Good day, and welcome to the Q3 2025 UFP Industries Inc. Earnings Conference Call and Webcast. [Operator Instructions] 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.

Good morning, everyone, and thank you for joining us to discuss our third quarter results. With me on the call are Will Schwartz, our President and Chief Executive Officer; and Mike Cole, our Chief Financial Officer. Will and Mike will offer prepared remarks, and then we will open the call for questions. This conference call is available to all interested investors and news media through the Investor Relations section of our company's website, ufpi.com where we will also post a replay of this call. 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 statements also include, but are not limited to, those factors identified in the press release and in the company's filings with the Securities and Exchange Commission. I will now turn the call over to Will.

Welcome, everyone, and thank you for joining today's call to discuss our financial results for the third quarter of fiscal year 2025 and share our thoughts on what we are seeing in the marketplace and provide some preliminary thoughts on how we see the business heading into 2026. Net sales remained steady at $1.56 billion on a 4% decline in units and 1% decline in price. We saw encouraging traction in new product sales, which totaled 7.2% of total sales. Our profitability remains pressured when compared to a year ago but on a trailing 12-month basis, we continue to flatten out. Much of the market dynamics that we've seen early in the year have continued. We're seeing cyclically soft demand ongoing trade uncertainty and competitive pricing pressures, creating a difficult operating environment. Despite the ongoing market headwinds, we continue to see a number of our business units finding a level of unit and profit stabilization. While it might be early to identify what we are seeing as green shoots, it does leave us cautiously optimistic heading into 2026. I couldn't be more proud of the team and how they've managed through a difficult 2025. I think it's important for investors to understand, we are not sitting idly by and managing through what the cycle dictates to us. We have and will continue to take the necessary steps to emerge from this market a much stronger, leaner and profitable company. Across all of our businesses, we target above-market growth but with an overarching focus on returns. How we get there will vary by business, and it speaks to the balanced nature of our portfolio. We continue to introduce value-added products across our portfolio that will improve mix and drive higher margins. And we continue to address underperforming operations, primarily through active…

Thank you, Will. Net sales for the quarter were $1.56 billion, reflecting a 5% decline from $1.65 billion last year, because of modest declines in overall volumes and pricing. Share gains and recent acquisitions helped to offset some of the volume pressure from softer demand and more competitive pricing was primarily isolated to our Site Built unit. These headwinds resulted in a 15% decline in our adjusted EBITDA to $140 million, while adjusted EBITDA margin fell to 9% from 10% a year ago. Importantly, the structural improvements we've made in the business since 2019 have resulted in a nearly 200 basis point improvement in overall margins since that time. It's worth noting that 75% of the decline in our consolidated gross profit was due to lower volume and pricing in our Site Built business as affordability and confidence levels continue to weigh on residential construction activity. Even in this environment, our trailing 12-month return on invested capital stands at 14.5%, well above our weighted average cost of capital, clear evidence of the strength of our balanced business model. Operating cash flow was $399 million, and we maintain a robust cash position of over $1 billion, giving us the flexibility to pursue our strategic objectives. As we remain patient for the right M&A opportunities to materialize, we've returned significant capital to shareholders, repurchasing nearly 6% of our total outstanding shares through October. Moving to our segments. Sales to customers in our Retail segment were $594 million, a 7% decline compared to last year, driven by softer repair and remodel demand and our strategic exit from lower-margin product lines. Within our business units, ProWood volumes declined 5%, reflecting higher interest rates and weaker consumer sentiment. Deckorators delivered 5% unit growth and 8% net sales growth, including a 31% increase in Surestone decking…

[Operator Instructions] And our first question will come from the line of Kurt Yinger with D.A. Davidson.

Good morning, everyone. Just wanted to start on Deckorators. And I was hoping you could talk about kind of where we stand with the Surestone retail rollout and whether it's kind of the pace of store expansion, service, sell-through, how that's generally performed relative to yours and your customers' expectations kind of coming into the year.

Yes. Good question there, Kurt. And what I would tell you is we remain on pace. We've talked about it openly. We're really targeting that 2026 selling season, and we'll be on shelf and ready to go for that season. We're still working through the capacity expansions that we've talked about, the CapEx expansions. And that's on pace. We'll see that really kind of kick in at the end of Q4 and into Q1, we'll be fully operational. I would tell you, sell-through is good. I think everyone is happy. It kind of shows in the results, especially in a market when you consider that the consumers, it's a very difficult market to upsell, looking for a value proposition. And so we're outsizing the market and results. And for that, I think all of us are really happy.

Okay. That's helpful. And it's probably difficult to parse out. But with the Surestone growth that we're seeing, is there any way to kind of ballpark what the impact of kind of the new retail shelf spaces as compared to maybe what you're seeing in the Pro channel. And relatedly, I mean, wood plastic composite grow 9% is very impressive considering the emphasis around Surestone. Maybe talk about some of the success there even with some of the shelf space losses last year?

Yes. We're very pleased and continue to gain share. We're happy. We're excited about where we're heading. And we're winning in all those places. Surestone is obviously something no one else can get their hands on. It's not produced by anyone else. It's a new technology. We continue to invest in that branding and that strategy. And with more awareness, I think it will continue to take market share. But we're very committed, we're very excited, and our teams continue to innovate and develop a great product to match up to all the price points.

Okay. All right. That's helpful. And just lastly on lumber kind of a 2-parter. I guess, first, given the current demand and competitive environment, if we were to see lumber prices start to inflate, is that a risk to profitability just given the demand environment? And then secondly, recognizing you guys don't want to be speculators on lumber. But just given where prices are, I guess, how do you think about the opportunity to perhaps lean into inventory here kind of in the winter months ahead of spring and summer of next year.

Yes. Good question there. And we always try to balance that. We're looking at what we believe the market will do. We try to use that in our strategies for building inventories for the following season. Right now, I think pricing is indicative of kind of the end takeaway and we continue to look at that. We focus on it. Your first question, getting back to is the pressure in a reduced demand environment certainly passing along those things are difficult, but we feel like we're positioned in and poised well to handle it. And in a lot of our business, our strategy is that we were priced for Texas in that. So it's kind of a balanced model.

One moment for our next question. That will come from the line of Ketan Mamtora with BMO Capital Markets.

First of all, I just want to kind of acknowledge and applaud the improved disclosures and just the way the information is laid out in the release this quarter. So nice job on that. Maybe to start with, just continuing with composite decking and Deckorators. One of the competitors with recent consolidation was talking about sort of more bundling of products. Given sort of the size and scale I'm curious kind of from your standpoint, what are you doing to sort of continue on this pathway you talked about doubling market share. Can you talk about some of the puts and takes there?

You kind of cut out the last part of your question.

Oh, I'm sorry. I'm just curious, from your standpoint, kind of what are you doing so that you kind of laid out the path to doubling share in that business. So from your standpoint, can you talk about sort of what you are doing?

Yes. So I think there's a couple of things there. One, that technology that we continue to talk about, and there's a reason we talk about it, it is next-generation material in technology that applies past decking too. But secondarily, and something that's not traditional for us is that branding exercise. We're really leaning into it because there's a great story to tell. And we believe that's going to drive those market share gains that we're talking about. We're building momentum every single day. And right now, we're at a capacity constraint that's about to be fixed, and you'll really start to see that capitalized on.

I think also the investments made to make sure the probe plants can distribute the Surestone product has been something that makes us unique and a key part of the growth strategy.

Got it. No, that's helpful. And then switching to the cycle side. Curious kind of what recent trends you are seeing. And as you sort of start to think about 2026, given sort of there is a lag involved, any perspective on kind of what you're hearing from your customers and the competitive price pressures that business is being? Are you kind of seeing signs of stabilization and then it is more of a sort of just kind of an exit rate kind of a thing. Curious kind of what latest you're seeing there? .

Yes. I wouldn't tell you -- I think that's the area of the business that's the most murky and lacks clarity. There's a lot of things out there. Interest rate cuts, consumer confidence has to grow, but I think some of the -- just the uncertainty, the affordability piece leaves it a lot more cloudy and trying to project what 2026 holds. We're cautiously optimistic. Most of our businesses, we see stabilization. That one, we just don't have enough clarity at this point to put a bow on it. Mike, do you want to add anything there?

Yes. I would just -- I think part of your question, too, is pricing trends sequentially, Ketan, from Q2 to Q3, we did see additional pricing pressures. So we can see costs coming down mostly because of material cost but pricing was off more than material costs. So clearly, a little more pressure there, which probably extends on into Q4 as well, given the environment.

Got it. That's helpful. And then just one last one from me. From a capital allocation standpoint, I mean, clearly, the balance sheet is very strong. And it seems like you are leaning more into kind of share repurchases. As we sit here today, how are you thinking about any opportunities that may come up from an M&A standpoint given sort of the weak environment right now versus kind of continuing to lean in on share repurchases. How are you sort of thinking about that balance? And within that inorganic piece, what is it that is sort of the most interesting to you from a growth standpoint right now.

Mike, you want to hit on that a little bit?

Yes. I guess, Ketan, the way we're thinking about it right now, our cash flow generation is really good. And what we're looking at is allocating more of our free cash flow towards share buybacks. And you can see we've accumulated a lot this year. And trying to preserve the balance sheet, the cash, the unused debt capacity for more meaningful M&A transactions. And very focused on our strategies. And so trying to be really disciplined on making sure larger transactions that fit into strengthening the core is where we're focused.

Yes. The last thing I'll add there, Ketan, is I'm really impressed and appreciate the work our team has done. We're really starting to refine the opportunities and really hone in on the spaces we're going to invest. And we believe we're going to have some opportunities there.

Thank you. One moment for our next question, and that will come from the line of Jay McCanless with Wedbush.

One and definitely I want to echo what Ketan said about the disclosure. We really appreciate the heightened disclosure and help so makes our job easier. So thank you all for doing that. The first question I had, and I know I'm nitpicking here, but kind of the language in the outlook where you are talking about Construction, Site Built versus Factory Built you guys changed that language up a little bit. Maybe it looks like you backed off how strong Factory Built is. Could you talk about that and talk about where the strength of that business is now versus a quarter ago? And what are you hearing from customers as we're heading into the spring season, well, almost there a couple of months?

Yes, I don't think it's really a huge shift. I think everything right now, consumer confidence affordability is just challenging in the marketplace and just trying to temper that a little bit. But we're still excited about where that goes. And the affordability challenges, that market, we believe, has a lot of legs and will continue to grow. But just tempering that just around the current environment and housing total.

I think in Q3, Jay, the industry production looked like it was a little more challenged than in not showing the types of increases it had been earlier in the year. So I think it's just a reflection of what we're seeing more recently.

And then -- been a lot of noise about tariffs, et cetera, lumber tariffs, especially, I guess, what are you all kind of thinking about potential tariff impact for 4Q as we look ahead to '26. What should we be building in or thinking on our models?

Yes. What I would tell you is look at the pricing today, that's been hanging out there for a while. We've talked about it openly and yet we sit at some really low points in the marketplace. So would continue to reiterate. We're well positioned. The majority of our purchases are domestic purchases already, and I think there's opportunity for shifts that we see big changes. We're prepared and ready to act as needed, but I think it will be reflective of the market in total.

That's great. And then the last question I had is, we've seen some articles out there talking about how data center builds are going to start flexing higher in '26. And I guess are you all seeing anything on the leading Edge of that from your customers that would support that view. And I guess, is there anything else you all could do to expand on concrete forming to take advantage of if there is this really big data center build that's going to start next year if you guys are doing anything or can do anything to expand your capacity or ability to take share in that market?

Yes, I'll hit that. Certainly, we're excited about that, and it's reflective in the numbers for concrete forming, meeting where the customers are at. And that opportunity certainly continues to present itself and the value-added solutions we can put there. we continue to try to grab more share of the wallet in the spend, and I believe we're excited about it.

One moment for our next question. And that will come from the line of Andrew Carter with Stifel.

I realize that I'm kind of mixing a little bit of apples and oranges. But when I look at your Site Built units down 15% and then I take builders, which is, I guess, a good national proxy average, single-family, multifamily core organic they're down 13. They said content. All those things are headwinds. So you can assume that units are a little better than that. I guess what I'm asking is, past 10 quarters, your Site Built has consistently outperformed there, which I would call kind of a national metric. So what I'm getting at is as you look at your specific geographic footprint in Site Built, I think you've kind of been a little bit immune to the challenges during this kind of post '22 rightsizing are things getting worse and deviating from the national average, anything material you see? Or would you just not make too much out of that 3Q number?

Yes. I think -- and we've described it in the past. We've tried to remain -- we haven't invested in some of the boom and bust markets. And so we don't have that full geography of the U.S. in footprint. But I would tell you, some of the Western markets that have been really good for us over the past couple of years. We've seen some declines in a bigger way, and I think that's probably more representative of what you're reading into those numbers.

Fair enough. Second question I would ask is, you did say stabilization in some of your markets in the last quarter, I think you said that the challenges where you called out three businesses, structural pallet and, of course, Site Built. I guess as you think about stabilization, is there a path to, I guess, reclaiming some of the margin? Or do you have to -- are we stabilizing it kind of -- are you stabilizing at sort of a trough that we should think of and carry on into the next couple of years?

Yes. So we kind of -- we feel like we found the trough in some of the businesses, and we see that sequentially in margin pressure in pricing. And so specifically in the structural business, I'll call that out. And or -- when you hear me talk about optimism, it's not necessarily we're projecting the market changes drastically in 2026. It's really more of a result of the work we've done in cost out, automation, a lot of the investment that we've made and a lot of the hard work that our employees have made. And that's really what drives it more than anything.

And the share gain opportunity that we have, we've had in addition to Surestone, we've had other areas of the business where we've accomplished market share gains. And so that gives us good optimism into '26.

Last question I'll ask. It's kind of -- it's been asked a little bit about the kind of the sure stone and kind of all in on kind of your composite -- or your sorry, Decking, Railing business. But could you give us a cadence of kind of when you hit your full potential from a revenue perspective? And then also the flip side, there's a profitability perspective. I mean you mentioned some items that were headwinds in the quarter. When do those become kind of fully tailwinds? And then you, of course, invested $20 million in incremental advertising this year. Do you sustain that next year? Do you increase from that? And I will stop there.

Yes. I'll kind of start there and then I'll let Mike jump in. First and foremost, go back to the operations. We'll be fully operational in both sites, Q1. So a lot of those challenges that come along with capital investment, the disruption that takes place when you're introducing a lot of that technology, new equipment, et cetera. So we'll be operational in Q1. So some of that falls off. You asked about the brand, driving the brand advertising. We do not plan to adjust our marketing efforts in 2026, up or down. So that's going to remain pretty similar. And we continue to talk about market share gains. So we'll start to see the results of that in '26. Mike, do you want to add any additional color?

Yes, I would just say that we're expecting the most meaningful part of the sales growth to occur in '26 and maybe even more importantly, the margin. The contribution margins with the new capacity that tremendously helps us accelerate throughput through the plants. That really begins to have an impact in '26. There is inventory, I guess, to work through that would be at the higher cost, probably for the balance of the year. So really excited to get those new lines running optimally. And start enjoying some of those cost benefits in '26.

One moment for our next question. And that will come from the line of Reuben Garner with Benchmark.

So to start on the Packaging business, I think you referenced stabilization a couple of times in your opening remarks, even discussed kind of potentially aggressively growing in that market. I guess 2-part question. One, would you go as far to say that you're seeing green shoots in the end market overall? Or is it simply more of a bottoming and things have leveled off for long enough that you're a little less concerned about downside? And then secondarily, the growth part there, like what exactly is driving that potential aggressive growth or above market growth in that vertical?

All right. So the green shoots piece, the second part of your answer is right. We feel like we found the bottom. At least it feels that. Stabilization is feeling like we found the trough, feeling like we found the bottom. There's a couple of things that give us optimism. That's number one. A lot of the work we've done with national accounts and our strategic sales teams really focusing on big opportunities, and there are some near-shoring opportunities. We believe we'll expose themselves both in '26, but really beyond. And so that's really the optimism that we have. And then some consolidations, cost out, some automation work and investment inside of our factories, that's where the optimism comes from. We're geared and ready to roll. As business starts to come back. So I wouldn't say it's green shoots yet, but certainly optimistic.

Okay. Great. And then the lumber piece, so lumber prices are relatively consistent with the year ago despite all the duty increases, the tariff talk and everything else that's gone on and supply coming out. So clearly, demand is much lower than a year ago broadly for wood. My question is, as we do see a recovery, given the increased tariffs and duties and the supply that's come out, it would point to pretty substantial upside to lumber prices and probably well above what would have been considered normal 5, 6, 7, 8 years ago. Does that impact the competitiveness of the wood in the packaging space? Are there alternatives that become an issue alternatives to wood that become an issue for you guys? Or did you kind of see through the pandemic spike that would necessary in a lot of these categories, and they'll have to deal with it just like they do in housing where there's not really an alternative to wood framing.

Yes, it's a really good question. Specifically, as we talk about packaging material, it's really the beauty of the balance of our business. And so what I would tell you is when you get into a more fiber stricken market, less fiber availability, that's generally where we tend to win a little more because we're not just buying those low-grade products. We're buying the entire gamut of products. We're buying the uppers and that gives us a little buying benefit. And so for us, we're kind of agnostic as where the market is. But generally, when the market gets tighter, that is also represented in pricing, it's generally a better market for us. We're able to put some pricing and purchasing strategies in place to take advantage of that. So that's why you can describe it.

Great. And last one for me on Surestone. Can you remind us, is there any recycled component to that product? I know historically, it's a higher-end product and a little bit more costly maybe to produce in the wood plastic composites. Is there an opportunity to increase recycled or other ways to drive cost down besides just more volume and throughput in new facilities? .

Yes, there's certainly an element of recycled product in it today, and there's opportunity to grow that, and we'll continue to invest in taking advantage of that. So the answer is yes and yes.

And one moment for our next question. We do have a follow-up from Kurt Yinger with D.A. Davidson.

There's a lot of moving pieces in retail with ProWood and Edge and Deckorators this year. Last year was actually a really impressive gross margin performance at 15%. Is that a reasonable bogey to get back to in 2026? Or given the actions that you've taken, is that perhaps even conservative?

Yes. Kurt, I think some of the challenges we've had this year with lower unit sales in the pro wood side, falling lumber prices on the ProWood side challenges with introducing the new capacity and inefficiencies as a result in the Edge business this year. To me, those are all challenges that are temporary. So we see a path to those types of margins that we experienced last year. And not only that, we see a path to improving it. We believe there's even more upside to margin in the proved area. There's a lot of things to be excited about in terms of cost out and being more efficient. But -- and then obviously, the Surestone and the mix benefits we get from the decorator side of things, a lot of reasons to be excited about margin expansion and above-market growth in the retail area in general.

There's one last piece there. I'll tack on because Mike had an absolutely spot on. The -- we didn't get to fully realize the value of our internal distribution through our ProWood plants this year. So when you think about Deckorators flowing through that, that's also a margin expansion opportunity for the ProWood plant as well. So just kind of wanted to make sure I mentioned that.

And Will, when you say you didn't fully realize that, is that kind of based on the growth you expect next year or something else going up?

Yes, absolutely. And that was just lack of capacity this year, and we weren't able to take full advantage of it because we didn't have the capacity we'll have that in 2026 and beyond, and we'll really be able to utilize that volume. It expands both the Deckorators side and the ProWood side.

Right. Okay. That makes sense. And then just going back to Site Built I know you mentioned that margins are still, I think, better than pre-COVID levels. I guess if you take a step back, like how would you kind of characterize your cost competitiveness there relative to what you see to peers mean it feels like an area where the automation and efficiency opportunity is maybe greater than other parts of the portfolio. So I don't know if that's fair or not, but any color there would be really helpful.

Mike, do you want to hit that?

Yes, I think we're really focused on being a manufacturer of engineered wood components. I mean that's all that we do. And the team, I think, has done a fabulous job of investing in automation and enhancing our processes in the plants in order to be able to be more efficient. So I can't speak with respect to peers, we're kind of built differently, just being a manufacturer of those product categories. But we feel really good about what the team has accomplished. I think that's one of the reasons why our margins, and I think I referenced in my comments that our margins this year are higher than what they were in of 2019. And I think it's because the team has done a great job in being investing in being more efficient in the plants.

I'm 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.

Thank you, everyone. As we continue to press forward and fine-tune our business, I'm confident in the strategy and the team we have in place to meet our long-term goals and to bring new high-value products to market. Thank you to those on the call for your interest, and have a great day.

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