UFP Industries (UFPI) Q3 2026 Earnings Call Transcript

DATE

Thursday, Oct. 29, 2026

CALL PARTICIPANTS

• Director of Investor Relations - Stanley Elliott
• President and Chief Executive Officer - Will Schwartz
• Chief Financial Officer - Mike Cole

TAKEAWAYS

• Net Sales -- $1.73 billion, representing an 11.1% increase driven by 4% organic unit growth, 2% growth from acquisitions, and a 5% increase in selling prices.
• Adjusted EBITDA -- $119.3 million, down 14.8% from $140.0 million primarily due to $19 million in higher transportation costs net of fuel surcharges.
• Diluted EPS -- $1.05, compared to $1.29 in the prior year, reflecting the impact of elevated freight and lumber costs.
• Transportation Costs -- $65 million estimated net impact for the full year 2026, as spot rates excluding fuel rose 30% during the quarter.
• New Product Sales -- 8.7% of total net sales, up from 6.8% last year, led by demand for composite decking and concrete forming solutions.
• Retail Segment Sales -- $634.5 million, up 6.8% reflecting 6% higher pricing and a 1% contribution from acquisitions.
• Deckorators Unit Growth -- 21%, driven by a 70% increase in Surestone decking sales and 69% growth in traditional wood plastic composite decking.
• MoistureShield Contribution -- 44% of wood plastic composite decking sales growth following its integration into the Deckorators brand.
• Surestone Backlog -- $18 million at quarter end, reduced from $30 million at the end of the second quarter as production increased at Selma and Buffalo facilities.
• Packaging Segment Sales -- $465.8 million, up 18% behind 9% organic unit growth and a 6% contribution from acquisitions.
• Structural Packaging Volumes -- increased 14% due to new customer wins, with national account sales rising 35% in the quarter.
• PalletOne Volumes -- increased 18%, primarily reflecting contributions from recent acquisitions and 1% organic unit growth.
• Construction Segment Sales -- $552.4 million, up 11.3% resulting from a 4% increase in organic units and 7% higher selling prices.
• Site Built Organic Units -- increased 12%, supported by momentum in the Frame Forward solution selling approach and light gauge metal components.
• Factory Built Units -- declined 10%, reflecting the planned exit of lower-margin commodity sales and a 6% decline in broader industry production.
• Commercial Volumes -- increased 20% as the company gained market share and benefited from improved demand trends.
• Liquidity -- approximately $2 billion as of Sept. 26, 2026, including $677.4 million in cash and no borrowings outstanding on the revolving credit facility.
• Share Repurchases -- $182.7 million year to date, representing approximately 5% of market capitalization, at an average share price of $84.24.
• Capital Expenditures -- projected at $150 million to $175 million for the full year 2026, including approximately $75 million for maintenance.
• Cost-Out Target -- $60 million, which management expects to meet or exceed by year-end through capacity consolidations and productivity improvements.
• Acquisition of Apache Products -- announced for approximately $27 million, adding a wood pallet manufacturer with $53 million in historical annual sales.
• Quarterly Dividend -- $0.36 per share, representing a 3% increase over the $0.35 per share rate paid in 2025.

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RISKS

• Schwartz stated, "Transportation costs were a new challenge across our industry in 2026, and we expect rates to remain elevated for the foreseeable future," noting that industry-wide regulatory changes have constrained carrier capacity.
• Schwartz warned that "affordability continues to weigh on new residential construction," despite backlog improvements in the multifamily sector.
• Cole noted that unabsorbed overhead at Protective Packaging greenfield operations and the integration of PalletOne acquisitions negatively impacted segment profitability.
• Management noted that falling lumber prices pressured ProWood's gross profit during the quarter as higher-cost inventory was sold into a declining price environment.

SUMMARY

UFP Industries, Inc. (NASDAQ:UFPI) reported an 11% increase in net sales for the third quarter, supported by organic volume growth and strategic acquisitions despite persistent macroeconomic challenges. Management stated that while top-line performance remained stable, profitability was constrained by a $19 million year-over-year increase in transportation costs. The company reported a shift in capital allocation toward share repurchases while maintaining liquidity for growth through its PalletOne and Deckorators platforms. Management reaffirmed its full-year outlook, expecting current market pressures to continue through year-end across all business segments.

• The company entered into a definitive agreement to acquire Apache Products for $27 million to strengthen its PalletOne manufacturing footprint in the Texas and Louisiana Gulf region.
• Management anticipates $50 million in additional decking sales in 2027 as production capacity at the Selma and Buffalo manufacturing facilities reaches maturity.
• The Frame Forward system solution selling approach drove a 12% increase in Site Built organic units by bundling engineered wood and light gauge metal components.
• Chief Executive Officer Will Schwartz stated, "Our proprietary Surestone technology is driving strong pull-through from both contractors and consumers."
• The company reported that its $30 million advertising program for Surestone technology has resulted in increased website traffic, sample orders, and event activity.
• Management expects to reach its $60 million cost-reduction target by year-end through capacity consolidations and operational efficiencies.

INDUSTRY GLOSSARY

• Surestone: A proprietary mineral-based technology used in Deckorators decking products that is designed to be more stable than traditional composites.
• Frame Forward: A solution selling approach that bundles engineered wood and light gauge metal components to reduce job site labor.
• PalletOne: UFP's platform for wood pallet manufacturing and industrial packaging solutions.
• ProWood: A brand under UFP's retail segment that produces treated and untreated dimensional lumber.
• BRAWN: A brand launched by UFP serving original equipment manufacturers in the factory-built housing industry.
• DropLock: A proprietary installation technology used in the Align aluminum railing product line.
• UFP Edge: A business unit focused on decorative wood siding and trim products.
• MoistureShield: A composite decking manufacturer acquired by UFP that features proprietary CoolDeck technology.

Full Conference Call Transcript

Operator: Day, and welcome to UFP Industries' third quarter 2026 earnings call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, press star one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Stanley Elliott, Director of Investor Relations. Please go ahead.

Stanley Elliott: Good morning, everyone. Thank you for joining us to discuss UFP Industries' third quarter 2026 results. Joining me on our call today are Will Schwartz, our President and Chief Executive Officer, and Mike Cole, our Chief Financial Officer. Following our prepared remarks, we will open the call for questions. Before I turn the call over, let me remind you that yesterday's press release and presentation include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from expectations.

These risks and uncertainties include, but are not limited to, the factors identified in this release, in our most recent annual report on Form 10-K, and in our other filings with the Securities and Exchange Commission. Today's presentation will also include certain non-GAAP measures. For reconciliation of these non-GAAP measures to the corresponding GAAP measures, please refer to our earnings press release and our website, ufpi.com. Now I will turn the call over to Will.

Will Schwartz: Good morning, everyone, and thank you for joining us to discuss our third quarter 2026 results. On recent calls, we've talked about signs of demand stabilizing across much of our portfolio, and that trend continued this quarter. Net sales grew 11% year-over-year, and organic unit volume increased 4%. Mike will walk you through the full financial bridge in a moment. This marks our second consecutive quarter of year-over-year volume growth, and it comes while our end markets remain challenging and uneven. Throughout this cycle, we have stayed focused on what we can control, and we've continued to invest to strengthen our core businesses. That discipline positions our diversified portfolio to deliver above-market growth and returns over the long term.

Our results this quarter reflect that strategy, including the strength of our new product pipeline and the balance of the portfolio. Our priorities for reaching our long-term margin and return goals are unchanged: invest in our highest-margin core businesses, build brand awareness, introduce new and innovative products that improve our value-added mix, and drive operational excellence across the enterprise. We continue to make solid progress on these priorities. I would like to highlight a few examples. Earlier this week, we announced our plans to acquire Apache Products, a leading wood pallet manufacturer in the strategically important Texas and Louisiana Gulf region.

Like John Rock and Berry Pallets earlier this year, Apache Products will join our industry-leading PalletOne platform, and we are pleased to welcome their team. This acquisition strengthens our ability to serve regional and national customers in one of the country's largest industrial and petrochemical markets. It also complements the national account strategy in our Structural Packaging business, where we continue to expand our footprint and capabilities to solve our customers' problems. Both are foundational to our long-term growth plans. Even after a busy start to the year, our M&A teams remain very active, and our pipeline is full.

With the strength of our balance sheet, we have ample financial flexibility to pursue opportunities of any size that strengthen our core businesses, and we are doing so at a time when many of our peers are pulling back. As always, every investment must meet our long-term return requirements. Innovation remains a critical engine for growth and long-term margin improvement. New product sales grew more than 40% year-over-year this quarter, with contributions from all three of our segments. We also continue to execute on cost reduction and productivity. We are rightsizing and optimizing capacity while investing in automation, operational technology, and machine learning to strengthen our low-cost manufacturing position.

In addition, we have made targeted greenfield investments in our retail and packaging businesses. These facilities take time to ramp up, but because they were designed around automation from the start, we see a meaningful profit improvement opportunity as they mature. Transportation costs were a new challenge across our industry in 2026, and we expect rates to remain elevated for the foreseeable future. Driver shortages and carrier capacity exiting the market under a tougher regulatory environment have pushed rates, excluding fuel, up 30% year-over-year. We have had some success offsetting higher diesel costs through fuel surcharges and selective pricing, and we are taking action on the rest.

Our transportation team is executing strategies to reduce these costs in 2027, and our sales teams are focused on recovering the impact through pricing. Mike will quantify the impact on our results, and we are confident our teams will deliver considerable improvement next year. Now, turning to our segments. In retail, ProWood sales reflected a softer repair and remodel market and our decision to exit certain lower-margin commodity sales. Positively, we continue to see share gain opportunities thanks to our expanded manufacturing capacity, the strength of the Deckorators brand, and the breadth of our distribution capabilities, including our ProWood network. Deckorators continues to be very well-received in the marketplace.

Our proprietary Surestone technology is driving strong pull-through from both contractors and consumers. Demand for our Deckorators decking products still exceeds our production capacity, but we are closing that gap with our capacity expansion at Selma and our new greenfield facility in Buffalo. This added capacity allows us to expand our distribution network more aggressively, and we look forward to announcing a new agreement with a leading two-step distributor in the very near future. Together, our internal network and external partners give us national scale to serve the market and achieve our growth objectives. Our $30 million advertising program featuring Surestone technology continues to build customer awareness and consideration.

Website traffic, sample orders, and event activity continue to grow at strong rates, and we are rapidly expanding our certified pro network. With a strong product portfolio in place, we will keep investing in our brand and product development to drive above-market growth. We are pleased with the integration of MoistureShield, which adds important manufacturing capacity and brings its proprietary CoolDeck technology under the Deckorators brand. Looking ahead, you can expect us to continue introducing new and innovative products. TrueFrame, our new deck joist product offered through ProWood, remains another attractive growth opportunity. It's a differentiated, value-added product that leverages our existing manufacturing footprint, and customer response remains strong because of the value and time savings it delivers to contractors.

ProWood also continues to enhance its online platform, making browsing, ordering, tracking, and special orders a more seamless experience. Finally, customer feedback on Arris, our new premium trim product featuring Surestone technology, has been very favorable since its recent launch. Our Packaging segment continues to outperform the broader market despite soft demand, thanks to the investments we've made to scale with large multi-location customers. With our national footprint and leading design and engineering capabilities, our Structural Packaging team is winning share with new and existing customers across multiple industrial verticals. Our ability to provide mixed material solutions at a national scale is a key competitive advantage.

Quoting activity remains strong, and we are encouraged by recent contract wins and the strength of our pipeline. As in prior quarters, the market and pricing environment in our PalletOne business remains competitive. Even so, we continue to execute our long-term strategy, investing at an opportune point in the cycle to expand our geographic footprint and build on our low-cost manufacturing position. In Protective Packaging, our two recent greenfield operations in Indiana and Nevada continue to increase production, positioning us for share gains and improved profitability in 2027. We're also excited to have launched All Boxed Up, a dedicated brand for our growing corrugated business that reflects the breadth of its products and capabilities. Closing with our Construction segment.

Market conditions have been consistent for the past several quarters. Affordability continues to weigh on new residential construction. However, our multifamily backlog is higher than a year ago, which gives us reason for cautious optimism. In Site Built, our Frame Forward system solution selling approach continues to deliver favorable results. By bundling our engineered wood and light gauge metal components under one brand, we help customers see how our systems save them both time and money on the job site. Since we introduced this approach at the IBS show earlier this year, it has continued to gain momentum and open doors. Similarly, in Factory Built, our strategy to deliver more value-added content is gaining traction.

Our recently launched BRAWN brand continues to build awareness among OEMs and end consumers of the quality of our products. Across both Site Built and Factory Built, our off-site manufacturing solutions help customers address labor and efficiency challenges on the job site. Likewise, our concrete forming business continues to expand its products and service to meet customer needs wherever concrete is poured. Our goal is to capture a larger share of our customers' business with solutions that help them address labor challenges on the job site. Finally, our commercial business continues to deliver strong results as we gain market share, expand the end markets we serve, and benefit from prior restructuring actions that improve productivity and capacity utilization.

Overall, I'm pleased with how our balanced portfolio has performed in a difficult environment. Conditions remain challenging, but we are focused on strategies that will allow us to emerge from this cycle a stronger company, well-positioned to create shareholder value as demand normalizes. To put our progress in perspective, it's helpful to compare today's results with 2019, before our management structure changed. Today, our trailing 12-month adjusted EBITDA margin is 50 basis points higher than in 2019. Excluding freight, our margins are over 200 basis points higher. Even with the headwinds we faced, we have structurally improved our business, and we plan to continue on this path.

As we finish 2026 and look ahead to 2027, we remain focused on operational efficiency, disciplined growth, and higher returns on invested capital as we advance toward our long-term goals. With that, I'll turn the call over to our Chief Financial Officer, Mike Cole. I look forward to taking your questions afterward.

Mike Cole: Thank you, Will, and good morning, everyone. Our third quarter results reflect improving top-line stability with solid organic unit growth and continued share gains, while elevated freight costs weighed on profitability. Net sales were $1.73 billion, ahead of plan and up 11% from $1.56 billion last year. Volume increased 6%, with 4% organic unit growth and a 2% contribution from acquisitions. Pricing added 5%, reflecting higher lumber prices passed through to customers and programs in place to offset other inflationary pressures. Performance varied across our business units. Deckorators, Structural Packaging, Protective Packaging, Concrete Forming, and Commercial all delivered strong growth, supported by share gains and stable market conditions.

That growth was partially offset by lower volumes in ProWood and Factory Built, primarily due to soft end market demand. Adjusted EBITDA was $119 million, down $21 million from last year, and our margin was 6.9%, compared with 9%. The decline was driven primarily by higher transportation costs. As a reminder, spot rates began rising in April and peaked this summer as flatbed carrier capacity tightened. As a result, our transportation costs, net of fuel surcharges, increased $19 million year-over-year, reducing our margin by 1.3 percentage points. While that is a sequential improvement from the second quarter, we expect rates to remain elevated for the balance of the year as our teams continue working to mitigate the impact.

In addition, our newly acquired and greenfield operations reported negative EBITDA of $3 million on a combined basis. Excluding these two factors, EBITDA across our business units increased $1 million from last year, with higher gross profit in every business except PalletOne, Site Built, and ProWood. Simply put, $19 million of higher freight and a $3 million loss from newer operations was partially offset by a $1 million improvement across the rest of the business. That resilience demonstrates the value of our balanced business model. Turning now to our segments. Retail sales were $635 million, up 7% from last year, reflecting 6% higher pricing, a 1% contribution from acquisitions, and flat organic units.

By business unit, ProWood units declined 4%, and Edge units were flat, offset by 21% unit growth in Deckorators and a 10% contribution from our MoistureShield acquisition. While lower year-over-year, ProWood volumes held steady sequentially in a seasonally softer quarter, and we believe the business continues to outperform the broader market. Deckorators continues to grow well above the market, led by strong demand for our branded decking. Decking sales increased 69%, including 70% growth in our mineral-based Surestone products, which are up 45% year to date. Improved throughput at our Selma and Buffalo plants allowed us to reduce our Surestone backlog to $18 million at quarter end, down from $30 million at the end of the second quarter.

Our traditional wood plastic composite decking also grew well above the market, up 69% in the quarter, including 44% from the MoistureShield acquisition. Railing sales increased 2% in the quarter, but declined 8% year to date, reflecting the loss of a distributor at our Ultra Aluminum location. For the year, we targeted $100 million of sales growth in composite decking and railing, consisting of $90 million from decking and $10 million from railing. We now expect decking growth of about $85 million, which includes a necessary $10 million inventory build at our ProWood distribution locations. The $5 million shortfall reflects the continued ramp toward throughput targets at our Buffalo plant, which began operating in April.

In railing and other products, we expect to fall about $15 million short of our target, as anticipated share gains did not materialize and we lost a significant customer. In total, that puts us at roughly $80 million of growth against our $100 million goal. Railing remains a key area of focus and opportunity in 2027, supported by the recent launch of our Align aluminum railing with DropLock technology. Retail adjusted EBITDA was $34 million, down $6 million from last year, and margin was 5.4%, compared with 6.7%. The decline was driven by $8 million of higher transportation costs, net of fuel surcharges in ProWood and Deckorators. That masked improving profitability in Deckorators as we continue to increase throughput.

In retail, our financial priorities are clear: improve ProWood profitability by expanding its distribution of Deckorators products, achieve throughput and cost out targets primarily in composite decking, and keep growing sales of new value-added products like Arris trim and TrueFrame joists. Packaging sales increased 18% to $466 million, driven by 9% organic unit growth and a 6% contribution from acquisitions and 3% higher pricing. Demand was consistent with recent quarters and pricing remained competitive, yet we continued to gain share with key customers in all three business units. Structural Packaging volumes grew 14% on new customer wins by our strategic accounts team, which saw our national account sales increase 35% in the quarter.

PalletOne volumes increased 18%, driven by recent acquisitions and 1% organic unit growth. Protective Packaging volumes grew 5% as our new greenfield locations continue progressing towards sales targets. Packaging adjusted EBITDA was $27 million, down $7 million primarily due to higher transportation and material costs. Integration of recent PalletOne acquisitions and unabsorbed overhead at our Protective Packaging greenfield operations were partially offset by improved profitability in Structural Packaging. Construction sales increased 11% to $552 million, reflecting a 4% increase in units and 7% higher selling prices. By business unit, Site Built organic units grew 12%, driven primarily by company-specific initiatives, including momentum in our Frame Forward solution selling approach and growth in light gauge metal components and alternative materials.

To be clear, we do not view this as a sign of a broader recovery in new residential construction, where demand remains challenged. In our traditional engineered wood components business, builder demand remains soft, pricing is competitive, and input costs remain elevated. Factory Built units declined 10%, primarily due to our planned exit of certain lower-margin commodity sales and a 6% decline in industry production. Positively, an improved value-added sales mix enhanced margins. Commercial and concrete forming continue to benefit from positive demand trends and share gains, with volume growth of 20% and 6% respectively. Construction adjusted EBITDA was $38 million, down $4 million, driven by pricing pressure in Site Built and higher material costs overall.

These headwinds were partially offset by growth and operating leverage in commercial and concrete forming. Factory Built results were flat as a more favorable product mix offset lower volume. Across the business, we continue to balance cost discipline with investment in long-term growth, and we are pleased with our progress this quarter, including continued growth in new products, which represented 8.7% of sales compared with 6.8% last year, led by composite decking, mixed material packaging, light gauge metal components, and concrete forming solutions. We remain on track to meet or exceed our $60 million cost-out target, supported by capacity consolidations we completed last year. We see additional savings opportunities next year as we continue to evaluate our portfolio and footprint.

SG&A remains on plan for the year as we maintain the savings achieved last year. Turning to our balance sheet and capital allocation, we continue to operate from a position of financial strength. At the end of September, we had approximately $677 million of cash and no borrowings outstanding on our revolver for total liquidity of approximately $2 billion. Our balanced business model continues to generate meaningful and consistent free cash flow. Year to date, we have converted 75% of our adjusted EBITDA into free cash flow, in line with our historical range of 70%-80%. That cash generation has allowed us to grow our dividend and repurchase shares more aggressively at attractive prices.

Our top capital allocation priority remains growth, both organic and from acquisitions, that supports higher margins and stronger returns over time. As Will noted, that means investing in our higher-margin core businesses, capacity for new value-added products, and automation and productivity while remaining disciplined on valuations and returns. We also intend to return capital to shareholders by growing our dividend in line with long-term expected free cash flow growth and by repurchasing shares to offset dilution from stock-based compensation. We make additional repurchases opportunistically when we believe our shares are trading below intrinsic value. Recently, we've directed more free cash flow toward buybacks while preserving the balance sheet strength to fund our growth investments.

With this framework in mind, our board approved a quarterly dividend of $0.36 per share payable in December, a 3% increase from the dividend paid a year ago. In May, our board approved a new $300 million share repurchase authorization effective through April 30, 2027. Year to date, we have repurchased $183 million of shares, roughly 5% of our current market capitalization, at an average price of about $84. That includes $41 million in the third quarter. We expect capital expenditures of approximately $150 million-$175 million in 2026, including approximately $75 million of maintenance CapEx.

This updated outlook reflects our continued discipline around capital deployment, and we retain the flexibility to shift growth investment between greenfield projects and acquisitions based on market conditions, available opportunities, and expected returns. I'll close with a few comments on our outlook. Our full-year outlook is unchanged. We continue to expect current macro pressures to persist through year-end, with end market demand slightly down in each segment based on our sales mix. We also expect input costs, particularly energy and transportation, to remain elevated. Freight costs have recently stabilized, but at levels well above last year, and they will continue to weigh on profitability.

Overall, we expect stabilization in certain businesses and continued share gains across our portfolio to help offset headwinds in markets tied to new residential construction and pallet production. Looking ahead to 2027, our preliminary view is that many of the challenges we faced in 2026 will continue, and visibility into the timing of an end market rebound remains limited. That said, we see clear opportunities within our control to drive near-term improvement. These are some examples. Transportation: we estimate elevated freight costs will have a $65 million net impact on our full year 2026 results, and our teams are focused on improving that result in 2027.

New operations: as our greenfield investments mature and we further integrate recent acquisitions, we expect profits in those operations to improve. Share gains: we continue to target share gains in all our business units, especially Deckorators, Structural Packaging, Factory Built, commercial, and concrete forming. Innovation: we anticipate continued strong growth in new product sales. Productivity: we expect to benefit from the efforts we've made to improve productivity and capacity utilization and reduce our cost structure. M&A: we will continue to pursue acquisitions that meet our strategic objectives and return requirements. We believe these actions position UFP well to create value as our markets recover. With that, we'll open it up for questions.

Operator: Thank you. As a reminder to ask a question, please press star one on your telephone and wait for your name to be announced. To withdraw your question, press star one again. One moment while we compile the Q&A roster. Our first question will come from the line of Kurt Yinger with D.A. Davidson. Your line is open.

Will Schwartz: Hey, good morning, Kurt.

Kurt Yinger: Hey, good morning, Will and Mike. Hey, just on Deckorators first. Obviously, ramping very strongly here in 2026. I think a good chunk of that's probably the retail wins flowing through. As you look into next year and start lapping some of these wins, what are you seeing or hearing from the dealer channel, whether it's picking up new stocking locations, better shelf space, that maybe give you confidence that share gain story is going to continue?

Will Schwartz: Yeah. Great question. I appreciate you asking, Kurt. Excitement around the brand continues, and in the very near future, we'll announce a two-step distributor partner, which we think helps propel the brand even further and sets us up well. We're in a much better stocking position with our ProWood plants. We talked about self-distribution a lot, but I would tell you the sell-through of the product and excitement is really, really exciting for us, and I'm not afraid to say we're going to continue to grow at a big number going forward. We believe we'll do $50 million of additional decking sales in 2027 over the 2026 results that are certainly over market.

Kurt Yinger: Okay. That's helpful. Good to have a number. Just following up on the two-step piece, how should we think about that being incremental? You have good coverage already through the ProWood plants. You have some existing third-party distributors. Is this better penetrating certain geographies where maybe you are less exposed, or how do you think about those third-party distribution partners helping you out?

Will Schwartz: Yeah, Kurt, you kind of answered the question for me. Really between the ProWood plants and what we will be announcing, it really does fill in the gaps and the holes. It nationwide fills in all the geographies, but also the penetration level, because of the right partnerships, again, drives us forward. That is why we are confident in putting that number out there for 2027.

Kurt Yinger: Perfect. Okay. That is helpful. Mike, maybe the last one for you. Even if we put aside transportation, gross profit flat year-over-year, which is good, but you also grew units 6%. If I think about Deckorators, Site Built, Structural Packaging, those have historically been better margin businesses for you guys. So can you just talk broadly about the competitive pricing environment? As we think about next year, again, putting aside transportation, if you can continue to grow units positively on an organic basis, should we start to see that generate gross profit dollar improvement as well?

Mike Cole: Yeah. That would be the target for sure, Kurt. I guess, kind of unpacking the business units, though, a little bit. The difficulties that we have in the Site Built side, the PalletOne side, with elevated, not as much pricing as I would say there has been elevated material costs for the most part, and it has been hard to pass those costs through to the customers in pricing. So it is just a very competitive environment in those two business units. I would say that for ProWood, this is a quarter where lumber prices came off quite a bit in terms of dollars.

As you know, with a variable price, and now where you have got more elevated inventory costs and you are selling into a market that is falling, that pressured ProWood's gross profit. So that is something that can happen from quarter-to-quarter at times. This would be a more common quarter for it to occur as you come into the seasonal downturn that normally occurs in that business. The rest of the businesses though are performing very well. We have mix improvements with new products. We are very encouraged about the rest of the business, and it just really demonstrates the value of the balanced business model.

Will Schwartz: I am going to add one quick point too. Mike has hit on it. We had kind of an unusual quarter when you talk about lumber market movement. We always talk about the natural hedge. Typically, when the market is up or down, we have one business unit that wins while another does not, and it hits them negatively. In this quarter, it was kind of unique with the market pulling back. It has a negative impact on our ProWood business. Typically, the lower prices would positively impact our packaging business. Those products actually were moving up and were tight in supply.

It was just kind of an unusual point where you kind of get hit from both sides, but I think it is worth noting.

Kurt Yinger: Got it. Maybe just to follow up on that, is there any sort of lagging benefit from lower lumber prices on packaging or some of these fixed price areas that you would expect in Q4, or is it more of the same in terms of it is just whether you can pass that on based on kind of competitive dynamics and the customer's willingness to accept price, so to speak?

Will Schwartz: I think it is more of the same, but we are seeing a bit of a softening and more availability. I think that was more Q3 related. It was worth noting just because that is abnormal to what happens in the market.

Mike Cole: Yeah. The low-grade material is still elevated, Kurt, so would not expect those costs to come down in Q4. So that will continue to be a challenge into the next quarter.

Kurt Yinger: Okay. Great. Appreciate it.

Mike Cole: The softening would be related to the products sold within the retail space.

Kurt Yinger: Makes sense. Okay. Thanks, guys. Appreciate the color.

Will Schwartz: Hey, thanks a lot, Kurt.

Mike Cole: Thanks, Kurt.

Operator: One moment for our next question. That will come from the line of Reuben Garner with StoneX. Your line is open.

Will Schwartz: Morning, Reuben.

Mike Cole: Morning, Reuben.

Reuben Garner: Morning, guys. Just actually a couple of follow-ups there. Starting with the gross profit color. I understand the retail or the ProWood component. Is it just a difference in the species of lumber used between the two, and the pricing dynamics that were going on there within the quarter that were unique? Is there any way you can quantify what kind of drag those two factors had so we can see what the actual kind of underlying gross profit per unit was growing without freight and without the one-time kind of unusual pricing dynamic?

Will Schwartz: Yeah, good question, Reuben. What I will start with is it is a species piece, but it is more the grades. The grades that go to our retail customers and to our construction customers are more the elevated or higher-end grades. If you think about the packaging, it is more the downfall, lower-grade product. It is more in that environment. Mike, do you want to kind of hit on the

Mike Cole: Yeah. I guess I will take more of a higher level view of gross profits to answer that question about Q4. Reuben, I guess the way that I am looking at it, there is a lot of different moving parts, right, with all the different business units and product categories that we have. But to me, when I look to Q4, it is really about the transportation drag and the year-over-year increase. We have experienced about a $49 million increase year-over-year in transportation costs and net of fuel surcharges. We called out $65 million as the number we expect it to be for the full year. Looking forward into Q4, we expect another $16 million year-over-year increase.

To me, it is really about that when it comes to looking forward to Q4 gross profit. We expect, similar to Q3, that you are going to have areas of challenges like PalletOne and Site Built, as far as the business units go with gross profit. But you are also going to have areas of success, whether it is concrete forming, commercial, Structural Packaging, et cetera.

Reuben Garner: Mike, is it just the surcharges in certain businesses are not enough to offset the cost increases that you are seeing? Is there a catch-up that comes later? How do we think about what mechanisms are used to offset the inflation you are seeing and how that may look in 2027 and beyond?

Will Schwartz: Yeah, I am going to jump in there. We think this is a structural change in baseline pricing for transportation, for freight. What began as really fuel, and that is what we chased early in the year, turned into spot market rates and the entire industry changing. Regulatory, lack of drivers, et cetera, really kind of pushed that up. That is an area that we have not gotten after to the level I would have expected at this point. Difficult demand environment, passing along cost. We are aggressively pursuing the sell price to offset scenario going forward. So we believe that is set in. We do not see anything that is going to pull that back.

The work that we are doing internal to adjust how we run our business and how we operate, some of the things that happened this year, those will help to offset any additional increases that most likely the rest of the industry and others would get. Mike, you got any other color to that?

Mike Cole: Yeah. I think maybe adding on and just kind of breaking down the costs and where it comes from. So if we look at the year to date, there is actually a $56 million increase in total transportation costs. It has been offset by about $7 million worth of fuel surcharges and pricing adjustments. If we take the $56 million and we break it down, $41 million of it comes more because of capacity exiting the market because of the regulatory changes that Will referenced. The other $15 million comes from fuel. So this is more about the regulatory changes and capacity coming out of the market than it is about fuel at this point. And that is a-

Reuben Garner: Got it. That is really-

Mike Cole: structural change that we need to work through.

Reuben Garner: Yeah, that's really helpful. Thank you. Then, a follow-up on the Deckorators piece and MoistureShield and the third-party distribution dynamics. So, there's been some changes in the third-party distribution in the last few months, including, I think, some MoistureShield dealers. The outlook for next year and the ProWood distribution answer, I guess, just to be clear, is the plan to leverage UFP's distribution network internally to offset any lost MoistureShield distribution, or are there other wins that you can quantify or call out that you're picking up business? How are you thinking about the net of it all and maybe what your goals are for third-party distribution longer term? Have those changed at all since you made the acquisition?

Will Schwartz: Yeah. So go back to the acquisition, we talked about it. First question was, are we going to remain in the MoistureShield or is it going to transition to the Deckorators family of brands? We talked about that. One of the things that came with that was some distributors we were not doing business with that MoistureShield did. We had to analyze it from a global picture, understanding Deckorators was bigger than that, and making decisions as the right partners to get product to the consumers that we were after. Marry that up with our ProWood distribution coverage, geographies, et cetera. We really are comfortable and like our positioning.

Very shortly, you're going to hear an announcement that'll kind of fill in that picture, and I think that's the answer, Reuben. We're really comfortable with where we're at.

Reuben Garner: Understood. Thank you guys for the detail and good luck going forward.

Will Schwartz: Thanks, buddy.

Mike Cole: Thanks, Reuben.

Operator: One moment for our next question, and that will come from the line of Ketan Mamtora with BMO Capital Markets. Your line is open.

Will Schwartz: Morning, Ketan.

Ketan Mamtora: Good morning, and thanks for taking my question. Maybe just coming to packaging. Nice to see kind of good organic growth. Pricing was also higher on a year-over-year basis, yet the EBITDA was down quite meaningfully. I suspect a portion of this is just higher transportation costs, but can you unpack for us how much of it is the transportation headwinds and kind of anything else that would be driving the EBITDA drag on a year-over-year basis?

Will Schwartz: Mike, do you want to hit that?

Mike Cole: Yeah. Happy to. Higher material costs and transportation costs were more than the EBITDA reduction. Actually, the improvements operationally and with sales mix-wise within Structural Packaging were an offset. It is really about elevated material costs, particularly in the pallet space, that has been hard to pass along.

Ketan Mamtora: Understood. Okay, that is helpful. On the construction side, Site Built was up 12%, and you said that this is not underlying improvement in demand. Can you just talk a little more in terms of what growth this year-over-year growth and if it is possible to sort of differentiate between underlying demand and kind of the Frame Forward system that you guys mentioned in the release? How much is that driving? Then just related to that, the gross profit pressure in Site Built that you are continuing to see, are you still seeing competitive sort of pricing? Has that backdrop changed at all? Is it stabilizing or is it still coming under pressure?

Will Schwartz: Yeah. As Mike described in his opener, we do not see that as a shift in the market. Do not know if you apply that light gauge metal cladding, labor, some of those things really helped to drive that increase in the quarter. I do not think that is an underlying, like what to expect going forward, meaning more starts, more business in general. I am excited about the Frame Forward selling solution because that is taking labor and adding speed to the job site, taking labor off, and that is something that I think that is going to be necessary as we move forward. We are excited about that.

But Ketan, it is a head fake if you just take that and believe that is a change in the environment. Mike, you want to kind of hit the margin side at all?

Mike Cole: Yeah. With respect to margin and gross profits, Ketan, when we put together our bridge for the change in gross profit, there is not as much of a change in pricing. So pricing was not a major factor in the decline in gross profits. But the elevated material and freight costs are. I think it is really the elevated costs and the inability to pass those along fully to the customer is the challenge.

Ketan Mamtora: Got it. That is very helpful. I jump back in the queue. Good luck.

Will Schwartz: Thank you.

Mike Cole: Thanks, Ketan.

Operator: One moment for our next question, and that will come from the line of Andrew Carter with Stifel. Your line is open.

Mike Cole: Hey, Andrew. Hey, Andrew.

Andrew Carter: Hey, good morning. Hey, so a couple questions. I guess I will start on the Deckorators. You lowered the number for the year down to $85 million, and the backlog went down. I wanted to ask, are there any cancellations that you are seeing in the backlog? You did reference a customer loss at the call, kind of speak to the kind of impact of that. Then anything on kind of the POS trends, where you are, given kind of where that evolved, maybe a pro forma of kind of the MoistureShield plus the Deckorators portfolio at this point?

Will Schwartz: Yeah. So first of all, the backlog coming down is really just the result of manufacturing going up. So no cancellations, no concern at all. I think that was also verified by my statement of, we expect $50 million of additional sales next year. The plants are really coming online. You are starting to see that capacity come to realization. So no, excitement around it, expectations going forward, really strong. The customer noted was really a small business within the Deckorators brand, Ultra Aluminum Manufacturing , not of significance, not of anything to point back to decking, railing. Railing a little bit, but nothing on the decking side. So Mike, anything extra to add?

Mike Cole: No, Ultra Aluminum is primarily an aluminum fence manufacturer, but they do some railing as well.

Andrew Carter: A second number that stood out was kind of the UFP organic units were down just 4%. I am sorry, let me get this. ProWood, sorry. ProWood organic units were down 4%. Correct me if I am wrong, you kind of pointed to a -5% underlying for the first half. I get how lumber trended through the quarter, but it is still, the southern yellow pine is still up. So can you speak to that strength that you have there? Like any quantification on the market share gains you have there in terms of kind of new opportunities within the category? I mean, you are pretty well distributed.

You are both the big retailers, so I do not know if that is there, but just kind of speak to the stability of that performance in general.

Will Schwartz: Yeah, certainly. I think that's reflective of the repair and remodel market. Really no significant market share gains, market share losses. I'm really proud of the way the business is operating. I'll tell you what I would point to as a bright spot in that space is really innovation in the space. TrueFrame product continues to grow, will be an even bigger part next year in what has been a product that's been in the marketplace for a long time. We're really driving innovation across our businesses. That, combined with also being an internal distributor of our Deckorators product is gaining some momentum as well, being able to tie those two products together.

Andrew Carter: Then kind of a final question. You're already kind of pointing to a soft market for next year in terms of kind of the units. But you did reiterate kind of your long term. I guess I would ask if, depending on how long it takes to get to the long term, like at current conditions, I don't know if you have a view on 2028, but it's hard to see at these rates it accelerating. Do you proceed with the same cost structure, or do you see opportunities to pull back investment? Or just anything like that to help as you kind of think about this kind of ongoing malaise across kind of really repair, remodel, and new construction?

Will Schwartz: Yeah. I really appreciate that question. It's something we're working through internal. I would tell you, I look at it two ways. Number one, we've got to manage our cost in the short term and align ourselves with where the market is. We've been in this cycle of the next six months are going to be challenging, followed by the following six months of improvement. We've been in that cycle now for the better part of three to four years. This looks like it's a little more prolonged. We recognize that. We're going to take action. But the secondary part is, we've got the opportunity to invest in a market that's beaten down when others probably will not be.

So our peer group competitors might not be in that same position. Really appreciative of the balanced portfolio that we have, the free cash flow generation and the balance sheet. We're going to manage our costs, yes. We're also going to be looking to invest, and you've seen that, especially in the PalletOne side. Knowing that we weren't going to make those acquisitions and it'd be accretive right away. We know we're buying in the right time in the market and really building out the strategy going forward. So two prong. Thanks, Andrew.

Andrew Carter: Thank you. I will pass it on.

Will Schwartz: Appreciate it. Thank you.

Operator: One moment for our next question, and that will come from the line of Jeffrey Stevenson with Loop Capital. Your line is open.

Will Schwartz: Morning, Jeff.

Jeffrey Stevenson: Good morning. Thanks for taking my questions today. I wanted to start off with the Deckorators production ramp at the new manufacturing facility in Buffalo after coming online this spring. I know you guys reported on a sequential improvement on the unshipped Surestone backlog. Should we expect that to continue to move lower as production continues to ramp at your new production facilities?

Will Schwartz: Yes, absolutely. We'll continue to eat into that backlog. But you got to remember, the spring build season happens right on the tail end of it. So we need to cut into that backlog in order to prepare ourselves inventory-wise for the selling season. But yes, very happy with the progress that's been made. Those operating teams have done an outstanding job, and now by the end of the year, we're fully operational at both plants.

Jeffrey Stevenson: Okay. No, great. I'm sure you'll talk about this more at upcoming trade shows and IBS, but just wondered if you could talk more about the new Meridian and Elevate decking products you recently announced, and how they're positioning your current Deckorators product line up. Then also, one of them includes the CoolDeck technology from MoistureShield. Should we expect that to be used in future Deckorators product lines as well in the future if that's successful?

Will Schwartz: Yeah, absolutely. I'm glad you asked the question. I was hoping someone would get to it, and you got it. So, yeah, we're really excited about that product. Full profile, introducing the CoolDeck technology into that, be available in 2027. You've heard me talk to it and speak to it. We're going to continue to be an innovator in the space, and you should expect more to come as we take that CoolDeck technology, roll it out to other products moving forward. So yeah, really excited about that and what that product can do for us in 2027.

Jeffrey Stevenson: Okay, great. Lastly, you guys talked about some of the cost pressures in the packaging segment. But overall, you saw positive organic volumes in all your key product categories. It seems like you are seeing nice share gains, especially with large customers. Have you been encouraged by the improving results this year on the top line of your packaging segment? Do you think you are beginning to see an inflection after several challenging years in that business?

Will Schwartz: Yeah, I think what you are actually seeing, and I am absolutely proud of the work that has been done. Those are long selling cycles to get to the point of closing those types of deals. It is a stickier customer, but it takes a lot of work, design, engineering, working on the front end, develop products. Those do not come to you overnight. They also do not go away from you overnight. That is really what you are starting to see is the fruit of a lot of labor and investment over the last couple of years. Good call-out. Very proud of the teams and excited about what is to come.

Jeffrey Stevenson: Great. Thank you.

Operator: Thank you. One moment for our next question. We do have a follow-up question from Kurt Yinger with D.A. Davidson. Your line is open.

Kurt Yinger: Hey, thanks for taking the follow-up here. Just on Deckorators, Mike, I think you had made a comment about prioritizing production over efficiencies, and it seems like that's been a theme this year. Do you get into a spot in 2027 where you can really leverage the earnings profile of that business to a much greater extent? Or from a production standpoint, still playing catch up, meeting that growth, is that something that's maybe a 2028 or beyond story?

Will Schwartz: No, I think you'll start to see improvement 2027 for sure. Anytime you introduce new technology, automation, those types of things, you combine that with the demand that was coming at us, we're going to make sure that customer gets product, and that takes precedent. We've worked through a lot of that, and we will be in a much better place in 2027, and I think you'll see it in the results. Mike, anything to add?

Mike Cole: Yeah, I think that's a meaningful gross profit improvement driver for next year.

Kurt Yinger: Okay. That's helpful. Then just lastly on capital allocation. Obviously, you don't have targets on capital you'll allocate to M&A or anything like that, but it feels like an active pace through the first six months of the year, even though the deals haven't been huge. Should we expect that to continue? Is the opportunity set there where you expect you're going to remain pretty active over the next, call it 6-12 months?

Will Schwartz: Yeah. What I would tell you, Kurt, we've definitely seen a shift. I think it's the realization that the market is probably going to be a little more challenged for a longer period of time. I would tell you for the past couple of years, certainly we've done most of the prospecting. We're now starting to see things come at us that are attractive, and we expected that. Part of the disciplined nature of the way we operate, focusing on ROI. Yes, I think you'll continue to see opportunities for us to invest in an environment when others might not be able to.

Kurt Yinger: Perfect. Okay. Thanks, guys. Good luck here in Q4.

Will Schwartz: Thanks, Kurt.

Mike Cole: Thanks, Kurt.

Operator: Thank you. I am showing no further questions in the queue at this time. I would now like to turn the call back over to Mr. Schwartz for any closing remarks.

Will Schwartz: Thank you to those who joined us on the call today. As we look ahead, we will continue to execute on our strategy and remain committed to our long-term goals. We will stay focused on driving operational excellence and bringing new high-value products to market. Most importantly, thank you to the UFP team members whose hard work makes these goals possible, and have a great day.

Operator: This concludes today's program. Thank you all for participating. You may now disconnect.

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