Universal Forest Products Inc. (UFPI) reported quite disappointing results in the first quarter of 2011 with EPS falling 20 cents below the Zacks Consensus Estimate. The company's top line also plummeted, largely owing to lost production days and lower sales in its three major business segments.
Moreover, higher costs of sales due to volatile lumber prices added to the downfall. In addition, Universal's precarious dependence on general market conditions and growth in end-markets heighten top-line risks in the event of any adverse conditions. The company also faces significant volatility in the cost of commodity lumber products from primary producers, which worsens the situation further.
The company derives a large portion of its sales from one single customer, which exposes it to customer concentration risks. In anticipation of a lack of positive catalysts, we maintain an Underperform recommendation on the stock.
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