Earnings Call: Q1 2021

Apr 21, 2021

Ladies and gentlemen, thank you for standing by, and welcome to the First Quarter twenty twenty one Earnings Conference Call for UFP Industries. At this time, all participant lines are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. I would now like to turn the conference over to Dick Gauthier, Vice President of Business Outreach. Please go ahead. Welcome to the first quarter twenty twenty one conference call for UFP Industries. Hosting the call today are CEO, Matt Massad and CFO, Mike Cole. Matt and Mike will offer prepared remarks and then the call will be open for questions. This conference call is available simultaneously in its entirety to all interested investors and news media through our webcast at ufpi.com. A replay will also be available at that website through 04/24/2021. Before I turn the call over to Matt Massad, let me remind you that the April 21 press release, yesterday's quarterly filing and today's 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 the company's expectations and projections. These risks and uncertainties include, but are not limited to, those factors identified in the press release and in the filings with the Securities and Exchange Commission. Now, I would like to turn the call over to Matt Massad. Thank you, Dick, and good afternoon, everyone. It is hard to find me at a loss for words to describe our team, superlatives. Awesome is accurate, but doesn't go far enough. Unbelievable was just used and if you need to use it twice, it is no longer accurate. To appeal to the younger crowd, I can say that the first quarter was lit, which it was. Let's just go with exceptional performance by my outstanding teammates. When the first quarter, which is historically a slower quarter, becomes the all time record quarter for sixty six years of UFP, we know that positive transformative changes are happening. I am exceedingly proud and grateful for all of the hard work, focus and financial results of our UFP team members. While it would have been easy to succumb to all of the challenges impacting their daily personal and business lives, they continue to excel by working safely, focusing on the customer and making our company stronger. Their performance reinforces my strong conviction that no matter the challenges and obstacles they face, in the long run, we will win. With the acquisition of PalletOne contributing nicely to our overall performance and a high level of the lumber market, we posted record sales of over $1,800,000,000 for the quarter. Even more impressive was the bottom line improvement to a record earnings per share of 1.67 While the extraordinarily high level of the lumber market certainly drove top line performance, more impressive was unit sales growth of 33% with 23% coming from acquisitions and the balance coming from organic growth. And our goal of growing new product sales continues as new products accounted for 159,400,000 of sales in Q1. We are on track for our annual target in new product sales. Mike will share more financial information in a few minutes and I would like to continue by looking at the segments. Let's start with Retail Solutions, which posted an incredible first quarter. And looking at the Retail Solutions business units, we see that our ProWood business unit saw the greatest sales dollar growth over last year. The treated business remained very strong with dimension and decking products in high demand. Fire retardant treated product sales are growing nicely as well and additional capacity is coming online in the Southeast later this year. Outdoor essentials, fencing and lattice sales are exceeding plan and the newly designed raised planter boxes are being sold in more retail locations and through our customers' online portals. Mixed materials are a strong push for future product line extensions in 2022. Deckorators' solid growth continues driving improving sales units by 64% over Q1 of twenty twenty led by Vault and Voyage decking and a variety of new railing products. Margins have been impacted somewhat due to resin price increases in Q1, but those costs are being passed along in Q2. Deckorators has strong order files with commitments very solid throughout Q2. UFP Edge expects part of its expanded capability in Montana to come online in Q2. When fully implemented in 2022, UFP Edge will have doubled its finishing capacity and remanufacturing capabilities for its siding, pattern and trim products and services. Handprint just completed its acquisition of Walnut Hollow, which will help grow its presence in DIY retailers and craft and creative outlets. Handprint continues to drive sales of its project panel program, where sales are up nearly 50% versus Q1 of twenty twenty. And e commerce continued to drive more retail sales and their sales are up 82% versus a year ago. In the Industrial segment, unit sales grew by 37%, of which 6% was organic. We have accelerated the recovery from COVID shutdowns have been assimilating the PalletOne acquisition nicely. Last year's TNR lumber acquisition also contributed to first quarter improved results. With expansion and growth opportunities generated from our combination of these two great businesses, we look for this strong performance to continue throughout 2021 and beyond. Overall, we expect the Industrial segment will continue its growth trajectory as we also drive to gain share from our national customer base. Gaining more capacity for our national pallet customers also brings opportunity for our other product lines. Expanding our use of mixed materials, including steel and patented corrugated based products has helped capture business both domestically and internationally. Our new industrial marketing effort includes an enhanced web presence and targeted B2B approach, which is gaining traction with many local and regional customers. The recent launch of the UFP Packaging Lab and Design Studio is exciting for our protective packaging customers. By combining our design functions and lab capabilities in our Michigan packaging test facility, we can quickly move from design to prototype to test. Utilizing rapid iterative changes to improve the products, we have considerably shortened the time from customer need to customer solution. And finally, we have accelerated our push for automation and capacity consolidation to help achieve greater manufacturing efficiencies. In the Construction segment, the site built business unit performed very well in Q1 as it continues assimilating its twenty twenty acquisitions. The team is concentrating on gaining the scale and synergies planned from those acquisitions, including expansion of steel trusses and exterior components in the Southeast and adding roof truss and wall town capacity in fast growing Texas. The factory built business unit maintained strong order files as consumer demand for affordable housing increases. Some customers have production schedules being impacted by product shortages, which likely will simply extend the demand to future periods. New products for factory built customers include a proprietary product for RVs and other tow behind trailers. This product is now in the final testing phase and should be launched by Q4 of twenty twenty one. Once testing is complete, we look forward to unveiling this product. Concrete Forming Solutions is focused on design, engineered and manufactured for its target customer base. Sales of specialty products to retailers were shifted in 2020 to our retail business units. Discussions of a major infrastructure plan show encouraging signs that may also benefit our Concrete Forming business. Our rightsizing of the commercial construction business unit continues as planned and we have reached agreement in principle to sell one of our facilities and consolidate this business into our remaining locations. We have additional opportunities to consolidate production as we focus on profitable sales, not just sales. As described in February, we are executing the business overhaul. The team is working very hard and making positive improvements. As with all of our operations, we are committed to obtaining a strong ROI or exiting the business. Outside of The U. S, our UFP global team has been scouring the worldwide market for wood fiber and has helped secure much of our increased needs. Our business in Mexico continues to grow and the addition of Gilmour's in Australia this quarter will add protective packaging sources and help round out our product mix for industrial customers. With over $800,000,000 in total inventory at quarter end, we all have questions about the lumber market and the high level of its pricing. Even non property owners are asking us why lumber is so expensive. With current demand levels, there is a demand supply imbalance with demand outstripping supply, although our inventory for most items, including inventory purchased from Spartanburg is adequate to meet anticipated customer needs. As I mentioned recently, mill consolidations and automation to maximize yield and product mix at the mill level also is contributing to a higher base level of pricing. Discussions with our vendor partners happen on a daily basis and many believe that supply will be able to catch up with demand by the end of Q3 barring any further shutdowns or macroeconomic changes. Panel goods remain an exception given longer lead times to ramp supply coupled with higher demand for plywood and OSB. As our inventories fall from their current seasonal peak, we expect a significant reduction in working capital by the end of Q3. A few other areas of capital allocation include our ample pipeline of acquisition targets, which we are working through to make sure the business units acquiring the targets have good executable scale and synergy plans and committed personnel to make them successful. We will be selective on quality targets, which meet our criteria for growth runways and return on investment. We will also increase our investment in new product development. Each of our business units is responsible for implementing new product sales, but in order to fast track the development process, we are doubling our commitment to innovation, research and process with our new innovation accelerator. We will be adding highly talented personnel to help our segments develop their new product initiatives outside of a production facility environment, while stressing increased volume of new products and services and more speed to market. As we have grown the size of the overall company, our commitment to have new product sales be 10% of total sales has grown significantly too. Our investment in new products must keep pace as we believe improving our position in the value chain is highly dependent on our continued ability to innovate and meet the unmet consumer needs. Personnel and training remains an area of intense focus. We, like most other companies, struggle to find highly motivated hardworking employees. We have added to our recruiting staff and created new solutions to drive more applicants to our company. We have a welcoming environment and have a long track record of providing great career opportunities for those willing to make the effort. Our training programs have expanded also to give existing employees the necessary job skills to advance their careers with us without having to pay college tuition. The future outlook looks very positive and our team is excited about breaking records, creating opportunities and making our company better. Now I'd like to turn it over to Mike Cole for more detailed financial information. Thanks, Matt, and hello, everyone. Our results this quarter are highlighted by unit sales growth of 33%, including 10% organic growth operating profit growth of 134%, four times our unit growth and over $260,000,000 invested in acquisitions this quarter. We're happy to report that transactions we've completed since last April contributed $245,000,000 in net sales, 14,000,000 in operating profit and $19,000,000 of EBITDA this quarter. Now I'll provide some additional color on the quarter starting with our income statement and sales by segment. Net sales grew 77% comprised of a 44% increase in selling prices due to the lumber market, 10% organic unit growth and 23% unit growth from acquired businesses. Sales to the Retail segment increased 116% consisting of a 56% increase in selling prices, 19% organic unit growth and a 41% unit increase resulting from acquisitions. Organic growth was driven by a 64% increase in Deckorators, a 30% increase in Handprint, a 28% increase in Outdoor Essentials and a 24% increase in Edge. New product sales for the Retail segment were also strong, growing over 58% for the quarter. Sales to the Industrial segment increased 75%, consisting of a 38% increase in selling prices, 5% organic unit growth and a 32% unit increase resulting from recent acquisitions. Organic growth was driven by new customer and new product sales. Finally, our sales to the Construction segment increased 47%, consisting of a 39% increase in selling prices and 8% unit growth. Unit growth was driven by our site built and factory built housing business units, which achieved 2115% unit increases, respectively. These increases were offset by a 9% decline in our commercial business unit. Moving down the income statement. Our first quarter gross profits increased by 119,000,000 or over 71%. By segment, Retail increased by $55,000,000 Industrial increased by $36,000,000 and Construction increased by $25,000,000 Recent acquisitions contributed $10,000,000 to Retail, 2,000,000 to Construction, 13,500,000.0 to Industrial and $25,500,000 to our overall increase in gross profits. These increases resulted from a variety of factors, including strong unit sales growth and leveraging fixed costs, increased sales of value added and new products that have higher margins and more effectively adjusting for increases in lumber costs and our selling prices. Continuing to move down the income statement, SG and A increased by $41,000,000 to $150,000,000 for the quarter. Acquired businesses contributed $11,500,000 to the increase. The remaining increase was driven by accrued bonus expense and compensation costs, which increased $22,000,000 and $10,000,000 respectively. These increases were offset by a $2,000,000 decrease in travel costs and a $1,000,000 decrease in bad debt expense. Finally, our operating profits increased by $79,000,000 which was comprised of a $38,000,000 increase in retail, a $22,000,000 increase in industrial, a $16,000,000 increase in construction and a $3,000,000 increase in international. Acquisitions contributed $7,000,000 of operating profit to each of our retail and industrial segments. Moving on to our cash flow statement. Our cash flows used in operations for the year was $197,000,000 and consisted of net earnings and noncash expenses totaling $128,000,000 compared to $62,000,000 last year and a $325,000,000 increase in working capital since the December 2020 compared to $108,000,000 increase in the prior year. Our net working capital this year has been impacted by strong market demand prices. Our people have done a great job of managing our working capital efficiently as evidenced by our cash cycle, which improved to forty eight days this year compared to fifty nine days last year. This improvement resulted from a reduction in our days supply of inventory driven by strong demand and supply constraints and greater use of better managed inventories as a means of protecting margins on products sold with a variable price, including treated lumber. We also improved our collection cycle by three days, while improving the percentage of our receivables that are current to 96%. Our investing and financing activities included capital expenditures totaling $35,000,000 including expansionary and efficiency CapEx of 9,000,000 We're still planning for total capital expenditures for the year of $115,000,000 which includes projects to expand our capacity to produce our mineral based and wood plastic composite decking products and our edge siding pattern and trim products. Dollars $261,000,000 was spent to acquire Palette One and its subsidiary Sunbelt Forest Products in January and J. C. Gilmore in March. And we paid over $9,000,000 of dividend this quarter at a rate of zero one five dollars a share, a 20% increase in the rate over last year. Lastly, net borrowings under our revolving credit facility totaled $115,000,000 With respect to our balance sheet, at the March, our total debt net of cash was $429,000,000 and our total liquidity was $421,000,000 We used $172,000,000 of this liquidity to complete the purchase of Spartanburg Forest Products and Walnut Hollow in April. Looking forward, we expect our seasonal working capital investment of $325,000,000 and that of Spartanburg totaling $67,000,000 to be turned into cash during Q3, leaving our balance sheet strong in strong shape as the year progresses. That's all I have on the financials. Matt? Thank you, Mike. Now I'd like to open it up for questions. Thank Our first question comes from the line of Ketan Mamtora with BMO Capital Markets. Your line is now open. Thank you. Good afternoon, Matt and Mike, and congrats again. It's becoming a habit for you guys, but again, a very strong quarter. Thank you, Maybe to start off on the Decorator side, maybe just remind us kind of how much capacity you'll added in 2020 and what is more to come in 2021? And perhaps elaborate a little more on kind of what you are seeing with demand, the industry on the composite side, there's a lot of capacity that's come online. So maybe kind of talk about what you see out there from your customers in terms of demand? And then just related to that, obviously, we've seen this huge run-in lumber prices. Are you seeing any acceleration of share gains on the composite side because of that? Well, that's a lot of questions to unpack there, Keaton. I'll do my best to remember what they were. But so let's kind of start out with what our expansion plans are and what the capacities will end up being. So in 2020, our capacity really didn't come back online until probably late Q4. So we figure that will add between 3035% capacity. The plan for this year, which will probably come online in 2022, will be for our mineral composite product. That should increase our capacity by about 25, maybe as high as 30%. And then continued plans in 2022 for both of those operations will include another 30% or so in our wood plastic composite and roughly an equal amount, another 25% to 30% on the mineral composite products. And you kind of look at your next question, which I think is about the high level of lumber market, are we seeing consumers shift over to more wood plastic composite products? And I'd say certainly at the low end of the wood plastic composite space and the high end of the lumber space, there's definitely some conversion that would occur, given the similarity or the closer similarity in pricing. We still think that the composite market is strong and the wood market is obviously very strong too. So I just think there is more overall consumption. But certainly on the edges, there has to be some conversion going on. But still lots consumers are buying wood. Got it. That's helpful. Okay. And then, mean, Farooq, this is just in terms of kind of looking at how lumber prices have an impact on your performance. In the past, a spike in lumber prices like the ones that we saw in Q1 and in the back half of twenty twenty, usually in the past it has had a bigger impact on your results. But it seems like you're doing a much better job kind of managing that. I'm curious kind of what has changed in terms of how you are managing that? And perhaps this ties into where you mentioned in the release better pricing model in lumber. So maybe touch on that a little bit. Yes. I think I have to really give a shout out to our purchasing team who's done just a remarkable job of sourcing material, finding the right level of supply and our operations teams who have done a terrific job of basically preparing a product and making it available for sale. As you think about overall structurally, I don't know that there's been a lot changed. I think it's just a very focused effort. And I'd like to give some credit to the new structure as well, where we have business unit leads very focused on what their needs are, taking a much different look at how products are being costed and sold and making sure that we're staying current with the market. I also think there is some benefit from the tailwind of higher lumber prices. But as we said, we think long term, our strategy is to have those be more of a pass through cost and try to get more efficient. I think one other factor I'd point out is I think our manufacturing efficiencies clearly have improved as a result of a high level of capacity utilization. Got it. That's very helpful. I'll turn it over. Good luck for the rest of 2021. Thank you, Ketan. Thank you. Our next question comes from the line of Julio Romero with Sidoti. Your line is now open. Hey, good afternoon, everyone. Hi, Julio. Hi, Julio. First question is just on the pricing environment. I mean, you're obviously seeing very strong demand. But maybe can you speak to the elasticity of demand and how much more price can be driven in the current environment? That's a terrific question. So I think obviously, we still see a strong demand even at the current pricing levels. I don't think long term that's necessarily where anybody wants the market to be. I think if you start looking in terms of projects, there's a lot of other price increases in a variety of other commodities as well. So we anticipate that once supply kind of catches up with demand, that will help alleviate some of the high price levels in the lumber market. So we expect that to trend in a more normal direction for the balance of the year. In terms of the elasticity, at least right now, I guess, the proof is in the consumer and they continue to buy. But we definitely hear more complaints about the high prices and the price increases throughout the supply chain. Got it. And you mentioned in the prepared remarks that your inventory levels are adequate to meet your demand for the next ninety days. How about on a relative basis? I don't know if you have any sense of what your closest competitors have in terms of inventory and if they have adequate levels? And if they don't, do you benefit, I guess, on a relative basis for the next one to two quarters? Yes. I don't know that we necessarily have good insight to what our competitors' inventory positions are. Certainly, our non public ones, we don't. So I would say we're well positioned. We do have some shortages in some areas that I mentioned, such as panel goods, where it's a little bit more challenged. But I do know even though we haven't been perfect in terms of filling every order completely, our customer satisfaction levels are very high right now relative to others. So I think that's a big plus for us. Great. I'll turn it over and I'll hop back in with any follow ups. Thanks, Julio. Thank you. Our next question comes from the line of Reuben Garner with Benchmark. Your line is now open. Thank you. Good afternoon, everyone, and congrats, Matt, on your late quarter. So does maybe on the retail side, what are your customers telling you to expect sort of as you progress through the year? Or I guess if they aren't, what are you sort of expecting as we progress through the year? Just I think a lot of folks are looking at the comps last summer, a lot of people at home doing projects that took them to the Lowe's and Home Depots of the world. Do you anticipate to be able that the industry will be able to grow on top of what happened last year just because of changing dynamics and secular strength? Should that be something to keep in mind? And maybe if you do see growth, it's more from things within your control, customers, new products, that sort of thing? Yes. So for our public companies, we tend to follow what they're trying to tell the Street, which is they're not really making predictions. I guess what I would say is that we have been told to make sure that we have ample product available. So I think from our standpoint, that's our goal. We want to make sure we can supply more than we did last year, but I couldn't tell you for sure if that's all going to materialize or not. But the trend lines today are very good. Okay. And then the industrial business has obviously snapped back pretty quickly. There's been some good indicators. I think ABI had a good reading out today on the commercial side. Should we expect that, that will start to improve as we move through the year? Or is there a bigger delay there and that might be more of a 2022 type recovery? Yes. We're seeing very positive results in the Industrial segment. And I don't see any reason why those won't continue. I know a year ago, they were probably one of our more impacted areas as a result of the lockdown. So we're optimistic that as long as things stay open and running that they will be able to outperform. Okay. And then I'm going to sneak one more in if I can. Mike, anything that can help us on the seasonality of SG and A this year? Any reminders there? And maybe in that same realm, how the acquisitions might impact that if at all? Yes. The acquisitions are fully baked in for the quarter. So if you take the $150,000,000 of SG and A for the quarter, dollars 32,000,000, I believe, excuse me, 36,000,000 of that SG and A was bonus expense. And so if you pull that out, that's how we think about kind of the core SG and A. That number is fairly fixed over the course of the year from quarter to quarter. And then as you know, we accrue for bonus expense at about a 20% rate of pre bonus operating profit. On that core SG and A line, would say it can flex up a little bit with volume and which is typically higher in Q2 and Q3. So that would move up a little bit from the Q1 number. And then as we look forward, the Spartanburg transaction, I think we talked about in February in our year end release, the EBITDA margins for that business run at low 3%, three % to 4% EBITDA margins. It's a lower margin treated lumber is a lower margin category, single digit gross margin. And then the SG and A is a pretty modest number as a percent of sales. Hopefully that gives you enough for modeling. Perfect. Thanks and congrats again guys. Thank Thank you. Our next question comes from the line of Stanley Elliott with Stifel. Your line is now open. Good afternoon, everybody. Thank you guys for taking the question. On the composite decking piece, I mean, strong numbers. I mean, you get a sense that that's just to fill in the inventory? Or do you think that that's kind of the end demand that's coming along? Or we've had an early buy program or stock some and you think that's just kind of additional sell through? Just trying to get a sense for that business being up 64%. Yes. I think part of that might be a year over year comparison. But the way I'm looking at it is it's still the demand is very strong and order files are strong, as I mentioned, through Q2, where we've got strong customer commitment. So for me, I think there is a change. I know that people are recognizing our mineral composite product. They're really drawn to it. It's a terrific product. So I think that's true. And our wood plastic composite is still got an outstanding following. So I'd like to think that I know others are also seeing increased sales in their wood plastic composite line. So we want to outperform the market there. And so far, I think we're doing that. And then in terms of labor shortage, should we think about I guess, how quickly can you address that? Is that something that would be a drag in terms of kind of the revenue numbers that you guys could put up? And then kind of what sort of positions are you looking to bring on? Yes. So if you kind of look overall, we're probably looking at positions in all areas of the company. Our biggest challenge is in the production facilities and more on the entry level side. So we are finding people, but we're not finding enough people and we're not finding people that really want to work and grow their career with us. So when we do find those individuals, they do a terrific job and they continue to move up the ranks in our company. So that's a continued challenge. I think right now, we can kind of handle the volumes we have today, but it puts a lot of stress on the people in the organization. So we want to make sure that we give them some relief and try to bring on more folks. And we've got our outreach finding new sources of talent for us. And as I mentioned, with recruiting and trying to find different ways to make the job easier for people to do through automation. So and we also are looking at automation at replacing some of those more physically exertion type roles. So the combination of all those things, we plan to be able to keep growing and hopefully being able to utilize the people we have and put them in positions of higher authority and responsibility and maybe using the option with automation to eliminate some of those entry level positions that we have a hard time filling. Yes. No, definitely high class problem. But that kind of brings me to my next question. You kept CapEx flattish. At what point do you decide to kind of put a little more of the accelerator on some of these automation programs that you guys have in place or in the works to try to kind of solve some of that? Yes, I think that's a great question. I think we're willing to do it. I think the challenge you have is trying to find the equipment manufacturers' capability to fulfill orders. So that's probably the limiting factor right now. Great, guys. Thank you very much. Appreciate it. Best of luck. Thank you. Thank you. Our next question comes from the line of Kurt Yinger with D. A. Davidson. Your line is now open. Yes, thanks and good evening Matt and Mike. Hey Kurt. Hey. So I mean it looked like really strong gross profit growth in the Construction segment kind of despite a more modest increase in unit sales. Is it fair to think that a good chunk of that is associated with costs you've already been able to take out from the commercial business? Certainly a part of it. I think that plays a role. But I also think kind of how they're executing at the individual plant level has improved and trying not to hold pricing for as long of a period of time as we have historically is making a difference as well. So I think the constant vigilance on the market, staying in tune and working with the customer to make sure we can provide them product at a fair price is really what's driving that improvement. Got it. And I guess to your second point, typically I kind of think of at least the site built portion as having kind of some of those longer lag times as far as I guess catching up to commodity prices. It sounds like maybe that's shortened a bit and so perhaps you don't get squeezed to the same extent there. Is that kind of a fair characterization of what's going on? Yes. I think that is a it's a very fair characterization. And I think if you reduce the period of time at which you keep your quotes open for the customer, it really helps that process. Okay. That makes sense. All right. And then just switching gears to the Industrial segment. Could you just talk about what you're seeing in terms of sales synergy opportunities between Palette One and the legacy platform? And then just the ability to maybe cross sell other packaging solutions or include more mixed material kind of full solutions as opposed to components and how that's kind of playing in, I guess, the better than expected growth we've seen here in the last couple of quarters? Well, Curt, I couldn't say it any better than you just did in your question. I mean, hit exactly what our strategy is. And what I will tell you is we think that on the protective packaging material side, we have a tremendous upside that we haven't really tapped yet. And we do expect to attack that very vigorously this year, and we're already in that process of doing that. But that's one of the key things that we think we can do with the combination with PalletOne. They bring different customers to the mix and more opportunities. And we're excited about watching the whole thing you talked about, which is mixed material solutions. And ultimately, our goal of being the global packaging solutions provider is really what drives this whole process. Got it. Okay. That makes sense. And then just within retail, I mean, a lot of exciting stuff going on with decorators, but it sounds like you're making some pretty sizable investments at least on the pre finishing side in UFP Edge. Could you just talk about what you kind of see as some of the most exciting growth opportunities within retail, maybe excluding decorators over the next one or two years? Sure. I think the new product development process is probably most pronounced in the retail environment. So things like UFP Edge, things like pre finishing products, developing new products, whether that's siding, pattern and trim items, which we're obviously working on all the time, again, different materials, more, I'll call it, exotic hardwood opportunities, railing systems and other ancillary outdoor essentials type items. Those are areas where we think we can utilize the customer base we have and drive more of that value added product that consumers are looking for and really help ramp up our overall returns. Got it. Okay. All right. And then a couple of times, you guys have touched you know, automation investment opportunities. Could you just help us, I guess, visualize what that would kind of look like from a process standpoint, whether it's by kind of a facility or by segment? You know, what is kind of that big automation opportunity as you guys see it? Yes, it's kind of twofold. Some of it is just kind of helping with automation on in feeds and out feeds and helping from a safety perspective. The other part of it is really helping the process so that we can use more automated equipment. So from a standpoint of not needing as many new employees, we're able to eliminate the need for new employees and allow our other employees to move up in their roles. So if you took a look at the pallet operations or other operations that produce a like product on a very consistent basis, those opportunities are pretty significant for us to create a work cell that drives a number of employee efficiencies as well as manufacturing efficiencies. Okay. That makes sense. And just my last one, going back to everyone's favorite topic. I mean could you just I guess at a high level talk about the risks you see here in the near term associated with the lumber market just given how heavy a quarter Q2 typically is for treated volume? And I imagine it's probably pretty difficult, but are you doing anything differently this year just given where prices are to mitigate that risk at all? Yes. I think there's a number of things that I would point to on that, Curt. And if you kind of look at our percentage of inventory as a percent of sales, you'll see that it's down from a year ago. And I think overall, what we have is we're probably managing it a little more tightly than we have. We have ample inventories. We're using our managed inventory programs and other things to help perhaps hedge against price falls. But as you know, absent some kind of a fall off the table pricing event, as long as the demand and supply remain relatively consistent with where they are right now, we're very comfortable over the next sixty, ninety days. But the one caveat with that is some kind of a sudden change in the market that we don't foresee at the moment. Right. Well, if the first three weeks of April are any indication, it shouldn't be too bad. All right. Well, appreciate the color and good luck here in Q2, guys. All right. Thank you, Kirsten. Thank you. Our next question And our next question is from Jay McCanless from Wedbush. Your line is open. Hey, good afternoon guys. Thanks for taking my questions. Hey, Hi, Jay. Hey. So first question for you, Mike. If lumber prices finished the quarter where they are now, should we expect a similar percentage tailwind in terms of revenue growth? Or could you maybe give us a range if lumber prices stay around where they are now? I don't recall what Q2 lumber prices were on average. But looking back at what I would do is look at the current lumber price, look at back at Q2 lumber prices on average last year. And then I would we're not going to move exactly with the market, right? So usually, we're about maybe 40% to 50% of whatever the actual lumber prices. And that's just because of mix and then also because lumber is only 40% to 50% of the sale price of our products. So that's how I take a look at it, Jay. Okay. That's great. Very helpful. Thank you. And then I guess the second question I had and it may not really matter because of the acquisitions you've made, but could you just remind us what how long if at all you guys were shut down and felt the impact at the beginning of COVID and the length of time and how much potentially of a sales tailwind you're going to see from that this year versus last year? Yes. Think, Jay, if you kind of look at it different by segment and actually different by business unit, so and it's geographic. So I think I mentioned before that industrial probably was more of the hardest hit a year ago because some of their markets were locked down for a longer period of time. While we were deemed essential business, some of our customers were not. And some of the other markets, factory built, site built, there were certain areas where we just couldn't perform. So it's a little bit of a kaleidoscope of different opportunities that we have to improve over a year ago. And again, was essential and was quite strong. So I would say our opportunities tend to be more in some of the industrial spaces and the construction spaces when you're looking at year over year. Yes. Putting some numbers to that, Jay, in Q2 of last year, retail was up 22%. So they had a pretty good quarter. But industrial was down 27%, construction was down 16% and our international group was down 11 for the industrial construction and the international groups, there's some really easy comps there. It. That's exactly what I was after. And then the last question, I guess, terms of I know you talked, Matt, about ramping up M and A. Is the M and A talks going a little bit easier because of the high cost of lumber? I mean, I got to think some of these smaller operators just don't have the bank facilities to manage this high price of lumber. So any insight you can give me there would be appreciated. Yes. I don't know that it's necessarily easier. We're trying to be a little more selective and trying to find good quality companies with good teams both in operations and in their leadership group. So there are plenty, I think each of our business unit leaders is finding targets in their strategic runways to grow. But I do agree with your premise that there are some companies out there, given the high price of lumber, are just having a hard time playing at that level. And this ends our Q and A session for today. I will turn the call back to Matt Massocca for his final remarks. Thank you, Carmen. Thank you again for joining us today. In business as in life, it is important to celebrate the victories. And after the celebration, it's equally important to keep building for the future and working on the areas of improvement. Tonight, I'd like to toast all of the team members of UFP for their tremendous accomplishments in the first quarter. I'd also like to toast our Board of Directors for their wise counsel and our shareholders for your investment. Please celebrate the success tonight and know that the UFP team will continue our quest to set new records tomorrow morning. Have a great evening. And this concludes today's conference call. Thank you for participating and you may now disconnect.