Universal Forest Products, Inc.
Universal Forest Products, Inc.
Incorporated: 1955 as The Universal Companies, Inc.
Sales: $1.64 billion (2002)
Stock Exchanges: NASDAQ
Ticker Symbol: UFPI
NAIC: 321113 Sawmills; 321114 Wood Preservation; 321213 Engineered Wood Member (Except Truss) Manufacturing; 321214 Truss Manufacturing; 326199 All Other Plastics Product Manufacturing; 421310 Lumber, Plywood, Millwork, and Wood Panel Wholesalers
Universal Forest Products, Inc. manufactures, treats, distributes, and installs lumber, composite, plastic, and other building products for the do-it-yourself/retail (46 percent of 2002 sales), site-built construction (20 percent), manufactured housing (18 percent), and industrial (16 percent) markets. The largest producer of pressure-treated lumber in the United States, the company is also North America's leading manufacturer of engineered roof trusses for the manufactured housing market. Other major product lines include dimension lumber and value-added lumber products such as lattice, fence panels, deck components, and various kits for individual home renovation projects. With 90 manufacturing, treating, and distribution plants in the United States, Canada, and Mexico, Universal serves more than 7,000 customers; it has one major customer, however: home improvement retailer The Home Depot, Inc. accounts for about 30 percent of overall revenues.
Universal Forest Products was established in 1955 as The Universal Companies, Inc. to distribute lumber to the burgeoning postwar mobile home manufacturing industry. In its early years, the company's major stockholder, William F. Grant, also served as its only salesperson. Universal initially relied solely on the railway system to distribute the lumber it sold. But as the country's railway system began to decline in the 1960s, and demand for the company's product increased, Universal sought to gain greater control of its distribution process. Toward that end, in 1970, the company purchased the assets of a component yard in Thomasville, Georgia (later moved to Moultrie, Georgia); the following year, the company acquired a second component yard, in Pennsylvania. The establishment of such distribution centers was part of a plan to meet the demand for lumber wherever it most frequently arose; the company therefore became less dependent on the railway system and was able to pass on its rail service savings to the customer. After the success of the first two component plants, others were opened in Florida and North Carolina, and Universal made its first direct business acquisition, Lumber Specialties of Granger, Indiana, in 1973.
In 1971 Universal reported sales of $12 million. That year, company Vice-President Peter F. Secchia, who had joined Universal upon graduation from Michigan State University in 1962, purchased a controlling share of the company. Soon thereafter, Secchia initiated a plan that would allow salaried employees to share in the equity of the corporation; by 1994, employees owned approximately 18 percent of Universal. Secchia also introduced a policy of remanufacturing Universal's inventory as supply needs changed.
Expansion continued through the 1970s, and, by 1983, a reorganization along geographic lines became necessary. The new Universal divisions oversaw manufacturing and distribution in the Atlantic, Midwest, Northeast, Southeast, and Southwest. Affiliate companies, such as Lumber Specialties, also adopted the name of the parent company in hopes of enhancing Universal's national presence and public recognition.
In 1977, meantime, Secchia merged his private restaurant holdings into Universal Companies. In 1986, however, he sold those that had liquor licenses, and in 1994 he spun off what remained of the restaurant group into a separate company called River City Foods.
Diversifying and Entering New Markets, Late 1970s Through Late 1980s
The U.S. market for manufactured housing units experienced substantial declines during the 1980s. In an effort to offset similar declines in the company's growth rate, Universal began to offer a more varied array of manufactured products, including re-graded items, mixed loads of lumber, particle board, and plywood. Moreover, a research and development department was introduced, comprised of a full-time engineering staff.
Also during this time, Universal entered the wood treating business, representing an investment that fortuitously coincided with the rise of the do-it-yourself (DIY) market. The DIY revolution, beginning in the 1980s, had a profound effect on the lumber industry, as smaller lumber yards were replaced by huge retail warehouses, including The Home Depot and Lowe's Companies, Inc., catering to individual home renovation projects. Universal's distribution network proved well suited to this change in the industry. Universal first began producing pressure-treated lumber in 1978 at its plant in Auburndale, Florida. (Pressure-treated wood, most commonly treated with chromated copper arsenate [CCA], offered protection from damage by insects, moisture, and fungi in outdoor applications.) Several more such operations were soon either opened or acquired.
Manufactured housing, which had represented 90 percent of Universal's sales in the late 1970s, was responsible for only 35 percent of sales in 1985. By 1989, Universal had become the nation's largest producer of CCA-preserved lumber. Over the next five years, the company established 15 treating plants and planned for two more. With 28 locations in 18 states and two in Canada, Universal focused on guaranteeing customers stock availability, which smaller suppliers often could not supply.
Seeking to never let a customer down by not having available product, Universal also remained committed to curbing the financial loss involved in overstocking merchandise.
In 1989, President George Bush appointed Universal board Chairman and CEO Peter Secchia as U.S. Ambassador to Italy. Secchia, the son of Italian immigrants, had a long association with the National Italian-American Foundation. He had also been active in Republican politics in the Midwest, acting as vice-chairman of the Republican National Committee for the 13 states of the Midwest and campaigning for George Bush during the 1988 elections. Universal President Bill Currie, hired by Secchia in 1972, replaced Secchia during his tenure as U.S. Ambassador to Italy. After President Bush was defeated in the 1992 election, Secchia's tenure as ambassador came to an end, and he returned as chairperson of Universal.
Higher Profile As Public Company: Early 1990s
Under the Clinton administration, Universal and others in the lumber industry faced stricter limitations on annual timber harvests. The short-term effect of Clinton's environmental policy actually helped companies with large inventories, such as Universal, by creating a temporary shortage in the lumber industry that prompted a sharp rise in prices. Moreover, unusually wet conditions in the country's forests during this time, as well as a public debate over the effects of logging on the preservation of the spotted owl, inflated lumber prices further. Nevertheless, the long-term effects of Clinton's policy were regarded as potentially harmful to the lumber industry. In May 1993, an inevitable dip in lumber prices occurred.
Meanwhile Universal continued to grow, making new acquisitions of smaller companies that were less well positioned to adjust to the changing lumber industry. Although growth through acquisitions clearly became an important part of Universal's strategy for the 1990s, Secchia preferred to downplay this aspect of their business plan. In a 1993 article in the Grand Rapids Business Journal, for which he was questioned about the aggressiveness of the company's acquisition strategy, Secchia commented, "I'm very reticent about that because some of our acquisitions have not been that successful."
Between 1992 and 1993, Universal had a remarkable 43 percent rise in sales from $449.5 million to $643 million. During this time, Universal acquired Chesapeake Wood Treating Co., a division of Chesapeake Corp., a deal that included five wood treatment plants. With $90 million in sales in 1991, Chesapeake Wood Treating Co. accounted for approximately 10 percent of Chesapeake Corp.'s consolidated net sales. The acquisition was the largest in Universal's history, and it came just one month before the company went public.
Universal participates in markets offering strong growth potential and complementary characteristics. A number of factors drive Universal's growth: The diversity of its markets gives Universal's business a cushion against economic uncertainty through a balance of counter-cyclical, non-cyclical and somewhat cyclical markets. Consolidation among customers in all of Universal's markets has created a need for suppliers with national distribution capabilities to fulfill the requirements of the remaining dominant customers. As the largest supplier to its markets, Universal has a strong competitive advantage. A growing need for value-added products and engineered components in all markets is driving profitability for Universal due to higher profit margins generated by these products.
Universal's exceptional gains, as well as the return of Secchia as chairperson, boosted investor confidence in Universal. The company went public in November 1993, offering 5.2 million shares of common stock at $7 per share, and gaining approximately $33.4 million from its initial public offering (IPO) on the NASDAQ. These funds were used to reduce notes payable to banks and to invest in new machinery connected with the acquisition of Chesapeake. Also in November 1993 Universal Companies merged with its wholly owned subsidiary Universal Forest Products, Inc., and the parent company adopted that subsidiary's name.
Pursuing the Site-Built Construction Truss Market, Late 1990s
In the next few years after the IPO, Universal steadily expanded, opening new treating and distribution centers in Hamilton, Ohio; and Harrisonville, Missouri, as well as a manufacturing and distribution facility in Rockwood, Tennessee. By 1996 revenues reached $867.7 million, and then sales topped the $1 billion mark the following year.
During the last years of the 1990s Universal completed a string of acquisitions aimed at building up a national leadership position in the manufacturing of trusses for the residential site-built construction market. (Trusses are the wooden skeletons of walls, roofs, and floors that are built in a factory for delivery to a construction site; a builder can use roof trusses, for example, instead of building a roof from scratch.) Universal was already the nation's leading supplier of trusses for manufactured homes, a position bolstered in October 1996 when Universal paid nearly $11 million for Hi-Tek Forest Products, Inc., a maker of floor and roof trusses with operations in Idaho, Oregon, and California. Between September 1997 and November 1998 the company went after the site-built construction market in earnest, acquiring six suppliers of trusses, two of which were particularly significant. In March 1998 Shoffner Industries, Inc. was purchased for $90 million in cash and stock—the company's biggest acquisition yet. Shoffner, based in Burlington, North Carolina, operated 14 truss factories in seven states in the Southeast and had 1997 sales of $90.2 million. Universal paid $27 million in cash for Lafayette, Colorado-based Advanced Component Systems, Inc. (ACS), a $40 million per year maker of engineered trusses and building components. ACS's importance lay in its position as a top supplier to home builders in the rapidly growing Denver market.
Universal had thus established itself as a major player in three separate markets—retail DIY, manufactured housing, and site-built construction—but there was a fourth area that the firm's leaders targeted as well: the industrial sector. Here, the company concentrated on packaging, specifically pallets and crates, which could be made from lower grade lumber that might otherwise be considered waste. Universal, by entering the packaging field, could make more products out of the same amount of wood that it received from its suppliers, thereby lowering its overall material costs. Two packaging firms were bought during the first half of 1998: Industrial Lumber Company, Inc. of Newark, California, a distributor of low-grade cut lumber for packaging; and Atlantic General Packaging, Inc. of Warrenton, North Carolina, a producer of specialty wood packaging products. Through these and other acquisitions, Universal Forest Products saw the portion of its sales deriving from the manufactured housing and retail DIY markets fall from 89 percent in 1996 to 77 percent two years later.
There was a transnational geographic component to the corporation's expansion during this period as well. In November 1998 Universal acquired a 59 percent stake in Nascor Incorporated of Calgary, Alberta, a producer of trusses, pre-insulated wall panels, and another value-added lumber product, I-joists. One month later the company bought a 45 percent interest in Pino Exporta (later renamed Pinelli Universal, S. de R.L. de C.V.). Based in Durango, Mexico, Pino Exporta operated a molding and cut stock manufacturing plant.
During 1999 Universal and its subsidiaries concentrated more on organic growth than acquisitions. For instance, ACS opened a new facility in Denver to manufacture roof trusses and wall panels. Shoffner increased its capacity to produce I-joists, roof trusses, floor trusses, and wall panels by opening new plants in Hohenwald, Tennessee; and Liberty, North Carolina. Revenues reached $1.44 billion by 1999, nearly doubling the same figure from 1995; during that same time span, net income jumped from $14.1 million to $31.4 million.
Early 2000s and Beyond
The rockier economic times of the new century provided a test for Universal's multimarket strategy. During 2000, for instance, the manufactured housing market went into a serious slump, and lumber prices dropped to an eight-year low. Nevertheless, Universal was able to compensate to a degree by increasing its DIY sales, particularly to key customer The Home Depot, and by shifting production capacity into packaging products, the sales of which grew 5 percent. Universal was in this manner able to achieve the same profit margin as in 1999, while both revenues and net income fell only slightly. There was also one major acquisition in 2000, the $29.4 million purchase of Gang-Nail Components, Inc., a producer of engineered roof trusses for site-built housing headquartered in Fontana, California—marking Universal's entrance into the southern California market.
- The Universal Companies, Inc. is established as a lumber distributor to the manufactured housing market.
- Development of a component yard system begins with the purchase of a component yard in Thomas-ville, Georgia.
- Peter F. Secchia purchases control of the company.
- Company first enters the treated lumber sector, producing pressure-treated wood at a plant in Auburn-dale, Florida.
- Company makes concerted move to target the do-it-yourself market.
- Bill Currie is named CEO when Secchia begins a stint as U.S. Ambassador to Italy.
- Secchia rejoins the company as chairman; Chesapeake Wood Treating Co. is acquired; company goes public and begins trading on the NASDAQ; Universal Companies is renamed Universal Forest Products, Inc.
- Two major producers of trusses for the site-built construction market are acquired: Shoffner Industries, Inc. of Burlington, North Carolina, and Lafayette, Colorado-based Advanced Component Systems, Inc.
Another development in the early 2000s saw Universal move into the installation side of the business. During early 2001 the company acquired D&R Framing Contractors, which was based in Englewood, Colorado, and provided framing services to Colorado home builders. In other 2001 acquisitions, Universal bought: the Sunbelt Wood Components Division of the bankrupt Kevco, Inc., thereby gaining its largest competitor in the manufactured housing industry and four plants in North Carolina, Alabama, Georgia, and Arizona; two facilities of Superior Truss in Syracuse, Indiana, and Minneota, Minnesota, serving the site-built construction market; and another player in the site-built sector, P&R Truss Company, Inc., operator of four plants in New York.
By 2002 revenues at Universal Forest Products had reached $1.64 billion—an impressive figure though far short of the goal of $2 billion set five years earlier. The company blamed this failure on the troubled economic times. During 2002 Universal moved into the site-built truss market in northern California by buying certain assets of Modesta-based TopLine Building Products. It also opened a new plant in southwest Michigan where roof trusses, wall panels, and floor systems began to be assembled. This plant replaced two existing plants in nearby Indiana. Surprisingly, this was the firm's first production facility in its home state; Universal had been founded in Grand Rapids and had remained headquartered there ever since because its top managers hailed from the area and had no desire to relocate. Secchia remained one of these managers until the end of 2002 when, having reached the company's mandatory retirement age of 65, he retired from active employment, though he stayed on the board as "nonemployee chairman." In advance of his retirement, Secchia sold back to Universal two million shares of company stock held by Secchia and his family, at $18 per share, a transaction completed late in 2001.
Also in 2002 the company bought the assets of Inno-Tech Plastics, Inc., thereby entering the wood alternative market. The deal enabled Universal to begin selling decking and molding products made from extruded thermoplastic polystyrene resin. Such plastic alternatives to wood were becoming increasingly popular, despite their higher price tags, because of the decreased need for maintenance and because such products were less susceptible to warping than wood. Also fueling the demand were the concerns of a growing number of consumers regarding CCA-treated lumber. Although Universal and other producers of such lumber insisted that the wood was safe, environmental groups contended that the CCA preservative, which contains arsenic, could leach from wood as it ages and pose a cancer threat to people coming into contact with it. Lawsuits began to be filed on behalf of homeowners contending that CCA-treated lumber was an inherently defective product, and Universal, as the nation's leading producer of CCA lumber, was front and center in these suits. Despite their protests about the product's safety, Universal and other CCA lumber producers reached an agreement with the U.S. Environmental Protection Agency in February 2002 wherein they voluntarily agreed to stop producing the product. Universal began converting its 24 wood preservation plants to a new preservative, ammoniacal copper quat (ACQ), that does not contain either arsenic or chromium, another potentially hazardous chemical used in CCA. Each plant's conversion cost between $50,000 and $100,000, and by late 2003 most of the overhauls had been completed.
By late 2003, Universal Forest Products was on its way to another record year, boosted by a strong construction market. Over the previous ten years, the company's revenues had been increasing by an average of nearly 14 percent per year, and its consistent profitability during this period proved the worthiness of its strategy of targeting four different markets. Through its organic and acquisition-driven growth, Universal had developed into a national supplier and had been a key consolidator within what had been a fragmented industry. Also boding well for the future was Universal's seasoned senior management team and the firm's reputation for adapting to changes in the lumber market.
Advanced Component Systems LLC; Consolidated Building Components, Inc.; D&R Framing Contractors (50%); ECJW Holdings Ltd. (Canada); Euro-Pacific Building Materials, Inc.; Nascor Incorporated (Canada; 57%); Nascor Structures, Inc.; Pinelli Universal, S. de R.L. de C.V. (Mexico; 50%); Shoffner Holding Company, Inc.; Syracuse Real Estate, L.L.C.; Tresstar, LLC; UFP Framing LLC; UFP Insurance Ltd. (Bermuda); UFP Real Estate, Inc.; UFP Transportation, Inc.; UFP Ventures, Inc.; UFP Ventures II, Inc.; Universal Consumer Products, Inc.; Universal Forest Products Canada Limited Partnership; Universal Forest Products Eastern Division, Inc.; Universal Forest Products Foundation; Universal Forest Products Holding Company, Inc.; Universal Forest Products Mexico Holdings, S. de R.L. de C.V. (Mexico); Universal Forest Products Nova Scotia ULC (Canada); Universal Forest Products of Canada, Inc.; Universal Forest Products of Modesto L.L.C.; Universal Forest Products Reclamation Center, Inc.; Universal Forest Products Shoffner LLC; Universal Forest Products Texas Limited Partnership; Universal Forest Products Western Division, Inc.; Universal Truss, Inc.; Western Building Professionals, LLC; Western Building Professionals of California, Inc.; Western Building Professionals of California II Limited Partnership.
Georgia-Pacific Corporation; Weyerhaeuser Company; Hampton Affiliates; Fletcher Challenge Forests Limited; Simpson Investment Company.
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—Hilary Gopnik and
Donald Cameron McManus
—update: David E. Salamie