the trend in the market price of lumber (i.e. whether the price of lumber is increasing or decreasing within a period or from period to period). Moreover, as explained below, our products are priced differently. Some of our products have fixed selling prices, while the selling prices of other products are indexed to the reported Lumber Market with a fixed dollar adder to cover conversion costs and profits. Consequently, the level and trend of the Lumber Market impact our products differently.

Below is a general description of the primary ways in which our products are priced.

●

Products with fixed selling prices. These products include value-added products, such as manufactured items, sold within all segments. Prices for these products are generally fixed at the time of the sales quotation for a specified period of time. In order to reduce any exposure to adverse trends in the price of component lumber products, we attempt to lock in costs with our suppliers or purchase necessary inventory for these sales commitments. The time period limitation eventually allows us to periodically re-price our products for changes in lumber costs from our suppliers. We believe our percentage of sales of fixed price items is usually greatest in our third and fourth quarters.

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●

Products with selling prices indexed to the reported Lumber Market with a fixed dollar “adder” to cover conversion costs and profit. These products primarily include treated lumber, panel goods, other commodity-type items, and trusses sold to the manufactured housing industry. For these products, we estimate the customers’ needs and we carry anticipated levels of inventory. Because lumber costs are incurred in advance of final sale prices, subsequent increases or decreases in the market price of lumber impact our gross margins. We believe our sales of these products are at their highest relative level in our second quarter, primarily due to pressure-treated lumber sold in our retail segment.

For each of the product pricing categories above, our margins are exposed to changes in the trend of lumber prices.

The greatest risk associated with changes in the trend of lumber prices is on the following products:

●

Products with significant inventory levels with low turnover rates, whose selling prices are indexed to the Lumber Market. In other words, the longer the period of time these products remain in inventory, the greater the exposure to changes in the price of lumber. This would include treated lumber, which comprised approximately 16% of our total annual sales in 2021. This exposure is less significant with remanufactured lumber, panel goods, other commodity-type items, and trusses sold to the manufactured housing market due to the higher rate of inventory turnover. We attempt to mitigate the risk associated with treated lumber through inventory consignment programs with our vendors. Our new Sunbelt and Spartanburg Forest Products plants began participating in these consignment programs in 2022, and we estimate that 24.2% of their inventory was consigned with vendors. (Please refer to the “Risk Factors” section of our annual report on form 10-K, filed with the United States Securities and Exchange Commission.)

●

Products with fixed selling prices sold under long-term supply arrangements, particularly those involving multi-family construction projects. We attempt to mitigate this risk through our purchasing practices and longer vendor commitments.

In addition to the impact of the Lumber Market trends on gross margins, changes in the level of the market cause fluctuations in gross margins when comparing operating results from period to period. This is explained in the following example, which assumes the price of lumber has increased from period one to period two, with no changes in the trend within each period.


	Period 1			Period 2
Lumber cost	$	300		$	400
Conversion cost		50			50
= Product cost		350			450
Adder		50			50
= Sell price	$	400		$	500
Gross margin		12.5	%		10.0	%

As is apparent from the preceding example, the level of lumber prices does not impact our overall profits but does impact our margins. Gross margins and operating margins are negatively impacted during periods of high lumber prices; conversely, we experience margin improvement when lumber prices are relatively low.

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UFP INDUSTRIES, INC.

BUSINESS COMBINATIONS

We completed two business acquisition during the first six months of fiscal 2022 and nine during all of fiscal 2021. The annual historical sales attributable to acquisitions completed in the first six months of fiscal 2022 is approximately $62 million, while acquisitions completed during the last six months of 2021 have annual sales of approximately $76 million. These business combinations were not significant to our quarterly results individually or in aggregate and thus pro forma results for 2022 and 2021 are not presented.

See Notes to the Unaudited Condensed Consolidated Financial Statements, Note F, “Business Combinations” for additional information.

RESULTS OF OPERATIONS

The following table presents, for the periods indicated, the components of our Unaudited Condensed Consolidated Statements of Earnings as a percentage of net sales.


	Three Months Ended				Six Months Ended
	June 25,		June 26,		June 25,		June 26,
	2022		2021		2022		2021
Net sales	100.0	%	100.0	%	100.0	%	100.0	%
Cost of goods sold	82.6		84.4		81.8		84.4
Gross profit	17.4		15.6		18.2		15.6
Selling, general, and administrative expenses	7.4		6.8		8.1		7.4
Other (gains) losses, net	0.1		—		—		—
Earnings from operations	9.8		8.8		10.1		8.3
Other expense, net	0.3		0.1		0.3		0.1
Earnings before income taxes	9.5		8.7		9.9		8.2
Income taxes	2.4		2.2		2.4		2.0
Net earnings	7.2		6.5		7.4		6.2
Less net earnings attributable to noncontrolling interest	(0.2)		(0.1)		(0.2)		(0.1)
Net earnings attributable to controlling interest	7.0	%	6.4	%	7.3	%	6.1	%

Note: Actual percentages are calculated and may not sum to total due to rounding.

As a result of the impact of the level of lumber prices on the percentages displayed in the table above (see Impact of the Lumber Market on Our Operating Results), we believe it is useful to compare our change in units sold with our change in gross profits, selling, general, and administrative expenses, and operating profits as presented in the following table. The percentages displayed below represent the percentage change from the prior year comparable period.


	Percentage Change
	Three Months Ended				Six Months Ended
	June 25,		June 26,		June 25,		June 26,
	2022		2021		2022		2021
Units sold	3.0	%	47.0	%	6.0	%	41.0	%
Gross profit	19.5		105.6		38.7		90.2
Selling, general, and administrative expenses	16.3		62.2		29.9		50.0
Earnings from operations	20.5		156.5		45.4		148.0

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UFP INDUSTRIES, INC.

The following table presents, for the periods indicated, our selling, general, and administrative expenses (SG&A) as a percentage of gross profit. Given our strategies to enhance our capabilities and improve our value-added product offering, and recognizing the higher relative level of SG&A these strategies require, we believe this ratio provides an enhanced view of our effectiveness in managing these costs and mitigates the impact of changing lumber prices.



	Three Months Ended				Six Months Ended
		June 25,		June 26,		June 25,		June 26,
		2022		2021		2022		2021
Gross profit	$	503,452	$	421,294	$	981,815	$	707,848
Selling, general, and administrative expenses	$	214,538	$	184,539	$	434,688	$	334,637
SG&A as percentage of gross profit		42.6%		43.8%		44.3%		47.3%

Bonus expense, which is a component of SG&A, decreased in the second quarter to $55 million from $61 million in the prior year due to modifications made to our bonus plan intended to reduce the payout rate when higher levels of pre-bonus earnings from operations are achieved. The adjustment to reduce bonus expense based on the new parameters was recorded in the second quarter and totaled $17 million. As a result of this change, our year to date bonus accrual rate has decreased to 17.5% of pre-bonus earnings from operations from a historical rate of approximately 20.0%. Bonus rates continue to be derived based on return on investment achieved. Bonus expense in the first six months of 2022 totaled $124 million compared to $98 million in the prior year.

Operating Results by Segment:

Our business segments consist of UFP Retail Solutions, UFP Industrial and UFP Construction, and align with the end markets we serve. Among other things, this structure allows for a more specialized and consistent sales approach among Company operations, more efficient use of resources and capital, and quicker introduction of new products and services. We manage the operations of our individual locations primarily through a market-centered reporting structure under which each location is included in a business unit and business units are included in our Retail, Industrial, and Construction segments. The exception to this market-centered reporting and management structure is our International segment, which comprises our Mexico, Canada, Europe, Asia, and Australia operations and sales and buying offices in other parts of the world. Our International segment and Ardellis (our insurance captive) are included in the “All Other” column of the table below. The “Corporate” column includes purchasing, transportation and administrative functions that serve our operating segments. Operating results of Corporate primarily consists of over (under) allocated costs. The operating results of UFP Real Estate, Inc., which owns and leases real estate, and UFP Transportation Ltd., which owns, leases, and operates transportation equipment, are also included in the Corporate column. Inter-company lease and services charges are assessed to our operating segments for the use of these assets and services at fair market value rates.

The following tables present our operating results, for the periods indicated, by segment (in thousands).


	Three Months Ended June 25, 2022

	Retail		Industrial		Construction		All Other		Corporate		Total
Net sales	$	1,121,440		676,333	$	975,376	$	124,416	$	3,309	$	2,900,874
Cost of goods sold		1,048,260		514,216		748,060		83,336		3,549		2,397,421
Gross profit		73,180		162,117		227,316		41,080		(240)		503,453
Selling, general, administrative expenses		48,387		67,235		94,638		16,356		(12,078)		214,538
Other		266		672		(154)		1,976		589		3,349
Earnings from operations	$	24,527	$	94,210	$	132,832	$	22,748	$	11,249	$	285,566

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UFP INDUSTRIES, INC.


	Three Months Ended June 26, 2021

	Retail		Industrial		Construction		All Other		Corporate		Total
Net sales	$	1,259,218	$	611,181	$	738,704	$	89,470	$	1,968	$	2,700,541
Cost of goods sold		1,136,887		476,731		604,414		59,745		1,470		2,279,247
Gross profit		122,331		134,450		134,290		29,725		498		421,294
Selling, general, administrative expenses		60,376		54,903		66,936		13,604		(11,280)		184,539
Other		(96)		21		247		(183)		(169)		(180)
Earnings from operations	$	62,051	$	79,526	$	67,107	$	16,304	$	11,947	$	236,935



	Six Months Ended June 25, 2022

	Retail		Industrial		Construction		All Other		Corporate		Total
Net sales	$	2,114,672	$	1,287,702	$	1,761,847	$	219,983	$	5,983	$	5,390,187
Cost of goods sold		1,907,155		976,031		1,373,119		147,360		4,707		4,408,372
Gross profit		207,517		311,671		388,728		72,623		1,276		981,815
Selling, general, administrative expenses		111,055		134,466		176,975		32,981		(20,789)		434,688
Other		538		604		103		2,079		(788)		2,536
Earnings from operations	$	95,924	$	176,601	$	211,650	$	37,563	$	22,853	$	544,591



	Six Months Ended June 26, 2021

	Retail		Industrial		Construction		All Other		Corporate		Total
Net sales	$	2,018,239	$	1,060,055	$	1,298,234	$	145,047	$	3,970	$	4,525,545
Cost of goods sold		1,795,435		845,280		1,075,260		97,771		3,951		3,817,697
Gross profit		222,804		214,775		222,974		47,276		19		707,848
Selling, general, administrative expenses		107,476		95,016		122,481		24,025		(14,361)		334,637
Other		(268)		(177)		368		(1,031)		(103)		(1,211)
Earnings from operations	$	115,596	$	119,936	$	100,125	$	24,282	$	14,483	$	374,422

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UFP INDUSTRIES, INC.

The following tables present the components of our operating results, for the periods indicated, as a percentage of net sales by segment.


	Three Months Ended June 25, 2022

	Retail		Industrial		Construction		All Other		Corporate	Total
Net sales	100.0	%	100.0	%	100.0	%	100.0	%	N/A	100.0	%
Cost of goods sold	93.5		76.0		76.7		67.0		—	82.6
Gross profit	6.5		24.0		23.3		33.0		—	17.4
Selling, general, administrative expenses	4.3		9.9		9.7		13.1		—	7.4
Other	—		—		—		1.6		—	—
Earnings from operations	2.2	%	13.9	%	13.6	%	18.3	%	—	9.8	%

Note: Actual percentages are calculated and may not sum to total due to rounding.


	Three Months Ended June 26, 2021

	Retail		Industrial		Construction		All Other		Corporate	Total
Net sales	100.0	%	100.0	%	100.0	%	100.0	%	N/A	100.0	%
Cost of goods sold	90.3		78.0		81.8		66.8		—	84.4
Gross profit	9.7		22.0		18.2		33.2		—	15.6
Selling, general, administrative expenses	4.8		9.0		9.1		15.2		—	6.8
Other	—		—		—		(0.2)		—	—
Earnings from operations	4.9	%	13.0	%	9.1	%	18.2	%	—	8.8	%

Note: Actual percentages are calculated and may not sum to total due to rounding.



	Six Months Ended June 25, 2022

	Retail		Industrial		Construction		All Other		Corporate	Total
Net sales	100.0	%	100.0	%	100.0	%	100.0	%	N/A	100.0	%
Cost of goods sold	90.2		75.8		77.9		67.0		—	81.8
Gross profit	9.8		24.2		22.1		33.0		—	18.2
Selling, general, administrative expenses	5.3		10.4		10.0		15.0		—	8.1
Other	0.3		—		—		0.9		—	—
Earnings from operations	4.5	%	13.7	%	12.0	%	17.1	%	—	10.1	%

Note: Actual percentages are calculated and may not sum to total due to rounding.



	Six Months Ended June 26, 2021

	Retail		Industrial		Construction		All Other		Corporate	Total
Net sales	100.0	%	100.0	%	100.0	%	100.0	%	N/A	100.0	%
Cost of goods sold	89.0		79.7		82.8		67.4		—	84.4
Gross profit	11.0		20.3		17.2		32.6		—	15.6
Selling, general, administrative expenses	5.3		9.0		9.4		16.6		—	7.4
Other	—		—		—		(0.7)		—	—
Earnings from operations	5.7	%	11.3	%	7.7	%	16.7	%	—	8.3	%

Note: Actual percentages are calculated and may not sum to total due to rounding.

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UFP INDUSTRIES, INC.

NET SALES

We design, manufacture and market wood and wood-alternative products, primarily used to enhance outdoor living environments, for national home centers and other retailers, structural lumber and other products for the manufactured housing industry, engineered wood components for residential and commercial construction, customized interior fixtures used in a variety of retail stores, commercial, and other structures, and specialty wood packaging, components and packing materials for various industries. Our strategic long-term sales objectives include:

●	Maximizing unit sales growth while achieving return on investment goals. The following table presents estimates, for the periods indicated, of our percentage change in net sales which were attributable to changes in overall selling prices versus changes in units shipped.


	% Change
	in Sales		in Selling Prices		in Units		Acquisition Unit Change		Organic Unit Change
Second quarter 2022 versus Second quarter 2021	7.4	%	4.4	%	3.0	%	1.0	%	2.0	%
Year-to-date 2022 versus Year-to-date 2021	19.1	%	13.1	%	6.0	%	4.0	%	2.0	%

●

Diversifying our end market sales mix by increasing sales of structural wood and protective packaging to industrial users, increasing our penetration of the concrete forming market, increasing our sales of engineered wood components for custom home, multi-family, military and light commercial construction, and increasing our market share with independent retailers.

●	Expanding geographically in our core businesses, domestically and internationally.

●

Increasing our sales of "value-added" products and enhancing our product offering with new or improved products. Value-added products generally consist of fencing, decking, lattice, and other specialty products sold to the retail market, structural wood packaging, engineered wood components, customized interior fixtures, manufactured and assembled concrete forms, and "wood alternative" products. Engineered wood components include roof trusses, wall panels, and floor systems. Wood alternative products consist of products manufactured with wood and non-wood composites, metal, and plastics. Although we consider the treatment of dimensional lumber and panels with certain chemical preservatives a value-added process, treated lumber is not presently included in the value-added sales totals. Remanufactured lumber and panels that are components of finished goods are also generally categorized as “commodity-based” products.

The following table presents, for the periods indicated, our percentage of value-added and commodity-based sales to total sales by our segments:


	Three Months Ended June 25, 2022				Three Months Ended June 26, 2021
	Value-Added		Commodity-Based		Value-Added		Commodity-Based
Retail	45.3	%	54.7	%	39.7	%	60.3	%
Industrial	70.5	%	29.5	%	63.8	%	36.2	%
Construction	74.7	%	25.3	%	67.9	%	32.1	%
All Other and Corporate	75.5	%	24.5	%	73.4	%	26.6	%
Total Sales	62.2	%	37.8	%	53.8	%	46.2	%

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UFP INDUSTRIES, INC.

	Six Months Ended June 25, 2022				Six Months Ended June 26, 2021
	Value-Added		Commodity-Based		Value-Added		Commodity-Based
Retail	43.2	%	56.8	%	41.5	%	58.5	%
Industrial	69.2	%	30.8	%	65.1	%	34.9	%
Construction	73.7	%	26.3	%	68.3	%	31.7	%
All Other and Corporate	73.9	%	26.1	%	72.7	%	27.3	%
Total Sales	60.5	%	39.5	%	55.5	%	44.5	%

Note: Certain prior year product reclassifications and the change in designation of certain products as "value-added" resulted in a change in prior year's sales.

Our overall unit sales of value-added products increased approximately 6% in the second quarter of 2022 compared to 2021, comprised of a 2% contribution from acquisitions and 4% organic growth. Our overall unit sales of value-added products increased approximately 6% in the first six months of 2022 compared to the same period last year, comprised of a 3% contribution from acquisitions and 3% organic growth. Our organic unit sales of commodity-based products decreased approximately 1% quarter-over-quarter and our overall unit sales of commodity-based products increased approximately 5% in the first six months of 2022 compared to the same period last year, comprised of a 4% contribution from acquisitions and 1% organic growth.

●

Developing new products. We define new products as those that will generate sales of at least $1 million per year within 4 years of launch and are still growing and gaining market penetration. New product sales in the second quarter of 2022 increased 37%. Approximately $211 million of new product sales for the first six months of 2021, while still sold, were sunset in 2022 and excluded from the table below because they no longer meet the definition above. Our goal is to achieve annual new product sales of at least $525 million in 2022.

The table below presents new product sales in thousands:


	New Product Sales by Segment						New Product Sales by Segment
	Three Months Ended						Six Months Ended
	June 25,		June 26,		%		June 25,		June 26,		%
	2022		2021		Change		2022		2021		Change
Retail	$	71,410		68,064	4.9	%	$	137,855	$	119,966	14.9	%
Industrial		68,108		37,108	83.5	%		130,945		65,432	100.1	%
Construction		40,692		26,326	54.6	%		77,499		42,200	83.6	%
All Other and Corporate		623		594	4.9	%		1,393		907	53.6	%
Total New Product Sales		180,833		132,092	36.9	%	$	347,692	$	228,505	52.2	%

Note: Certain prior year product reclassifications and the change in designation of certain products as "new" resulted in a change in prior year's sales.

Retail Segment

Net sales in the second quarter of 2022 decreased by 11% compared to the same period of 2021, due to a 5% decrease in selling prices, a 2% decrease due to the transfer of certain sales to the Construction segment this year, and an organic unit decrease of 4%. These factors were offset by acquisition unit growth of 1%. The decline in organic unit sales was experienced in nearly all of our retail business units as consumer demand begins to return to more normalized levels. By business unit, we experienced organic unit growth of 3% in UFP Edge and this was offset by organic unit decreases in our ProWood (1%), Retail Building Products (2%), Sunbelt (8%), Deckorators (9%), Handprint (18%), and Outdoor Essentials (22%) business units. Capacity expansion contributed to our unit increase in UFP Edge, and we believe investments we’ve made to expand capacity in our Deckorators and UFP Edge business units will add planned sales of nearly $100 million to the Retail segment for all of 2022. Finally, sales to big box customers were down 10%, while sales to independent retailers decreased 15%.

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UFP INDUSTRIES, INC.

Gross profits decreased by $49.2 million, or 40.2% to $73.2 million for the second quarter of 2022 compared to the same period last year. The decrease in gross profit was attributable to the following:

●

The gross profits of our Sunbelt and ProWood business units decreased by a total of $29.9 million, primarily due to the impact that declining lumber prices had on pressure treated products sold at a variable price. A decrease in unit sales also contributed to the reduction in gross profit.

●

Our UFP Edge and Retail Building Products business units contributed $21.1 million to the decrease in gross profits due to the impact that declining lumber prices had on products sold at a variable price in these business units.

●

Acquired operations contributed $2.7 million, which partially offset the decrease in gross profits.

SG&A decreased by approximately $12.0 million, or 19.9%, in the second quarter of 2022 compared to the same period of 2021. SG&A of recently acquired businesses added roughly $1.5 million to overall SG&A. Accrued bonus expense, which varies with our overall profitability and return on investment, decreased approximately $17.2 million from the second quarter of 2021 and totaled approximately $3.8 million for the quarter. Bonus expense was also impacted by the plan modification disclosed above. The decrease was partially offset by increases in advertising of $1.3 million, bad debt expenses of $1.1 million, travel related expenses of $0.8 million, and salaries and wages of $0.6 million.

Earnings from operations for the Retail reportable segment decreased in the second quarter of 2022 compared to 2021 by $37.5 million, or 60.5%, as a result of the factors mentioned above.

Net sales in the first six months of 2022 increased by 5% compared to the same period of 2021, due to a 4% increase in selling prices and acquisition unit growth of 6%, offset by a 2% decrease due to the transfer of certain sales to the Construction segment, and an organic unit decrease of 3%. We experienced organic unit growth of 5% in our UFP Edge business unit. This increase was offset by organic unit decreases in our ProWood (1%), Retail Building Products (4%), Sunbelt (6%), Deckorators (8%), Outdoor Essentials (14%), and Handprint (19%) business units. Capacity expansion contributed to our unit increase in UFP Edge. Finally, sales to big box customers increased 5%, while sales to independent retailers increased 3%.

Gross profits decreased by $15.3 million, or 6.9% to $207.5 million for the first six months of 2022 compared to the same period last year. Our decrease in gross profit was attributable to the following:

●

The gross profits of our Sunbelt and ProWood business units decreased by a total of $17.8 million, primarily due to the impact that declining lumber prices had on pressure treated products that are sold at a variable price.

●

Our Retail Building Products business unit contributed $13.3 million to the decrease in gross profits due to the impact that declining lumber prices had on products sold at a variable price.

●

Acquired operations contributed $14.3 million, which partially offset the decrease in gross profits.

SG&A increased by approximately $3.6 million, or 3.3%, in the first six months of 2022 compared to the same period of 2021. SG&A of recently acquired businesses added $4.1 million to overall SG&A. Accrued bonus expense, which varies with our overall profitability and return on investment, decreased approximtely $10.4 million and totaled approximately $24.5 million for the first six months of 2022. Bonus expense was also impacted by the plan modification disclosed above. The remaining increase was primarily due to increases in salaries and wages of $2.7 million, advertising of $1.8 million, travel-related expenses of $1.4 million, and bad debt expenses of $0.9 million.

Earnings from operations for the Retail reportable segment decreased in the first six months of 2022 compared to 2021 by $19.7 million, or 17.0%, as a result of the factors mentioned above.

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UFP INDUSTRIES, INC.

Industrial Segment

Net sales in the second quarter of 2022 increased 11% compared to the same period of 2021, due to an 11% increase in selling prices and acquisition unit growth of 1%, offset by a 1% decrease in organic unit sales. The increase in our selling prices is a result of executing value-based selling initiatives and maintaining pricing discipline as we operate in an environment of elevated demand and capacity constraints. The components of our change in organic unit sales includes gains associated with $17 million in sales to new customers, $24 million of sales to new locations of existing customers, and $26 million of new product sales. These gains were offset by the loss of unit sales on less profitable accounts.

Gross profits increased by $27.7 million, or 20.6%, for the second quarter of 2022 compared to the same period last year. Acquisitions contributed $1.4 million to the increase in gross profit. The remaining increase is a result of the pricing increases discussed above as well as favorable changes in our value-added sales mix. Excluding acquisitions, we estimate that value-added products contributed $36.5 million to the increase in gross profit, while commodity-based products contributed to a decline of $10.2 million in gross profit. Value-added sales increased to 70.5% of total net sales in the second quarter of 2022 compared to 63.8% of total net sales in the second quarter of 2021. Additionally, the increase in new product sales contributed $11.2 million to gross profits this year ($1.4 million from acquisitions).

SG&A increased by approximately $12.3 million, or 22.5%, in the second quarter of 2022 compared to the same period of 2021. Acquired operations since the second quarter of 2021 contributed approximately $1.0 million to our increase in costs. Accrued bonus expense, which varies with our overall profitability and return on investment, decreased approximately $1.4 million relative to the second quarter of 2021, and totaled $19.7 million for the quarter. Bonus expense was impacted by the plan modification disclosed above. The remaining increase was primarily due to increases in bad debt expense of $6.4 million, sales incentive compensation of $2.0 million, medical benefits expense of $0.6 million, salaries and wages of $0.4 million, and travel related expenses of $0.4 million.

Earnings from operations for the Industrial reportable segment increased in the second quarter of 2022 compared to 2021 by $14.7 million, or 18.5%, due to the factors discussed above.

Net sales in the first six months of 2022 increased 21% compared to the same period of 2021, due to a 23% increase in selling prices and acquisition unit growth of 1%, offset by a 3% decrease in organic unit sales. The increase in our selling prices is a result of executing value-based selling initiatives and maintaining pricing discipline as we operate in an environment of elevated demand and capacity constraints. The components of our change in organic unit sales includes gains associated with $40 million in sales to new customers, $42 million of sales to new locations of existing customers, and $55 million of new product sales. These gains were offset by the loss of unit sales on less profitable accounts.

Gross profits increased by $96.9 million, or 45.1%, for the first six months of 2022 compared to the same period last year. Acquisitions contributed $3.1 million to the increase in gross profit. The remaining increase is a result of the pricing increases discussed above as well as favorable changes in our value-added sales mix. Excluding acquisitions, we estimate that value-added products and commodity-based products contributed $86.4 million and $7.4 million, respectively, to the increase in gross profit. Value-added sales increased to 69.2% of total net sales in the first six months of 2022 compared to 65.1% of total net sales in the first six months of 2021. Additionally, the increase in new product sales contributed $23 million to gross profits this year ($3.1 million from acquisitions).

SG&A increased by approximately $39.5 million, or 41.5%, in the first six months of 2022 compared to the same period of 2021. Acquired operations since the first six months of 2021 contributed approximately $2.3 million to our increase in costs. Accrued bonus expense, which varies with our overall profitability and return on investment, increased approximately $11.7 million, and totaled $43.4 million for the six months of 2022. Bonus expense was also impacted by the plan modification disclosed above. The remaining increase was primarily due to increases in bad debt expense of $8.0 million, sales incentive compensation of $6.8 million, salaries and wages of $2.0 million, travel related expenses of $1.0 million, and medical benefits expense of $0.7 million.

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UFP INDUSTRIES, INC.

Earnings from operations for the Industrial reportable segment increased in the first six months of 2022 compared to 2021 by $56.7 million, or 47.2%, due to the factors discussed above.

Construction Segment

Net sales in the second quarter of 2022 increased 32% compared to the same period of 2021, due to a 15% increase in selling prices, 2% due to the transfer of certain sales from the Retail segment and organic unit sales growth of 15%. The increase in our selling prices is due to a combination of an improvement in our product mix of value-added products which tend to be sold on a fixed price, elevated end market demand, and selectively selling to maximize profitability. Organic unit changes within this segment consist of increases of 63% in commercial construction, 35% in concrete forming, 16% in factory-built housing, and 1% in site-built construction.

●

The organic increase in commercial is due primarily to an increase in sales at our idX facility in CA. As of June 25, 2022 and December 25, 2021, we estimate that backlog orders associated with commercial construction approximated $118.0 million and $84.6 million, respectively.

●

The organic unit increase in concrete forming is comprised of a 64% increase in our value-added unit sales and a 10% increase in our commodity-based unit sales. The unit increase in value-added sales is due to an increase in concrete form and engineered wood product sales to new customers and existing customers.

●

The organic unit increase in factory-built is primarily due to an increase in industry production and an increase in new products sales of $11.1 million.

●

Capacity constraints impacted our ability to grow our site-built business unit. Consequently we have been selective in the business we take in order to maximize profitability. As of June 25, 2022 and December 25, 2021, we estimate that backlog orders associated with site-built construction approximated $160.6 million and $113.5 million, respectively.

Gross profits increased by $93.0 million, or 69.3%, for the second quarter of 2022 compared to the same period of 2021. The increase in our gross profit was comprised of the following factors:

●

Gross profits in our site-built construction business unit increased by $72.5 million as a result of being more selective in the business that we take during this period of elevated demand and capacity constraints.

●

Gross profits in our factory-built housing business unit increased $10.9 million as a result of increased unit sales and leveraging fixed costs. In addition, value-added sales in this business unit increased to 55.3% of total net sales in the second quarter of 2022 compared to 46.7% of total net sales in the second quarter of 2021. The increase in new product sales contributed $1.8 million in gross profits this year.

●

The gross profit of our commercial construction business unit increased $7.6 million as a result of increased unit sales, better productivity and other operational improvements, and improved pricing discipline.

●

The gross profit of our concrete forming business unit increased by $1.7 million, including $2.9 million as a result of the transfer of sales from the Retail segment.

●

Acquired businesses contributed $0.3 million.

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SG&A increased by approximately $27.7 million, or 41.4%, in the second quarter of 2022 compared to the same period of 2021. Acquired operations since the second quarter of 2021 contributed approximately $0.3 million to total SG&A for the quarter. Accrued bonus expense, which varies with our overall profitability and return on investment, increased approximately $11.0 million, and totaled $28.7 million for the quarter. Bonus expense was also impacted by previously discussed modifications in our plan. The remaining increase was primarily due to increases in sales incentive compensation of $8.9 million, salaries and wages of $1.3 million, bad debt expense of $1.3 million, and travel related expenses of $0.7 million.

Earnings from operations for the Construction reportable segment increased in the second quarter of 2022 compared to 2021 by $65.7 million, or 97.9%, due to the factors mentioned above.

Net sales in the first six months of 2022 increased 36% compared to the same period of 2021, due to a 20% increase in selling prices, 3% due to the transfer of certain sales from the Retail segment, and organic unit sales growth of 13%. Organic unit changes within this segment consisted of increases of 48% in commercial construction, 26% in concrete forming, and 16% in factory-built housing. The organic unit sales of our site-built business unit remained flat due to capacity constraints.

Gross profits increased by $165.8 million, or 74.3%, for the first six months of 2022 compared to the same period of 2021. The increase in our gross profit was comprised of the following factors:

●

Gross profits in our site-built construction business unit increased by $108.4 million as a result of being more selective in the business that we take during this period of elevated demand and capacity constraints.

●

Gross profits in our factory-built housing business unit increased $36.3 million as a result of increased unit sales and leveraging fixed costs. In addition, value-added sales in this business unit increased to 54.6% of total net sales in the first six months of 2022 compared to 47.5% of total net sales in the first six months of 2021. The increase in new product sales contributed $4.6 million in gross profits this year.

●

The gross profit of our concrete forming business unit increased by $10.2 million, including $6.7 million as a result of the transfer of sales from the Retail segment.

●

The gross profit of our commercial construction business unit increased $9.7 million as a result of increased unit sales, better productivity and other operational improvements, as well as improved pricing discipline.

●

Acquired businesses contributed $1.2 million.

SG&A increased by approximately $54.5 million, or 44.5%, in the first six months of 2022 compared to the same period of 2021. Acquired operations since the first six months of 2021 contributed approximately $1.2 million to total SG&A for the quarter. Accrued bonus expense, which varies with our overall profitability and return on investment, increased approximately $24.6 million, and totaled $51.3 million for the first six months of 2022. Bonus expense was also impacted by previously discussed modifications in our plan. The remaining increase was primarily due to increases in sales incentive compensation of $15.5 million, salaries and wages of $3.4 million, bad debt expense of $2.7 million, and travel related expenses of $1.4 million.

Earnings from operations for the Construction reportable segment increased in the first six months of 2022 compared to 2021 by $111.5 million, or 111.4%, due to the factors mentioned above.

All Other Segment

Our All Other reportable segment consists of our International and Ardellis (our insurance captive) segments that are not significant.

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Corporate

The corporate segment consists of over (under) allocated costs that are not significant.

INCOME TAXES

Effective tax rates differ from statutory federal income tax rates, primarily due to provisions for foreign, state and local income taxes and permanent tax differences. Our effective tax rate was 25.0% in the second quarter of 2022 compared to 25.0% for same period in 2021 and was 24.5% in the first six months of 2022 compared to 24.4% for the same period in 2021. Permanent tax differences and credits have remained relatively consistent from 2021 to 2022, which is the primary reason the rate increased only slightly.

OFF-BALANCE SHEET TRANSACTIONS

We have no significant off-balance sheet transactions.

LIQUIDITY AND CAPITAL RESOURCES

The table below presents, for the periods indicated, a summary of our cash flow statement (in thousands):


	Six Months Ended
	June 25,		June 26,
	2022		2021
Cash from (used in) operating activities	$	90,397	$	(115,733)
Cash used in investing activities		(118,763)		(513,998)
Cash (used in) from financing activities		(125,013)		237,926
Effect of exchange rate changes on cash		956		112
Net change in all cash and cash equivalents		(152,423)		(391,693)
Cash, cash equivalents, and restricted cash, beginning of period		291,223		436,608
Cash, cash equivalents, and restricted cash, end of period	$	138,800	$	44,915

In general, we fund our growth through a combination of operating cash flows, our revolving credit facility, industrial development bonds (when circumstances permit), and issuance of long-term notes payable at times when interest rates are favorable. We have not issued equity to finance growth except in the case of a large acquisition. We manage our capital structure by attempting to maintain a targeted ratio of debt to equity and debt to earnings before interest, taxes, depreciation and amortization. We believe this is one of many important factors to maintaining a strong credit profile, which in turn helps ensure timely access to capital when needed.

Seasonality has a significant impact on our working capital due to our primary selling season which occurs during the period from March to September. Consequently, our working capital increases during our first and second quarters which typically results in negative or modest cash flows from operations during those periods. Conversely, we typically experience a substantial decrease in working capital once we move beyond our peak selling season which typically results in significant cash flows from operations in our third and fourth quarters.

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Due to the seasonality of our business and the effects of the Lumber Market, we believe our cash cycle (days of sales outstanding plus days supply of inventory less days payables outstanding) is a good indicator of our working capital management. As indicated in the table below, our cash cycle increased to 51 days from 48 days during the second quarter of 2022 compared to the prior year period.


	Three Months Ended				Six Months Ended
	June 25,		June 26,		June 25,		June 26,
	2022		2021		2022		2021
Days of sales outstanding		34		33		33		33
Days supply of inventory		35		33		38		35
Days payables outstanding		(18)		(18)		(19)		(19)
Days in cash cycle		51		48		52		49

The increase in our cash cycle in the second quarter of 2022 compared to the same period of 2021 was primarily due to a two day increase in our days supply of inventory as well as a one day increase in our receivables cycle. The increase in our cash cycle in the first six months of 2022 compared to the same period of 2021 was primarily due to a three day increase in our days supply of inventory. The increases in our days supply of inventory are generally due to carrying greater amounts of safety stock due to supply and transportation constraints.

Our cash flows from operations for the first six months of 2022 increased to $90 million compared to $116 million of cash used in operations during the first six months of 2021. This improvement in operational cash flows is due to net earnings and non-cash expenses totaling $475 million, compared to $328 million last year, offset by a $385 million increase in net working capital since the end of last year, compared to a $444 million increase in the prior year. Last year, our inventories increased more significantly from the beginning of the year until the end of June primarily due to an increase in lumber prices, which remained elevated at the end of the second quarter.

Purchases of property, plant, and equipment and acquisitions (refer to Note F for Business Combinations) comprised most of our cash used in investing activities during the first six months of 2022 and totaled $71.7 million and $39.3 million, respectively. Net purchases of investments totaled $6.9 million. Total proceeds from the sales of property, plant, and equipment were $2.0 million. Outstanding purchase commitments on existing capital projects totaled approximately $80.4 million on June 25, 2022. Capital spending primarily consists of several projects to expand capacity to manufacture new and value-added products, achieve efficiencies through automation, make improvements to a number of facilities, and increase our transportation capacity (tractors, trailers) in order to meet higher volumes and replace older rolling stock. We intend to fund capital expenditures and purchase commitments through our operating cash flows for the balance of the year. We currently plan to spend between $175 million to $225 million on capital projects for the year with variability due to uncertainty about supplier lead times. Notable areas of capital spending include projects to increase the capacity and efficiency of our plants that produce our Deckorators mineral-based composite and wood-plastic composite decking and our UFP Edge siding, pattern and trim products, expand the capacity of machine-built pallet and site-built business units, and take advantage of automation opportunities.

Cash flows from financing activities consisted of cash paid for repurchases of common stock of $90.8 million. We repurchased approximately 1.21 million shares of our common stock for $93.2 million for the year at an average share price of $77.06, of which $90.8 million was paid in cash and the remaining $2.4 million was accrued. The total number of remaining shares that may be repurchased under the program is approximately 1.4 million. Dividends paid during the first six months of 2022 include first quarter dividends of $12.5 million ($0.20 per share) and second quarter dividends of $15.5 million ($0.25 per share). On July 20, 2022, the Board approved a quarterly dividend payment of $0.25 per share, payable on September 15, 2022, to shareholders of record on September 1, 2022. Net repayments of debt were approximately $2.9 million and distributions to noncontrolling interests were $2.1 million. We have debt maturities of $38.7 million due in December of this year which we intend to repay through operating cash flows and available cash balances.

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UFP INDUSTRIES, INC.

On June 25, 2022, we had $7.2 million outstanding on our $550 million revolving credit facility, and we had approximately $535.7 million in remaining availability after considering $7.1 million in outstanding letters of credit. Financial covenants on the unsecured revolving credit facility and unsecured notes include minimum interest tests and a maximum leverage ratio. The agreements also restrict the amount of additional indebtedness we may incur and the amount of assets which may be sold. We were in compliance with all our covenant requirements on June 25, 2022.

At the end of the second quarter of 2022, we have approximately $1.2 billion in total liquidity, consisting of our net cash surplus and remaining availability under our revolving credit facility and a shelf agreement with certain lenders providing up to $500 million in borrowing capacity.

ENVIRONMENTAL CONSIDERATIONS AND REGULATIONS

See Notes to Unaudited Consolidated Condensed Financial Statements, Note E, “Commitments, Contingencies, and Guarantees.”

CRITICAL ACCOUNTING POLICIES

In preparing our consolidated financial statements, we follow accounting principles generally accepted in the United States. These principles require us to make certain estimates and apply judgments that affect our financial position and results of operations. We continually review our accounting policies and financial information disclosures. There have been no material changes in our policies or estimates since December 25, 2021.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

We are exposed to market risks related to fluctuations in interest rates on our variable rate debt, which consists of a revolving credit facility and industrial development revenue bonds. We do not currently use interest rate swaps, futures contracts or options on futures, or other types of derivative financial instruments to mitigate this risk.

For fixed rate debt, changes in interest rates generally affect the fair market value, but not earnings or cash flows. Conversely, for variable rate debt, changes in interest rates generally do not influence fair market value, but do affect future earnings and cash flows. We do not have an obligation to prepay fixed rate debt prior to maturity, and as a result, interest rate risk and changes in fair market value should not have a significant impact on such debt until we would be required to refinance it.

We are subject to fluctuations in the price of lumber. We experience significant fluctuations in the cost of commodity lumber products from primary producers (the “Lumber Market”). A variety of factors over which we have no control, including government regulations, transportation, environmental regulations, weather conditions, economic conditions, and natural disasters, impact the cost of lumber products and our selling prices. While we attempt to minimize our risk from severe price fluctuations, substantial, prolonged trends in lumber prices can affect our sales volume, our gross margins, and our profitability. We anticipate that these fluctuations will continue in the future. (See “Impact of the Lumber Market on Our Operating Results.”)

Our international operations have exposure to foreign currency rate risks, primarily due to fluctuations in their local currency, which is their functional currency, compared to the U.S. Dollar. Additionally, certain of our operations enter into transactions that will be settled in a currency other than the U.S. Dollar. We may enter into forward foreign exchange rate contracts in the future to mitigate foreign currency exchange risk. Historically, our hedge contracts are deemed immaterial to the financial statements, however any material hedge contract in the future will be disclosed.

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UFP INDUSTRIES, INC.

Item 4. Controls and Procedures.

(a)

Evaluation of Disclosure Controls and Procedures. With the participation of management, our chief executive officer and chief financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a – 15e and 15d – 15e) as of the quarter ended June 25, 2022 (the “Evaluation Date”), have concluded that, as of such date, our disclosure controls and procedures were effective.

(b)

Changes in Internal Controls. During the quarter ended June 25, 2022, there were no changes in our internal control over financial reporting that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1A. Risk Factors.

None

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

(a)

None.

(b)

None.

(c)

Issuer purchases of equity securities.


Fiscal Month	(a)	(b)	(c)	(d)
March 27 – April 30, 2022	755,558	77.40	755,558	1,803,958
May 1 – 28, 2022	363,659	77.54	363,659	1,440,299
May 29 – June 25, 2022	46,051	65.00	46,051	1,394,248

(a)	Total number of shares purchased.

(b)	Average price paid per share.

(c)	Total number of shares purchased as part of publicly announced plans or programs.

(d)	Maximum number of shares that may yet be purchased under the plans or programs.

On November 14, 2001, the Board of Directors approved a share repurchase program (which succeeded a previous program) allowing us to repurchase up to 2.5 million shares of our common stock. On October 14, 2010, our Board authorized 2 million shares to be repurchased under our share repurchase program. On February 15, 2022, our Board authorized an additional 1.5 million shares to be repurchased under our existing share repurchase program. The total number of remaining shares that may be repurchased under the program is approximately 1.4 million.

Item 5. Other Information.

None.

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UFP INDUSTRIES, INC.

PART II. OTHER INFORMATION

Item 6. Exhibits.

The following exhibits (listed by number corresponding to the Exhibit Table as Item 601 in Regulation S-K) are filed with this report:


31	Certifications.

	(a)	Certificate of the Chief Executive Officer of UFP Industries, Inc., pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).

	(b)	Certificate of the Chief Financial Officer of UFP Industries, Inc., pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).

32	Certifications.

	(a)	Certificate of the Chief Executive Officer of UFP Industries, Inc., pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).

	(b)	Certificate of the Chief Financial Officer of UFP Industries, Inc., pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).

101	Interactive Data File formatted in iXBRL (Inline eXtensible Business Reporting Language).

	(INS)	iXBRL Instance Document.

	(SCH)	iXBRL Schema Document.

	(CAL)	iXBRL Taxonomy Extension Calculation Linkbase Document.

	(LAB)	iXBRL Taxonomy Extension Label Linkbase Document.

	(PRE)	iXBRL Taxonomy Extension Presentation Linkbase Document.

	(DEF)	iXBRL Taxonomy Extension Definition Linkbase Document.

104	Cover Page Interactive Data File (the cover page XBRL tags are embedded in the Inline XBRL document).

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UFP INDUSTRIES, INC.

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	UFP INDUSTRIES, INC.

Date: August 3, 2022	By:	/s/ Matthew J. Missad
	Matthew J. Missad,
	Chief Executive Officer and Principal Executive Officer


Date: August 3, 2022	By:	/s/ Michael R. Cole
	Michael R. Cole,
	Chief Financial Officer,
	Principal Financial Officer and
	Principal Accounting Officer