Ufp Industries Inc (UFPI) Q2 2026 Earnings Call Transcript

Good day, and welcome to the UFP Industries Second Quarter 2026 Earnings Conference Call and Webcast. 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 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, press star 11 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.

Good morning, everyone. Thank you for joining us to discuss UFP Industries' second 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 the 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. I will now turn the call over to Will.

Good morning, everyone. Thank you for joining today's call to discuss our financial results for the second quarter of 2026. On recent calls, we've discussed signs of stabilization across much of our portfolio. That trend continued in the second quarter and is best demonstrated in our net sales increasing 2.6% from a year ago results driven by a 1% increase in organic volume and a 2% contribution from recently completed acquisitions. Mike will provide the detailed financial bridge in a moment. Our positive organic growth at the consolidated level is an important milestone, particularly in a market environment that remains challenging and difficult to forecast. To put this in perspective, this is our first quarter of positive year-over-year organic growth since the third quarter of 2022. This performance is especially encouraging because it comes at a time when many of our in markets remain flat at best and continue to feel pressured it reflects the strength of our pipeline of innovative products the benefits of our diversified portfolio and the disciplined execution of our teams across the company usp has always been committed to disciplined growth since becoming ceo one of my priorities has been to ensure we continue to outgrow our respective end markets while repositioning the business towards our long-term margin and return objectives. We remain committed to these targets and are focused on achieving them by focusing on these priorities, investing in our highest margin core businesses, including disciplined strategic M&A, building brand awareness, introducing new and innovative products while enhancing our value-added product mix and driving operational excellence across the enterprise. I am pleased with the progress we've made against these priorities during the quarter, and I'd like to highlight a few of them now. We invested $122 million to acquire Moisture Shield, Berry Pallets, and John Rock. We discussed Moisture Shield and Berry Pallets on our last call, and we are equally pleased to add John Rock to our industry-leading Pallet 1 operations. Strategically, these acquisitions fill important geographic gaps, enhance our service capabilities, and add needed capacity to support our long-term growth plans. Our M&A team remains very active, and our pipeline continues to be robust. We remain in an enviable position with ample financial flexibility given our conservative capital structure. We are pleased with the success of our recent new product introductions. We continue to believe that innovation will be a growth engine for the company and saw meaningful growth sequentially and from year-ago levels driven by contributions across all three of our segments, and we will continue to focus on innovation. We also continue to execute our cost management strategies and drive productivity improvements across the enterprise. At the same time, we are right-sizing and optimizing capacity while investing in automation, technology, and machine learning to improve operations in real time and create greater value over time. A new and immediate area of focus for our team is managing transportation costs. While we have been largely able to offset high diesel costs through fuel surcharges and selective pricing, tighter market capacity resulting from regulatory changes and stronger enforcement rapidly drove a sharp increase in transportation costs, with rates during the quarter increasing approximately 30%, excluding fuel. To put the magnitude of this increase in perspective, the increase in spot rates in the quarter was more rapid and severe than we experienced during COVID. More recently, these rates have stabilized, but at elevated levels that we expect to persist for the foreseeable future. In response, we are adjusting our pricing where appropriate and continuing to pursue operational efficiencies to mitigate the impact. Now turning to our segments. In our retail segment, ProWood sales rebounded as we expected and came in well ahead of the overall repair and remodel market as we lapsed storm-related demand and intentionally exited certain lower-margin commodity sales. Decorators continues to perform well, supported by strong customer demand for our branded decking products and recent investments in capacity. In April, we began shipping Shearstone decking products from our new Greenfield location in Buffalo, and we are seeing throughput improvement at our Selma plant. Both contributed to sales growth in the quarter. Demand for our decking products continues to exceed our current production capacity. We ended the quarter with a $30 million backlog, which we expect to reduce through the year as plant capacity optimization efforts are completed. We remain encouraged by demand from both customers and consumers. Our $30 million advertising program continues to increase customer awareness and consideration. Sample orders, website traffic, and other metrics have more than doubled since the start of the program. Importantly, we believe we remain on track to deliver $100 million of decking sales growth in 2026, excluding the MoistureShield acquisition announced earlier this year. The integration of the former moisture shield facility into decorators is progressing well, with several key operational and training milestones completed. As discussed in prior quarters, TrueFrame, our new Joyce product offered by ProWood, remains another attractive growth opportunity. Customer response has been strong, reflecting the value and time savings we provide to contractors. These results are supported by continued enhancements to the ProWood Dealer online platform, which makes a browsing, ordering, and tracking a more seamless experience. Finally, customer feedback on Eris, our new trim product featuring SureStone technology, has been very positive and was launched in mid-July. Our packaging segment continues to outperform markets despite macro uncertainties, higher input costs, and freight pressure. We are gaining traction and winning with scalable strategic customers across the industrial economy. Our national footprint, leading design and engineering capabilities, along with our strategy to grow alongside key national customers, is showing up in structural packaging's results. We continue to see strong quoting activity and are encouraged by recent contract wins. Much like prior quarters, the market and pricing environment remain competitive for our pallet business. but even here we are seeing pockets of stabilization in our protective packaging business the two recent greenfield operations in indiana and nevada are increasing production levels positioning us for market share gains and improved profitability in 2027 closing with our construction segment the macro environment in our construction segment has remained consistent for the past several quarters new residential construction remained soft and accounted for all of the profit pressure in the quarter. At the same time, we believe that each quarter we are moving closer to finding a bottom in the business as year-over-year comparisons become easier in the back half of the year, and the increase in our year-over-year backlog provides some cautious optimism. We are continuing to invest in automation and other initiatives to improve our cost position and throughput. One example of these initiatives is the frame-forward system solution selling approach in our site-built business and launched in February at the International Builder Show. It allows us to go to market with a systems-based offering that helps our customers save both time and money on the job site. We are seeing steady growth in new product sales particularly in our light gauge metal offering. Similarly, in our factory-built business we are gaining traction with our strategy to deliver more value-added content. Across both site-built and factory-built, we are raising the bar for off-site manufacturing and helping customers address labor and efficiency challenges on the job site. We also believe provisions in the recently passed 21st Century Road to Housing Act and broader efforts to improve housing lines up well with our strategy, though it will take time for any benefits to show up in our results. Our concrete forming business continues to expand its product and service offering to meet customer needs wherever concrete is poured. Our goal is to capture more of our customer spending by offering solutions that help them address labor challenges on the job site. And finally, our commercial business continues to deliver strong results as we gain market share, expand the in-markets we serve, and benefit from prior restructuring actions that improve productivity. Overall, I am pleased with how our balanced portfolio has performed in a difficult environment. While conditions remain dynamic, we are well positioned to create shareholder value as demand normalizes. And even with the headwinds we have faced, our margins remain 100 basis points higher than in 2019. As we move through the final six months of the year, we continue to remain focused on operational efficiency, disciplined growth, and targeting higher returns on invested capital as we continue to focus on our key priorities that will help us make progress towards our long-term goals. The last 12 months have brought their share of surprises, and I'm proud of the team for responding with resilience, discipline, and continuing to focus on what we can control. While the environment remains challenging, I believe the bright spots I have highlighted today are the direct result of executing against our discipline strategy, and I want to sincerely thank our talented UFP teams for their hard work and commitment. I will now turn over the call to our Chief Financial Officer, Mike Cole, and then I look forward to answering your questions.

Thank you, Will. Building on Will's comments, the quarter showed improving top-line stability, while freight pressure weighed heavily on profitability. Net sales for the second quarter were $1.88 billion, ahead of plan and up 3% from $1.84 billion last year. Performance was mixed across our business units. Strong growth in decorators, structural and productive packaging, and concrete forming and commercial was supported by share gains and stable market conditions. That growth was partially offset by volume declines in pallet one and businesses tied to new residential housing. Overall volume increased 3%, including a 2% contribution from acquisitions and 1% organic unit growth. Pricing was flat overall, as competitive pressure in SiteBuilt and Pellet 1 was offset by higher lumber prices passed through to customers. Adjusted EBITDA was $154 million, down $20 million from last year, and margin declined to 8.2% from 9.5%. The decline was driven entirely by flatbed transportation costs, which rose sharply during the quarter as carrier capacity tightened. Sequentially, spot rates began increasing in April and reached a peak in June, resulting in an average increase for the quarter of over 30%, excluding fuel. This caused our year-over-year transportation costs, net of fuel surcharges, to increase 27 million, or 1.6% of net sales. Excluding transportation, higher profits in ProWood, Decorators, Edge, Structural Packaging, Concrete Forming, and Commercial, more than offset declines in SiteBuild and Pallet 1, demonstrating the value of our balanced business model. Turning now to our segments, retail sales were $819 million, up 4% from last year, reflecting a 3% increase in pricing and a 2% contribution from acquisitions, partially offset by a 1% organic unit decline. By a business unit, Crowwood units declined 1%, and Edge declined 17% as we continued restructuring that business. These declines were substantially offset by 9% unit growth in decorators. Crowwood volumes improved sequentially as we lapped storm-related demand and the intentional loss of lower-margin commodity sales discussed last quarter. We believe the business continues to perform better than the broader market. Decorators continue to grow well above market, led by strong customer interest in our branded decking products. Decking sales increased 59%, including 37% growth in our mineral-based surestone products and 85% growth in wood plastic composite. The moisture shield acquisition contributed 51% to our wood plastic composite growth and 23% to overall composite decking growth. We also benefited from improved throughput at our Selma and Buffalo plants this quarter. Even with this increase, demand exceeded production capacity and our surestone backlog was a strong 30 million dollars at quarter end sales of railing products declined 17 as a result of the loss of a distributor at our ultra aluminum location given strong demand share gains and continued progress optimizing capacity we continue to target 100 million of combined decking in railing growth in 2026 year today growth in these products is approximately 20 million. Retail adjusted EBITDA was flat versus last year. Favorable lumber price trends, mix, productivity improvements, and the edge restructuring offset higher transportation costs. Looking ahead, our priorities remain clear. Improve ProWid profitability by expanding its distribution of decorators products, achieve throughput and cost out targets primarily in composite decking, and continue launching new, value-added products, such as Aris Trim, made with SureStone technology, and the ProWood TrueFrame Joist. Packaging sales increased 7% to $458 million, driven by 4% organic unit growth and a 4% contribution from acquisitions, partially offset by a 1% pricing decline. Demand remained consistent with recent quarters, and pricing remained competitive. Importantly, we continued to gain share with key customers across all three business units. Structural packaging volumes grew 8% on new customer wins, pallet 1 volumes increased 9% supported by recent acquisitions, and protective packaging volumes grew 15% as new greenfield locations continued progressing toward sales targets. Packaging adjusted EBITDA declined 11 million to 28 million, primarily due to higher transportation costs. Excluding transportation, higher material costs and pricing pressure in Pallet 1 and unabsorbed overhead and protective packaging greenfield operations were substantially offset by improved profitability in structural packaging. Construction sales declined 4% to $523 million, reflecting a 3% decline in selling prices and a 2% organic unit decline, partially offset by a 1% contribution from acquisitions. By business unit, SiteBoot reported a 3% organic unit decline as market conditions for new housing remained challenged. Demand was soft, pricing was competitive, and input costs remained elevated. However, our multifamily customer trends improved, contributing to a higher year-over-year backlog at quarter end. Factory-built units declined 5%, primarily due to the planned exit of certain lower-margin commodity sales. Positively, our product mix improved, and our volume trends compared favorably with industry production, which declined approximately 8%. Commercial and concrete forming continue to experience positive demand trends and generate share gains, with volume growth of 11% and 6% respectively. Construction-adjusted EBITDA declined $9 million to $36 million, driven by market and pricing pressure in site-built and higher freight costs. These headwinds were partially offset by growth and operating leverage in commercial and concrete forming. Factory-built results were flat, as lower volume was offset by a more favorable product mix. As we manage through this cycle, we remain focused on balancing cost discipline with long-term growth. We are aligning the business with current demand while continuing to invest in market share gains, product innovation brand awareness and technology driven efficiency we are pleased with our progress this quarter including a 33% increase in new product sales new products represented eight point four percent of sales compared with six and a half percent last year as we saw improvement in each segment we remain on track to achieve or exceed the remaining 25 million of our sixty million dollar cost out initiative supported by capacity consolidations completed last year. This remains an area of ongoing focus, and SG&A remains on plan for the year as we focus on maintaining the savings achieved last year. Turning to capital structure and resources, we continue to operate from a position of financial strength. At the end of June, we had nearly $600 million in cash. We also experienced a $170 million dollar seasonal increase in working capital, which we expect to convert to cash by early Q4. We ended the quarter with no borrowings outstanding under our revolver, bringing our total liquidity to approximately $1.9 billion. Our balanced business model continues to generate meaningful and consistent free cash flow. Historically, we've converted approximately 70 to 80 percent of adjusted EBITDA into free cash flow. As we've discussed on prior calls, our top capital allocation priority is to drive organic and inorganic growth that supports higher margins and stronger returns over time. Our focus areas are expanding geographically in core higher margin businesses where we have a sustainable competitive advantage, change, expanding capacity for new and value-added products, and driving operational improvements through automation, consolidation, and productivity initiatives. We will remain disciplined on valuations and focused on returns as we evaluate opportunities. We also intend to return capital to shareholders by growing dividends in line with our long-term expected free cash flow growth and repurchasing shares to offset dilution from stock-based compensation. We evaluate additional repurchases opportunistically when we believe our shares are trading below intrinsic value. Recently, we've allocated more free cash flow to share repurchases while preserving balance sheet strength to fund growth investments. With this framework in mind, our board approved a quarterly dividend of 36 cents per share, payable in September. This represents a 3% increase from the dividend paid a year ago. In April, our board approved the new $300 million share repurchase authorization. It remains effective through April 2027. Year-to-date, we have repurchased shares for $142 million at an average price of $84.95, representing roughly 3% of our current market capitalization. We expect to invest approximately $175 to $200 million in capital projects in 2026, including approximately $75 million in maintenance capital expenditures. This is $125 million below our original plan as we shifted toward acquisitions to add capacity rather than greenfield investments and paused certain projects until market conditions improve. I'll close with a few comments on our outlook. Our full-year outlook is unchanged. That said, we now expect demand for the remainder of the year to be toward the lower end of our prior guidance, which called for flat to slightly down unit expectations 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. This pressure is not unique to UFP. It reflects broad industry capacity reductions resulting from regulatory changes affecting the transportation market. Overall, we expect stabilization in certain businesses and continued market share gains across the portfolio to help offset headwinds in markets tied to new residential construction and pallet production. With that, we'll open it up for questions.

Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, press star 11 again. One moment while we compile the Q&A roster. And our first question will come from the line of Kurt Yinger with DA Davidson. Your line is open.

Hey, good morning, Kurt. Thanks, thank you, Kurt. Morning, guys. Hey, just starting off on decorators, kind of a two-parter here. First, on SureStone, how should we think about the ability to catch up on that $30 million backlog? Is that something you expect to be kind of fully through by year-end? And then secondly, on the traditional wood plastic composite side, I mean, it seems like from an organic perspective, that business is really quite strong. I'm just curious how much of that is either shelf space gains that may go back to some of the momentum on the Surestone side, additional distributors. Can you just talk through kind of what's driving the wood plastic composite strength?

Yeah. So let's start with Surestone. We talked about that backlog just to give you perspective. I think it's important as we talked about the $100 million that we expect to realize in the year, and we're right on track with where we expected those capacities to be. Anytime you introduce new capital expenditures, you're putting new equipment in play, opening a greenfield, as we talked about in Buffalo, you know that there's a timetable to getting to fully optimize. So we'll see that in the back half of the year, and we still expect that number to come to fruition. As you talk about wood plastic, yeah, it's a real bright spot as well, and a lot of that shelf space gains i think the i think the other piece you look at is if you look at the marketplace it's really you know continues to consolidate uh and we're we're the clear number three at this point so we're gaining space we're gaining share and uh you're really really happy about the positioning and and i'll tell you the brand development is really really paying dividends for us so And in terms of the gains on the wood plastic composite side, I mean, is that really broad-based, you know, knocking off a dealer here, a dealer there, or is it, you know, one, you know, major contribution on the retail side?

How would you kind of characterize that?

Combination of all. Combination of all. I mean, it's big box shelf space as well as independence. And so we really like our position, and I'm really, really proud of the work that our Prowood team is doing on the internal distribution piece. It's a lot of hard work. Developing that brand was critical for us, and again, I can't state it enough. That team, the marketing team, the work that's being done there is really helping us drive that business forward.

Okay, that's great. Mike, I was hoping you could talk a little bit about what you saw sequentially and price costs within SiteBuild. And bigger picture in construction, packaging, these segments that are more fixed price in nature, has there been a temporary pinch related to the inflation we've seen in lumber? And, you know, assuming that levels out in the second half, is that, you know, a natural tailwind in terms of, you know, a little bit of incremental profitability? Or is, you know, the competitive environment still in such a state where, you know, it might be tough to go reprice some of that business?

Yeah, there's still a lot of competitive pressure, Kurt. I would say that I don't know that I saw the pricing sequentially, Q1, Q2, change much. I think it just continued to be pressured. But what we do see is costs were elevated throughout the period, and it becomes harder to pass along the cost increases with the market conditions where they're at. And so we expect that to continue for the balance of the year. I would say that maybe adding a little more color to that, though, the transportation cost pressure that we see isn't really felt as much in the site-built side. So I guess that's one area where we haven't experienced elevated costs like we have in other areas of the business.

That makes sense. And then just lastly, structural packaging stood out as a really nice volume compare. how much of that is a little bit of improvement in the market, easier comps versus success on national account initiatives or anything else along those lines?

Yeah, you hit the nail on the head. We started talking about it a couple of years ago, made significant investments and really kind of restructured the way we went after that business to really take advantage of the national footprint, the multinational opportunities, et cetera. And I'll tell you, we're winning in that space. The national account piece, I think, was up approximately 25% in a quarter, really proving out the model that the structural changes we made back in 2019 going into 2020, we knew we'd filled out on the retail side. It took a little bit longer there, but now we're starting to realize the gains and the opportunities that come from that. So, that was the big one.

And just one follow-up on that. I mean, the national account business, as I understand it, tends to be stickier, right, in terms of qualifications and, you know, not a lot of switching in and out of vendors. Is that the right way to think about it in terms of that inflection, you know, being sustainable and probably a little bit more durable than smaller account wins, so to speak?

Yeah, I think that's a very fair way to look at it. It's less transactional. It's more contract. It takes a lot longer to get those closed. And that's part of that investment piece that we've worked the last two years, once you get in there, there's a lot more design element, multi-material type solutions, more design. There's just a lot more to it. So, yeah, it's difficult to get into. It's difficult to get out of.

Perfect. Okay. Thanks, guys. I'll turn it over.

Hey, thanks very much. Thanks, Kurt.

Thank you. Our next question will come from the line of Keaton Mamtoro with BMO Capital Markets. Your line is open.

Morning, Keaton. Hi, Keaton. morning, Will, and thanks for taking my question. Maybe starting with the freight and transportation side, can you talk to sort of how we should think about incremental inflation or cost pressures in the back half of the year related to transportation, freight challenges, and sort of how should we think about the recovery, you know, across sort of the key businesses, retail, you know, packaging, construction, where are you seeing sort of the most pressures and where do you expect the cost recovery to offset these challenges?

Yeah, so I think the best way to think about it, Keaton, the second quarter was and will be the most difficult quarter for us in the way of cost increases being realized in transportation. But what's happened is structural, and it'll carry through. So if you think about it, we've got our own equipment, we contract with carriers, but it's that overflow that you need with the seasonality of the business, especially on the flatbed side. And that being the busiest quarter, not only for us, but most building materials and other things, really kind of drove that up. So the back half of the year, you're still going to see increases. You're not going to see the level of impact that we saw in Q2. And now that we know those cost increases are sticky, and that's now structural and locked in. We're working with customers as we speak to get those passed along.

So, Mike, you want to add any additional color to that? Yeah. So, maybe attaching numbers to that, we were up 1.6%, I think, was the transportation cost increase for the quarter, net of surcharges, and pricing adjustments. We were able to get on fuel. As Will had said, we're less reliant on the spot market in the back half the year, mostly during the busiest season. So, I think I would expect the 1.6 to be gradually lower, you know, through the course of the year as one we're less reliant on the spot market, but also able to pass along, you know, those cost increases to our customers. So, you know, hopefully by the time we get to next year, that's, you know, no longer a headwind on margins.

Yeah, and if you, to go back to that, you, I think the secondary part to your question related to which business units are most affected. Really, the site-built business is least affected because of specialized equipment and things of that nature. Anything that's associated with flatbeds, our Perlwood business certainly be at the top of the list, our pallet business, structural packaging. Those businesses, a lot of flatbed demand in a very constricted market. So think about it that way.

No, that's very helpful. And then, you know, just switching gears here a little bit In terms of composite decking decorators, obviously there's been a pretty meaningful announcement here recently around changes in distribution partnerships. I know that you guys do a lot, you know, through your own pro-wood distribution centers. But I'm curious, how are you, what is your approach to this, especially as, as you said, you are now the third largest composite decking producer. What is sort of your approach and how are you all positioning decorators strategically?

Yeah, so first and foremost, a lot of attention around changes in distribution and who's partnering with who. I will tell you the first thing I would say to you is none of that was surprising to us. None of that was concerning to us. We were prepared and fully expected that. That self-distribution piece, we just can't speak enough to it. It's the insulation for us. It actually helps drive our pro wood business as well, pushing those products through. And we're really proud of the teams for the work they've done to set us up and make us an internal really good distributor. We also have really good distributor partners that we're very, very pleased to have in place, and we're continuing to build on those. So it's kind of a mix, but we're really comfortable and really happy with the position we're in.

Understood.

And this last one from my side, and I'll turn it over. As it relates to capital allocation, can you talk to sort of how is the M&A pipeline at this point, and how are you balancing M&A versus share repurchases, and sort of where are you seeing the most opportunity?

Yeah, so I'll kind of kick this off, and I'll hand it over to Mike a little bit. But what I would tell you is I'm very happy with the work that that team has done. The M&A team, I would tell you we're as aligned as we've ever been on the strategic priorities. And we are focused on growing those areas and investing in those areas without overpaying. So for me, the pipeline looks really good, especially in the areas where we believe there's opportunity for growth, long-term growth, and added value. And so, Mike, do you want to add anything from the capital allocation piece?

Yeah, just emphasizing that the M&A pipeline is in good shape, very pleased with that. I guess from a capital allocation standpoint, priorities, you know, we're always going to focus, we're going to prioritize, you know, growth investments first, M&A on top of, you know, capital investments. We'd rather go through M&A than capital investments. We'll pivot to capital investments if we don't feel like the returns are there on M&A because of pricing. But we have also been – we're going to continue to be very active with share buybacks. I think last year in Q3, we announced our intention to devote a much higher percentage of our free cash flow to share buybacks. We've delivered on that. We did a tremendous amount of activity last year. I think we've got back 7% or 8% of our market cap. We're on a pace so far this year where we've done 3% so far for the year. So we're committed to that so long as the price is at the right level where we feel like it's a really good return. And then we're preserving the balance sheet for growth. We called out the billion nine on liquidity. So we look at that as being primarily targeted for a more meaningfully sized M&A.

Perfect. Thanks, Mike. Thanks, Will, and good luck in the back half. Thanks so much.

Thank you. One moment for our next question, and that will come from the line of Ruben Garner with Benchmark. Your line is open.

Morning, Ruben. Hi, Ruben. Good morning, everyone. Let's see. Just a follow-up on the distribution question within decorators and with your addition of moisture shield. I mean, you guys went outside of your own network for the first time in the last couple of years, and then you acquired Moisture Shield that has some third-party distribution. With these pieces moving, how do you see yourself fit? Do you see third-party distribution becoming a bigger component of your overall retail strategy, or were you fully anticipating bringing Moisture Shield in-house over time?

Yeah, the Moisture Shield, you'll see that conversion under the decorator's brand and umbrella moving forward. And I think we talked about that on our last call. The value of that brand has just grown. I think what you're going to see is a very balanced approach from internal distribution and outside distribution. So, we'll have our key distributors, but I would expect that to be in the 50-50 mix, internal versus external.

Okay, great. And then in the same line of questioning, the industry had kind of pivoted to, over the last few years, railings and accessories, I guess, kind of being latched on with decking products. I know you guys just acquired the decking assets of Moisture Shield, but is there an opportunity to leverage those relationships to sell more railing? I know railing's been down the last several quarters from some, I think it was retail changes, but just can you talk about any railing opportunities that you have as a part of this?

Yeah, what I'll speak to is I really like our offerings. And on the product development side and product innovation side, I would tell you that our products match up better than most in the marketplace, if not the best. We've got work to do there. We recognize that, but the attachment rate will go up, and you'll see gains and advances in that spot. But certainly that's an area that we'll call out and we'll continue to work on. So work to do there.

Okay, and then bigger picture question here, Mike. The last six years or so has been kind of hectic. Prior to that, you guys were – we would monitor your kind of gross profit per unit growth. I think it was pretty consistently growing in, like, the 1.5 to 2x range, if I remember correctly. You know, this is just one quarter, but the idea of, you know, organic unit growth returning, how should we think about gross profit expansion relative to units on the go-forward?

Yeah, it's been a wild few years coming down from the, well, going through the peak to the half dozen years, like you called out, going up to the peak of the pandemic and now the ride down in demand. And I think, Ruben, once we've arrived to the point where demand kind of finds its level and it normalizes, my expectation is that the gross profit per unit would expand. And that we'd see gross profits in overall EBITDA grow at a greater rate than our unit sales growth. So that's our intention. I think we have strategies that align well with that, whether that's the new product growth, value-added mix improvements, operating improvements. There's any number of different strategies we can point to that are going to drive that improvement. So that's our expectation over the long term. We're going to be striving for that 12.5% EBITDA margin. We're going to need some help with the market recovery as part of that. But, yeah, that's our expectation.

Thank you, guys, and good luck. Thanks so much.

Thank you. Our next question will come from the line of Andrew Carter with Stiefel. Your line is open.

Hey, thank you. Hey, guys. Hey, first one I wanted to ask. It's interesting that you said all the kind of distribution announcements were kind of within your expectations. And I think I would argue there's probably some opportunities to partner with Boise Cascade for outside distribution. The number five player, Fibron, I guess, is losing some homes, potentially creating an opportunity for you. So I guess what I would ask is, do you have all the capacity you need to potentially jump on some opportunities there, you know, given this number three player in the industry could be an even stronger position? yeah that was a really good question and that moisture shield acquisition was key to satisfying what we believe to be a big opportunity within that space so the answer to your question is yes we've got some capex going in but yeah we feel really good about our position on the capacity side also on the sales and opportunity side fair enough second question i want to ask the pro wood minus one volume correct me if i'm wrong but you kind of considered the minus 15 last quarter as really a down five underlying for everything that's that's a pretty significant improvement i guess i guess i would argue with also pricing going higher um in you know an industry where high ticket remodel is difficult and you're of course exposed to the wood decking piece i i guess could you speak number one just remind us i don't think there's really much room for channel inventory to go to flex up or down here given how how much how much they keep. But I think you said, is this market share gains or is this potentially a sign of a bottom or improvement in kind of that high ticket kind of R&R market?

I think it's a combination of all. I mean, you recognize what overall market conditions look like. Some of that's gain. And I would tell you the attachment with what we've talked about on that internal distribution piece, I think that having that decorator's brand associated with ProWood is resonating with some of the pro dealers and giving us some opportunities to tag those things together but yeah we're we're very pleased with the results in the quarter given the the macro and i think it just again it points to the the hard work that our teams are doing in the field to grow business and really really fight and then a final question and i apologize on on the one six i wasn't sure if that was a net net or gross but could you just give us if you're willing to give us like the growth your kind of gross freight fuel headwinds for 26 what it is annualized and

how much you have it covered how much you know is left available anything to help us out as we think through this year and also kind of what next year could look like as we live in this new environment yeah i think if we go back to q1 i'll take your question as a year-to-date question i think in q1 we said that we saw um an increase in fuel right that we were unable to pass along so that that's embedded in the in the year-to-date numbers when we look at Q2 31 million was the year-over-year increase in transportation costs and so I and I called out the 27 million is the net so the difference being what we're able to recover in terms of pricing increases and fuel surcharges to cover fuel and we felt like fuel you know we said our intention was to you know cover fuel in Q2, and we feel like we largely did that. Now it's a matter of going back and having to address the other structural change in costs that's occurred in the spot market with customers, which will take some time. But year to date, I guess, to answer your question, the gross number is about $34 million increase in transportation costs, including fuel.

Thanks. I'll pass it on. Thanks so much.

Thanks, Henry. Thank you. Our next question will come from the line of Jeffrey Stevenson with Loop Capital. Your line is open.

Morning, Jeff. Morning, Jeff.

Hey, good morning. Yeah, thanks for taking my questions today. So you guys had a nice sequential improvement in retail margins due to improved pro-wood profitability and decorators' volume growth. And I was just wondering how we should think about segment margins in the back half of the year as decorators' production continues to ramp.

Yeah, I guess, you know, back half of the year, to me, you kind of have to unpack transportation and separate it from maybe the operating business, I guess I'll call it. So transportation is going to continue to remain a headwind, particularly for Prowood. Prowood is the business unit that's most highly impacted by the change in the flatbed market. So that's going to be a headwind that continues through the year and you know and gradually gets better right as the year progresses and for the reasons we talked about before with respect to the to the operating business I expect improvement so if I'm talking about retail we have you know the closure of the bonner facilities that that will that substantially that those benefits are currently in the back half the year we have a mix improvement relative to the sure stone with plastic composite the decking growth, excited about that, and continuing to optimize in capacity, so it's not just growth, it's just dialing in cost. And then Perlwood is really in a good spot. I think the only thing to maybe just put out there is something that would typically have an impact, is typically once you get through the selling season with respect to lumber prices, you know, the prices begin to soften. And so last year in Q3 and Q4, prices dropped dramatically. We don't expect that kind of a drop in lumber prices this year, but it certainly is potentially an impact in Q3 and Q4, just probably not as large of an impact as we saw last year.

I appreciate all that, Kyler. Very helpful. And I wanted to follow up on one of Kurt's questions, just on the site-built competitive environment And, you know, whether there's been any, you know, incremental competitiveness with single-family starts coming in softer than anticipated this year. And, you know, if so, you know, have you seen any change in, you know, your share position? And, you know, has this had an outsized impact on, you know, some smaller and, you know, independent and regional competitors given, you know, ongoing profitability headwinds in the space?

Yeah, the best way to describe that, Jeff, continues to be a difficult space and the most challenged business in the portfolio. I would tell you the single-family side, yeah, you detailed it really well. We have seen improvement on the multifamily side, and we've got that in the form of, you know, we've got more contracts in the bank right now than we've had in a while, and so we've cautious optimism in that place, but certainly it continues to be difficult. We expect it to remain difficult, and that's really the cloudiest business we got from an outlet perspective.

Got it. No, thanks for that, Will. And then lastly, I apologize if you discussed this. I got on a little late, but just an update on the moisture shield integration since the deal close and, you know, has there been any, you know, decisions made on the, you know, Arkansas manufacturing facility moving forward as well?

Yeah, so that integration is taking place. Investments are taking place in that facility. And it kind of goes back to one of the previous questions, which is, do we have the capacities? With what we're doing in that location and adding that business really created a lot of capacity for us to satisfy the demand in the marketplace. So we're really happy with it. You'll see that role under the Decorators brand in the future. And no, but all is well. Great. Thank you. Thank you.

Thank you. And we do have a follow-up question from Kurt Yinger with DA Davidson. Your line is open.

Welcome back.

Great. Yeah, thank you. I just wanted to talk a little bit about Decorators, kind of gross margins. um it could you maybe back up and talk about kind of the last couple quarters and how those have trended and then as we think ahead with buffalo ramping you know obviously very strong volume growth i guess do those two things offset each other or or should margins kind of naturally improve with volume yeah i i would say that if we go q1 to q2 curve because because uh buffalo was operating right but it wasn't shipping anything yet so as a green

field it was a pretty good sized drag in Q1 in Q2 it's you know it's still not at you know kind of full optimum capacity so it still has you know room for improvement but but I would say that the expectation from you know first half year to the back half the year is that we would that we would see volume you you know, related improvements. So if we're talking about absolute dollars, we're going to expect, you know, higher gross profits as a result of just the volume improvements, but also we'd expect, you know, productivity improvements as those plants reach, you know, closer to optimal capacity. So our outlook is for, you know, better margins within decorators back half the year.

That's super helpful. And then just on the capital spending side, you know, 2026, lower with some of the acquisitions and it sounds like some of the growth plans may be put on hold. I guess to the extent that you remain acquisitive with the pipeline being pretty healthy, do we kind of expect 2027 would then probably be at a similar level to 2026 or is it all dependent upon kind of market recovery and some of those deferred projects perhaps?

Yeah, certainly it depends on the market. And part of that reduction is where the market is today. But yeah, we're totally comfortable pivoting between M&A and Greenfield. Our preference is M&A if we get the opportunity at the right price, not adding additional capacities to the marketplace. So start-ups, greenfields are tough, but we're willing to go there in markets that are opportunities for us. I'll say that.

Thanks for taking the follow-up, guys.

Absolutely. Thank you.

Thank you. I'm showing no further questions in the queue at this time. I will now turn the call back over to Mr. Will Schwartz for any closing remarks.

Thank you all for joining us today. We continue to navigate a difficult market environment and tackle new challenges, including transportation cost pressure. At the same time, I'm grateful for the competitive spirit and resilience of our team and the strength of our diversified business model and strong free cash flow and conservative balance sheet. Together, these strengths allow us to invest thoughtfully and in a disciplined manner throughout the business cycle to improve our competitive position, which will become even more evident as our end markets normalize.

Thank you and have a great day. this concludes today's program thank you all for participating you may now disconnect