Universal Forest Products, Inc. Stock

Good day, and welcome to UFP Industries Third Quarter 2026 Earnings Call. [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. Thank you for joining us to discuss UFP Industries third quarter 2026 results. Joining me on our call today are Will Schwartz, our President and Chief Executive Officer; and Mike Cole, our Chief Financial Officer. Following our prepared remarks, we will open the call for questions.

Before I turn the call over, let me remind you that yesterday's press release and presentation include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from expectations. These risks and uncertainties include, but are not limited to, the factors identified in this release in our most recent annual report on Form 10-K and in our other filings with the Securities and Exchange Commission.

Today's presentation will also include certain non-GAAP measures. For a reconciliation of these non-GAAP measures to the corresponding GAAP measures, please refer to our earnings press release and our website, ufpi.com.

And now I will turn the call over to Will.

Good morning, everyone, and thank you for joining us to discuss our third quarter 2026 results. On recent calls, we've talked about signs of demand stabilizing across much of our portfolio, and that trend continued this quarter. Net sales grew 11% year-over-year and organic unit volume increased 4%. Mike will walk you through the full financial bridge in a moment.

This marks our second consecutive quarter of year-over-year volume growth, and it comes while our end markets remain challenging and uneven. Throughout this cycle, we have stayed focused on what we can control, and we've continued to invest to strengthen our core businesses. That discipline positions our diversified portfolio to deliver above-market growth and returns over the long-term. Our results this quarter reflect that strategy, including the strength of our new product pipeline and the balance of the portfolio.

Our priorities for reaching our long-term margin and return goals are unchanged: Invest in our highest margin core businesses, build brand awareness, introduce new and innovative products that improve our value-added mix, and drive operational excellence across the enterprise. We continue to make solid progress on these priorities, and I'd like to highlight a few examples.

Earlier this week, we announced our plans to acquire Apache Products, a leading wood pallet manufacturer in the strategically important Texas and Louisiana Gulf region. Like John Rock and Berry Pallets earlier this year, Apache will join our industry-leading PalletOne platform, and we are pleased to welcome their team.

This acquisition strengthens our ability to serve regional and national customers in one of the country's largest industrial and petrochemical markets. It also complements the national account strategy in our structural packaging business, where we continue to expand our footprint and capabilities to solve our customers' problems. Both are foundational to our long-term growth plans.

Even after a busy start to the year, our M&A teams remain very active and our pipeline is full. With the strength of our balance sheet, we have ample financial flexibility to pursue opportunities of any size that strengthen our core businesses, and we are doing so at a time when many of our peers are pulling back. As always, every investment must meet our long-term return requirements. Innovation remains a critical engine for growth and long-term margin improvement.

New product sales grew more than 40% year-over-year this quarter with contributions from all 3 of our segments. We also continue to execute on cost reduction and productivity. We are rightsizing and optimizing capacity while investing in automation, operational technology and machine learning to strengthen our low-cost manufacturing position. In addition, we've made targeted greenfield investments in our retail and packaging businesses. These facilities take time to ramp up. But because they were designed around automation from the start, we see a meaningful profit improvement opportunity as they mature.

Transportation costs were a new challenge across our industry in 2026, and we expect rates to remain elevated for the foreseeable future. Driver shortages and carrier capacity exiting the market under a tougher regulatory environment have pushed rates, excluding fuel, up 30% year-over-year. We've had some success offsetting higher diesel costs through fuel surcharges and selective pricing, and we are taking action on the rest.

Our transportation team is executing strategies to reduce these costs in 2027, and our sales teams are focused on recovering the impact through pricing. Mike will quantify the impact on our results, and we are confident our teams will deliver considerable improvement next year.

Now turning to our segments. In Retail, ProWood sales reflected a softer repair and remodel market and our decision to exit certain lower-margin commodity sales. Positively, we continue to see share gain opportunities, thanks to our expanded manufacturing capacity, the strength of the Deckorators brand and the breadth of our distribution capabilities, including our ProWood network.

Deckorators continues to be very well received in the marketplace. Our proprietary Surestone Technology is driving strong pull-through from both contractors and consumers. Demand for our decking products still exceeds our production capacity, but we are closing that gap with our capacity expansion at Selma and our new greenfield facility in Buffalo. This added capacity allows us to expand our distribution network more aggressively, and we look forward to announcing a new agreement with a leading 2-step distributor in the very near future. Together, our internal network and external partners give us national scale to serve the market and achieve our growth objectives.

Our $30 million advertising program featuring Surestone Technology continues to build customer awareness and consideration. Website traffic, sample orders, and event activity continue to grow at strong rates, and we are rapidly expanding our certified pro network. With a strong product portfolio in place, we will keep investing in our brand and product development to drive above market growth. We are pleased with the integration of MoistureShield, which adds important manufacturing capacity and brings its proprietary CoolDeck Technology under the Deckorators brand.

Looking ahead, you can expect us to continue introducing new and innovative products. TrueFrame, our new deck joist product offered through ProWood remains another attractive growth opportunity. It's a differentiated value-added product that leverages our existing manufacturing footprint and customer response remains strong because of the value and time savings it delivers to contractors. ProWood also continues to enhance its online platform, making browsing, ordering, tracking, and special orders a more seamless experience. Finally, customer feedback on Arris, our new premium trim product featuring Surestone Technology has been very favorable since its recent launch.

Our Packaging segment continues to outperform the broader market despite soft demand, thanks to the investments we've made to scale with large multi-location customers. With our national footprint and leading design and engineering capabilities, our structural packaging team is winning share with new and existing customers across multiple industrial verticals. Our ability to provide mixed material solutions at a national scale is a key competitive advantage.

Quoting activity remains strong, and we are encouraged by recent contract wins and the strength of our pipeline. As in prior quarters, the market and pricing environment in our pallet business remains competitive. Even so, we continue to execute our long-term strategy, investing at an opportune point in the cycle to expand our geographic footprint and build on our low-cost manufacturing position.

In Protective Packaging, our 2 recent greenfield operations in Indiana and Nevada continue to increase production, positioning us for share gains and improved profitability in 2027. We're also excited to have launched All Boxed Up, a dedicated brand for our growing corrugated business that reflects the breadth of its products and capabilities.

Closing with our Construction segment. Market conditions have been consistent for the past several quarters. Affordability continues to weigh on new residential construction. However, our multifamily backlog is higher than a year ago, which gives us reason for cautious optimism.

In Site Built, our Frame Forward System solution selling approach continues to deliver favorable results. By bundling our engineered wood and light gauge metal components under one brand, we help customers see how our systems save them both time and money on the job site. Since we introduced this approach at the IBS show earlier this year, it has continued to gain momentum and opened doors.

Similarly, in Factory Built, our strategy to deliver more value-added content is gaining traction. Our recently launched BRAWN brand continues to build awareness among OEMs and end consumers of the quality of our products. Across both Site Built and Factory Built, our off-site manufacturing solutions help customers address labor and efficiency challenges on the job site. Likewise, our Concrete Forming business continues to expand its products and service to meet customer needs wherever concrete is poured. Our goal is to capture a larger share of our customers' business with solutions that help them address labor challenges on the job site.

And finally, our commercial business continues to deliver strong results as we gain market share, expand the end markets we serve, and benefit from prior restructuring actions that improve productivity and capacity utilization.

Overall, I'm pleased with how our balanced portfolio has performed in a difficult environment. Conditions remain challenging, but we are focused on strategies that will allow us to emerge from this cycle a stronger company, well-positioned to create shareholder value as demand normalizes.

To put our progress in perspective, it's helpful to compare today's results with 2019, before our management structure changed. Today, our trailing 12-month adjusted EBITDA margin is 50 basis points higher than in 2019. Excluding freight, our margins are over 200 basis points higher. Even with the headwinds we faced, we have structurally improved our business, and we plan to continue on this path. As we finish 2026 and look ahead to 2027, we remain focused on operational efficiency, disciplined growth, and higher returns on invested capital as we advance toward our long-term goals.

With that, I'll turn the call over to our Chief Financial Officer, Mike Cole. I look forward to taking your questions afterward.

Thank you, Will, and good morning, everyone. Our third quarter results reflect improving top line stability with solid organic unit growth and continued share gains, while elevated freight costs weighed on profitability. Net sales were $1.73 billion, ahead of plan and up 11% from $1.56 billion last year. Volume increased 6% with 4% organic unit growth and a 2% contribution from acquisitions. Pricing added 5%, reflecting higher lumber prices passed through to customers and programs in place to offset other inflationary pressures.

Performance varied across our business units. Deckorators, Structural and Protective Packaging, Concrete Forming and Commercial all delivered strong growth, supported by share gains and stable market conditions. That growth was partially offset by lower volumes in ProWood and Factory Built, primarily due to soft end market demand.

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

In addition, our newly acquired and greenfield operations reported negative EBITDA of $3 million on a combined basis. Excluding these 2 factors, EBITDA across our business units increased $1 million from last year, with higher gross profit in every business except PalletOne, Site Built, and ProWood. Simply put, $19 million of higher freight and a $3 million loss from newer operations was partially offset by a $1 million improvement across the rest of the business. That resilience demonstrates the value of our balanced business model.

Turning now to our segments. Retail sales were $635 million, up 7% from last year, reflecting 6% higher pricing, a 1% contribution from acquisitions, and flat organic units. By business unit, ProWood units declined 4%, and Edge units were flat, offset by 21% unit growth in Deckorators and a 10% contribution from our MoistureShield acquisition. While lower year-over-year, ProWood volumes held steady sequentially in a seasonally softer quarter, and we believe the business continues to outperform the broader market. Deckorators continues to grow well above the market, led by strong demand for our branded decking.

Decking sales increased 69%, including 70% growth in our mineral-based Surestone products, which are up 45% year-to-date. Improved throughput at our Selma and Buffalo plants allowed us to reduce our Surestone backlog to $18 million at quarter end, down from $30 million at the end of the second quarter.

Our traditional wood plastic composite decking also grew well above the market, up 69% in the quarter, including 44% from the MoistureShield acquisition. Railing sales increased 2% in the quarter, but declined 8% year-to-date, reflecting the loss of a distributor at our Ultra Aluminum location.

For the year, we targeted $100 million of sales growth in composite decking and railing, consisting of $90 million from decking and $10 million from railing. We now expect decking growth of about $85 million, which includes a necessary $10 million inventory build at our ProWood distribution locations. The $5 million shortfall reflects the continued ramp toward throughput targets at our Buffalo plant, which began operating in April. In railing and other products, we expect to fall about $15 million short of our target, as anticipated share gains did not materialize and we lost a significant customer. In total, that puts us at roughly $80 million of growth against our $100 million goal.

Railing remains a key area of focus and opportunity in 2027, supported by the recent launch of our Align aluminum railing with DropLock technology. Retail adjusted EBITDA was $34 million, down $6 million from last year, and margin was 5.4%, compared with 6.7%. The decline was driven by $8 million of higher transportation costs, net of fuel surcharges in ProWood and Deckorators. That masked improving profitability in Deckorators as we continue to increase throughput.

In retail, our financial priorities are clear. Improve ProWood profitability by expanding its distribution of Deckorators products, achieve throughput and cost out targets primarily in composite decking, and keep growing sales of new value-added products like Arris trim and TrueFrame joists.

Packaging sales increased 18% to $466 million, driven by 9% organic unit growth and a 6% contribution from acquisitions and 3% higher pricing. Demand was consistent with recent quarters and pricing remained competitive, yet we continued to gain share with key customers in all 3 business units.

Structural Packaging volumes grew 14% on new customer wins by our strategic accounts team, which saw our national account sales increase 35% in the quarter. PalletOne volumes increased 18%, driven by recent acquisitions and 1% organic unit growth. And Protective Packaging volumes grew 5% as our new greenfield locations continue progressing towards sales targets.

Packaging adjusted EBITDA was $27 million, down $7 million primarily due to higher transportation and material costs. Integration of recent PalletOne acquisitions and unabsorbed overhead at our Protective Packaging greenfield operations were partially offset by improved profitability in Structural Packaging.

Construction sales increased 11% to $552 million, reflecting a 4% increase in units and 7% higher selling prices. By business unit, Site Built organic units grew 12%, driven primarily by company-specific initiatives, including momentum in our Frame Forward solution selling approach and growth in light gauge metal components and alternative materials. To be clear, we do not view this as a sign of a broader recovery in new residential construction, where demand remains challenged. In our traditional engineered wood components business, builder demand remains soft, pricing is competitive, and input costs remain elevated.

Factory Built units declined 10%, primarily due to our planned exit of certain lower-margin commodity sales and a 6% decline in industry production. Positively, an improved value-added sales mix enhanced margins. Commercial and concrete forming continue to benefit from positive demand trends and share gains, with volume growth of 20% and 6% respectively.

Construction adjusted EBITDA was $38 million, down $4 million, driven by pricing pressure in Site Built and higher material costs overall. These headwinds were partially offset by growth and operating leverage in commercial and concrete forming. Factory Built results were flat as a more favorable product mix offset lower volume.

Across the business, we continue to balance cost discipline with investment in long-term growth, and we are pleased with our progress this quarter, including continued growth in new products, which represented 8.7% of sales compared with 6.8% last year, led by composite decking, mixed material packaging, light gauge metal components, and concrete forming solutions. We remain on track to meet or exceed our $60 million cost-out target, supported by capacity consolidations we completed last year. We see additional savings opportunities next year as we continue to evaluate our portfolio and footprint. And SG&A remains on plan for the year as we maintain the savings achieved last year.

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

Our top capital allocation priority remains growth, both organic and from acquisitions, that supports higher margins and stronger returns over time. As Will noted, that means investing in our higher-margin core businesses, capacity for new value-added products, and automation and productivity while remaining disciplined on valuations and returns.

We also intend to return capital to shareholders by growing our dividend in line with long-term expected free cash flow growth and by repurchasing shares to offset dilution from stock-based compensation. We make additional repurchases opportunistically when we believe our shares are trading below intrinsic value. Recently, we've directed more free cash flow toward buybacks while preserving the balance sheet strength to fund our growth investments. With this framework in mind, our board approved a quarterly dividend of $0.36 per share payable in December, a 3% increase from the dividend paid a year ago.

In May, our board approved a new $300 million share repurchase authorization effective through April 30, 2027. Year-to-date we have repurchased $183 million of shares, roughly 5% of our current market capitalization, at an average price of about $84. That includes $41 million in the third quarter. We expect capital expenditures of approximately $150 million to $175 million in 2026, including approximately $75 million of maintenance CapEx. This updated outlook reflects our continued discipline around capital deployment, and we retain the flexibility to shift growth investment between greenfield projects and acquisitions based on market conditions, available opportunities, and expected returns.

I'll close with a few comments on our outlook. Our full-year outlook is unchanged. We continue to expect current macro pressures to persist through year-end, with end market demand slightly down in each segment based on our sales mix. We also expect input costs, particularly energy and transportation, to remain elevated. Freight costs have recently stabilized, but at levels well above last year, and they will continue to weigh on profitability. Overall, we expect stabilization in certain businesses and continued share gains across our portfolio to help offset headwinds in markets tied to new residential construction and pallet production.

Looking ahead to 2027, our preliminary view is that many of the challenges we faced in 2026 will continue, and visibility into the timing of an end market rebound remains limited. That said, we see clear opportunities within our control to drive near-term improvement.

These are some examples. Transportation, we estimate elevated freight costs will have a $65 million net impact on our full year 2026 results, and our teams are focused on improving that result in 2027. New operations, as our greenfield investments mature and we further integrate recent acquisitions, we expect profits in those operations to improve. Share gains, we continue to target share gains in all our business units, especially Deckorators, Structural Packaging, Factory Built, Commercial, and Concrete Forming. Innovation, we anticipate continued strong growth in new product sales. Productivity, we expect to benefit from the efforts we've made to improve productivity and capacity utilization and reduce our cost structure. And M&A, we will continue to pursue acquisitions that meet our strategic objectives and return requirements. We believe these actions position UFP well to create value as our markets recover.

With that, we'll open it up for questions.

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

Just on Deckorators first. I mean, obviously, ramping very strongly here in '26. I think a good chunk of that's probably the retail wins flowing through. As you look into next year and start lapping some of these wins, I mean, what are you seeing or hearing from kind of the dealer channel, whether it's picking up new stocking locations, better shelf space that maybe give you confidence that, that share gain story is going to continue?

Yes. Great question. I appreciate you asking, Kurt. Excitement around the brand continues. And in the very near future, we'll announce a 2-step distributor partner, which we think helps propel the brand even further and sets us up well. We're in a much better stocking position with our ProWood plants. We talked about self-distribution a lot. But I would tell you, the sell-through of the product and excitement is really, really exciting for us. And I'm not afraid to say, we're going to continue to grow at a big number going forward. We believe we'll do $50 million of additional decking sales in 2027 over the 2026 results that are certainly over market.

Okay. That's helpful. Good to have a number. Just following up on the 2-step piece. I mean, how should we think about that being incremental, right? I mean you have good coverage already through the ProWood plants. You have some existing third-party distributors. I mean is this, I guess, better penetrating certain geographies where maybe you're less exposed? Or how do you think about kind of those third-party distribution partners helping you out?

Yes. Kurt, you kind of answered the question for me. You -- really between the ProWood plant and what we will be announcing, it really does fill in the gaps in the holes. It's the nationwide, fills in all the geographies, but also the penetration level because of the right partnerships, again, drives us forward. That's why we're confident in putting that number out there for '27.

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

Yes. That would be the target for sure, Kurt. I guess kind of unpacking the business units though a little bit, the difficulties that we have in the Site Built side, the PalletOne side with elevated -- and it's not as much pricing as I would say there's been elevated material costs for the most part, and it's been hard to pass those costs through to the customers and pricing. So it's just a very competitive environment in those 2 business units.

And then I would say that for ProWood, this is a quarter where lumber prices came off quite a bit in terms of dollars. And so as you know, with a variable price and now you've got more elevated inventory costs and you're selling into a market that's falling that pressured ProWood's gross profit. So that's something that can happen from quarter-to-quarter at times. This would be a more common quarter for it to occur as you come into the seasonal downturn that normally occurs in that business. But yes, the rest of the businesses, though, are performing very well. We have mix improvements with new products. So we're very encouraged about the rest of the business, and it just really demonstrates the value of the balanced business model.

Yes. I'm going to add one quick point too. Mike's hit on it. We had kind of an unusual quarter when you talk about lumber market movement. We always talk about the natural hedge typically when the market is up or down. We have one business unit that wins while another does not, and it hits them negatively. In this quarter, it's kind of unique with the market pulling back, it has a negative impact on our ProWood business. Typically, the lower prices would positively impact our packaging business. Those products actually were moving up and were tight in supply. So it was just kind of an unusual point where you kind of get hit from both sides, but I think it's worth noting.

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

I think it's more of the same, but we're seeing a bit of a softening and more availability. So I think that was more Q3 related. It was worth noting just because that's abnormal to what happens in the market.

Yes. The low-grade material is still elevated, Kurt. So I wouldn't expect those costs to come down in Q4. So that will continue to be a challenge into the next quarter. So the softness related to the products sold within the retail space.

And that will come from the line of Reuben Garner with StoneX.

Just actually a couple of follow-ups there. Starting with the gross profit color. The dynamic between -- I understand the retail or the ProWood component. Is it just a difference in the species of lumber used between the 2 and the pricing dynamics that were going on there within the quarter that were unique? And then can you -- any way you can quantify what kind of drag those 2 factors had, so we can see what the actual kind of underlying profit -- gross profit per unit was growing without freight and without the one-time kind of unusual pricing dynamic?

Yes. Good question, Reuben. What I'll start with is it's more -- it's a specie piece, but it's more the grades. The grades that go to our retail customers and to our construction customers are more of the elevated or higher-end grades. If you think about the packaging, it's more the downfall lower-grade products. So it's more in that environment. Mike, do you want to kind of hit on the -- on that?

Yes. I guess I'll take more of a higher level view of gross profits to answer that question about Q4. Reuben, I guess the way that I'm looking at it, there's a lot of different moving parts, right, with all the different business units and product categories that we have. But to me, when I look to Q4, it's really about the transportation drag and the year-over-year increase. We've experienced about a $49 million increase year-over-year in transportation costs, net of fuel surcharges. And we called out $65 million is the number we expect it to be for the full year.

So looking forward into Q4, we expect another $16 million year-over-year increase. And to me, it's really about that when it comes to looking forward to Q4 gross profit. And we expect similar to Q3 that you're going to have areas of challenges like PalletOne and Site Built as far as the business units go with gross profit. But you're also going to have areas of success, whether it's Concrete Forming, Commercial, Structural Packaging, et cetera.

And Mike, are those just -- is it just the surcharges in certain businesses are not enough to offset the cost increases that you're seeing? Or is there a catch-up that comes later? Like how do we think about what mechanisms are used to offset the inflation you're seeing and how that may look in '27 and beyond?

Yes. I'm going to jump in there. We think there is -- this is a structural change in baseline pricing for transportation, for freight. And what began as really fuel, and that is what we chased early in the year, turned into spot market rates and the entire industry changing. Regulatory, lack of drivers, et cetera, really kind of pushed that up. And that's an area that we have not gotten after to the level I would have expected at this point. Difficult demand environment, passing along cost. We are aggressively pursuing the sell price to offset scenario going forward. So we believe that is set in. We don't see anything is going to pull that back. The work that we are doing internal to adjust how we run our business and how we operate, some of the things that happened this year, those will help to offset any additional increases that most likely the rest of the industry and others would get. Mike, you got any other color to that?

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

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

Yes. So go back to the acquisition, we talked about it. First question was, are we going to remain under the MoistureShield? Or is it going to transition to the Deckorators family of brands? And we talked about that. One of the things that came with that was some distributors we were not doing business with that were -- that MoistureShield did. We had to analyze it from a global picture, understanding Deckorators was bigger than that and making decisions as the right partners to get product to the consumers that we were after, marry that up with our ProWood distribution coverage, geographies, et cetera, we really are comfortable and like our positioning. Very shortly, you're going to hear an announcement that will kind of fill in that picture. And then I think that's the answer, Reuben. We're really comfortable with where we're at.

And that will come from the line of Ketan Mamtora with BMO Capital Markets.

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

Mike, do you want to hit that?

Yes, happy to. So higher material costs and transportation costs were more than the EBITDA reduction. Actually, the improvements operationally and with sales mix-wise within structural packaging were an offset. So it's really about elevated material costs, particularly in the pallet space that has been hard to pass along.

Understood. Okay. That's helpful. And then on the Construction side, Site Built was up 12%, and you said that this is not underlying improvement in demand. Can you just talk a little more in terms of what drove this year-over-year growth? And if it is possible to sort of differentiate between underlying demand and kind of the Frame Forward system that you guys mentioned in the release, how much is that driving?

And then just related to that, the gross profit pressure in Site Built that you're continuing to see, are you still seeing competitive sort of pricing? Has that backdrop changed at all? Is it stabilizing? Or is it still coming under pressure?

Yes. So let's start with the beginning piece. As Mike described in his opener, we do not see that as a shift in the market. Don't know if you apply that light gauge metal cladding, labor, some of those things really helped to drive that increase in the quarter. I don't think that's an underlying, like what to expect going forward, meaning more starts, more business in general. I am excited about the Frame Forward selling solution because that's taking labor and adding speed to the job site, taking labor off, and that's something that I think that is going to be necessary as we move forward. So we are excited about that. But Ketan, I don't want to -- it's a head fake if you just take that and believe that that's a change in the environment. Mike, you want to kind of hit the margin side at all?

Yes. I -- with respect to margin and gross profits, Ketan, I don't -- when we put together our bridge for, right, the change in gross profit, there's not as much of a change in pricing. So pricing wasn't a major factor in the decline in gross profit. But the elevated material and freight costs are. And so I think it's really the elevated cost and the inability to pass those along fully to the customer is the challenge.

And that will come from the line of Andrew Carter with Stifel.

So a couple of questions. I guess I'll start on the Deckorators. You lowered the number for the year down to 85 and the backlog went down. I wanted to ask, are there any cancellations that you're seeing in the backlog? And you did reference a customer loss at the call, kind of speak to the kind of impact of that? And then anything on kind of the POS trends where you are given kind of where that evolved maybe a pro forma kind of the MoistureShield plus the Deckorators portfolio at this point?

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

No, it's Ultra Aluminum is primarily a fence, aluminum fence manufacturer, but they do some railing as well.

A second number stood out was kind of the UFP organic units were down just 4% -- I'm sorry, let me get this. ProWood -- sorry, ProWood organic units were down 4%. Correct me if I'm wrong, you kind of pointed to a minus 5% underlying for the first half. I get how lumber trended through the quarter, but it is still -- the Southern Yellow Pine is still up. So can you speak to that strength that you have there? Like any quantification on the market share gains you have there in terms of kind of new opportunities within the category? I mean you're pretty well distributed. You're both the big retailers. I don't -- so I don't know if that's there. But just kind of speak to the stability of that performance in general.

Yes. Certainly, I mean, I think that's reflective of the repair and remodel market. Really no significant market share gains, market share losses. I'm really proud of the way the business is operating. I'll tell you what I would point to as a bright spot in that space is really innovation in the space. TrueFrame product continues to grow, will be an even bigger part next year in what has been a product that's been in the marketplace for a long time. We're really driving innovation across our businesses. But that, combined with also being an internal distributor of our Deckorators product is gaining some momentum as well, being able to tie those 2 products together.

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

Yes. I really appreciate that question. It's something we're working through internal. I would tell you, I look at it 2 ways. Number one, we've got to manage our cost in the short term and align ourselves to where the market is. We've been in the cycle of the next 6 months are going to be challenging, followed by the following 6 months of improvement. We've been in that cycle now for the better part of 3 to 4 years. This looks like it's a little more prolonged. We recognize that. We're going to take action. But the secondary part is we've got the opportunity to invest in a market that's beaten down when others probably will not be. So our peer group competitors might not be in that same position, really appreciative of the balanced portfolio that we have, the free cash flow generation and the balance sheet.

And so we're going to manage our costs. Yes, we're also going to be looking to invest. And you've seen that, especially in the PalletOne side, knowing that we weren't going to make those acquisitions and it'd be accretive right away. We know we're buying at the right time in the market, really building out the strategy going forward. So 2-pronged. Thanks, Andrew.

And that will come from the line of Jeff Stevenson with Loop Capital.

I wanted to start off with the Deckorators production ramp at the new manufacturing facility in Buffalo after coming online this spring. You guys reported a sequential improvement in the unshipped Surestone backlog. So should we expect that to continue to move lower as production continues to ramp at your new production facilities?

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

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

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

Okay. Great. And then lastly, you guys talked about some of the cost pressures in the Packaging segment. But overall, you saw positive organic volumes in all your key product categories and it seems like you're seeing nice share gains, especially with large customers. Have you been encouraged by the improving results this year on the top line of your Packaging segment? And do you think you're beginning to see an inflection after several challenging years in that business?

Yes. I think what you're actually seeing, and I'm absolutely proud of the work that's been done, those are long selling cycles to get to the point of closing those types of deals. It's a stickier customer, but it takes a lot of work, design, engineering, working on the front end to develop products. Those don't come to you overnight. They also don't go away from you overnight. So that's really what you're starting to see is the fruit of a lot of labor and investment over the last couple of years. So good call out, very proud of the teams and excited about what's to come.

And we do have a follow-up question from Kurt Yinger with D.A. Davidson.

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

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

Yes. I think that's a meaningful gross profit improvement driver for next year.

Okay. That's helpful. And then just lastly on kind of capital allocation. I mean, obviously, you don't have targets on capital you'll allocate to M&A or anything like that. But it feels like an active pace kind of through the first 9 months of the year, even though the deals haven't been huge. I mean, should we expect that to continue? Is the opportunity set there where you expect you're going to remain pretty active kind of over the next, call it, 6 to 12 months?

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

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

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

Good day, and welcome to the UFP Industries second quarter 2026 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. Thank you for joining us to discuss UFP Industries Second Quarter 2026 results. Joining me on our call today are William Schwartz, our President and Chief Executive Officer; and Michael 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 a reconciliation of these non-GAAP measures to the corresponding GAAP measures, please refer to our earnings press release at 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 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 end 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. UFP 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 MoistureShield, Berry Pallets and John Rock. We discussed MoistureShield and Berry Pallets on our last call, and we are equally pleased to add John Rock to our industry-leading PalletOne 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 rightsizing 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 lap storm-related demand and intentionally exited certain lower-margin commodity sales.

Deckorators continues to perform well, supported by strong customer demand for our branded decking products and recent investments in capacity.

In April, we began shipping Surestone 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 MoistureShield facility into Deckorators is progressing well with several key operational and training milestones completed.

As discussed in prior quarters, TrueFrame, our new Joist 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 Arris, 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 Systems solution selling approach in our site-built business and launched in February at the International Builders' 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.

Finally, our commercial business continues to deliver strong results as we gain market share, expand the end markets we serve and benefit from prior restructuring actions that improve productivity.

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 disciplined 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 Deckorators, Structural and Protective Packaging and concrete forming and commercial was supported by share gains and stable market conditions.

That growth was partially offset by volume declines in PalletOne 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 Site-Built and PalletOne 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, Deckorators, Edge, Structural Packaging, Concrete Forming and commercial more than offset declines in Site-Built and PalletOne, 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 business unit, ProWood units declined 1% and Edge declined 17% as we continued restructuring that business. These declines were substantially offset by 9% unit growth in Deckorators.

ProWood 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.

Deckorators 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 MoistureShield 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 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 and railing growth in 2026. Year-to-date, 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 ProWood profitability by expanding its distribution of Deckorators products, achieve throughput and cost-out targets, primarily in composite decking and continue launching new value-added products such as Arris 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 continue to gain share with key customers across all three business units.

Structural Packaging volumes grew 8% on new customer wins. PalletOne volumes increased 9%, supported by recent acquisitions and Protective Packaging volumes grew 15% as new greenfield locations continue progressing towards 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 PalletOne and unabsorbed overhead in 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, Site-Built reported a 3% organic unit decline as market conditions for new housing remain 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 continued 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 8.4% of sales compared with 6.5% last year as we saw improvement in each segment. We remain on track to achieve or exceed the remaining $25 million of our $60 million 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 $170 million 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% 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. 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 focus 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 $0.36 per share payable in September. This represents a 3% increase from the dividend paid a year ago. In April, our Board approved a 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 million 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.

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

Just starting off on Deckorators, 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?

Yes. 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. Any time 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, yes, it's a real bright spot as well. And a lot of that shelf space gains. I think the other piece you look at is if you look at the marketplace, it's really continues to consolidate, and we're the clear #3 at this point.

So we're gaining space, we're gaining share and really, really happy about the positioning. And I'll tell you, the brand development is really, really paying dividends for us.

And in terms of the gains on the wood plastic composite side, I mean, is that really broad-based knocking off a dealer here, a dealer there? Or is it one major contribution on the retail side? How would you kind of characterize that?

Combination of all. I mean it's big box shelf space and as well as independents. 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. There that team, the marketing team, the work is being done there is really helping us drive that business forward.

Mike, I was hoping you could talk a little bit about what you saw sequentially in price cost within Site-Built. 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 assuming that levels out in the second half, is that a natural tailwind in terms of a little bit of incremental profitability? Or is the competitive environment still in such a state where it might be tough to go reprice some of that business?

Yes. 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 was 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 build 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?

Yes. 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 the quarter, really proving out the model that the structural changes we made back in 2019 going into 2020, we knew we fill 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 not a lot of switching in and out of vendors. Is that the right way to think about it in terms of that inflection being sustainable and probably a little bit more durable than smaller account wins, so to speak?

Yes. 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 yes, it's difficult to get into. It's difficult to get out of.

Our next question will come from the line of Ketan Mamtora with BMO Capital Markets.

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 across sort of the key businesses, retail, packaging, construction, where are you seeing sort of the most pressures? And where do you expect the cost recovery to offset these challenges?

Yes. So I think the best way to think about it, Ketan, 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 happened is structural and it will 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, do you want to add any additional color to that?

Yes. So maybe attaching numbers to that, we were up 1.6%, I think, with 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 of the year, mostly during the busiest season. So I think I would expect the 1.6% to be gradually lower through the course of the year is one, we're less reliant on the spot market, but also able to pass along those cost increases to our customers. So hopefully, by the time we get to next year, that's no longer a headwind on margins.

Yes. And to go back to that, 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, things of that nature. Anything that's associated with flatbeds, our ProWood business certainly be at 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.

Got it. No, that's very helpful. And then 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 through your own ProWood distribution centers. But I'm curious, how are you, what is your approach to this, especially, as you said, you are now the third largest composite decking producer. What is sort of your approach and how are you positioning Deckorators strategically?

Yes. So first and foremost, a lot of attention around changes in distribution and who's partnering with who. I would 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 ProWood business as well, pushing those products through.

I'm 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. Just 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?

Yes. 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 a capital allocation?

Yes. Just emphasizing that the M&A pipeline is in good shape, very pleased with that. I guess from a capital allocation standpoint priorities, we're always going to focus -- we're going to prioritize growth investments first, M&A on top of 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. 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 bought back 7% or 8% of our market cap. We're on 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 $1.9 billion in liquidity. So we look at that as being primarily targeted for more meaningfully sized M&A.

One moment for our next question, and that will come from the line of Reuben Garner with Benchmark. Let's see.

Just a follow-up on the distribution question within Deckorators and with your addition of MoistureShield. I mean you guys went outside of your own network for the first time in the last couple of years, and then you acquired MoistureShield that had some third-party distribution. Like with these pieces moving, I mean, how do you see yourself, do you see third-party distribution becoming a bigger component of your overall retail strategy? Or were you fully anticipating bringing MoistureShield in-house over time?

Yes. The MoistureShield, you'll see that conversion under the Deckorators branded 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 question, the industry had kind of pivoted to over the last few years, railings and accessories, I guess, kind of being last on with decking products. I know you guys just acquired the decking assets of MoistureShield. But is there an opportunity to leverage those relationships to sell more railing? I know railing has 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?

Yes. 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 of 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. This is just one quarter, but the idea of organic unit growth returning, how should we think about gross profit expansion relative to units on a go forward?

Yes. It's been a wild few years with coming down from going through the peak to, I guess, 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, Reuben, once we arrive to the point where demand kind of finds its level, right, and it normalizes.

My expectation is that the gross profit per unit would expand and that we'd see gross profits and 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 yes, that's our expectation.

Our next question will come from the line of Andrew Carter with Stifel.

First one I wanted to ask, it's interesting that you said all the kind of distribution announcements were kind of within in your expectations. And I think I would argue there's probably some opportunities to partner with Boise Cascade for outside distribution. The #5 player, Fiberon, 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 given this #3 player in the industry could be an even stronger position?

Yes. That was a really good question, and that MoistureShield 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 yes, we feel really good about our position on the capacity side, also on the sales and opportunity side.

Fair enough. Second question I wanted to ask, the ProWood, minus 1% volume. Correct me if I'm wrong, but you kind of considered the minus 15% last quarter as really a down 5% underlying for everything. That's a pretty significant improvement, I guess I would argue, with also pricing going higher in an industry where high-ticket remodel is difficult and you're, of course, exposed to the wood decking piece. 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 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 Deckorators brand associated with ProWood is resonating with some of the pro dealers and giving us some opportunities to tag those things together.

But yes, we're very pleased with the results in the quarter given the macro. And I think just again, it points to 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 the one six, I wasn't sure if that was a net or gross. But could you just give us if you're willing, to give us like your kind of gross freight fuel headwinds for '26, what it is annualized? And how much you have it covered? How much is left variable? 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?

Yes. 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 an increase in fuel, right, that we were unable to pass along. So that's embedded 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 called out the $27 million is the net. So the difference being what we were able to recover in terms of pricing increases and fuel surcharges to cover fuel. And we felt like fuel, we said our intention was to 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 cost 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.

Our next question will come from the line of Jeffrey Stevenson with Loop Capital.

So you guys had a nice sequential improvement in retail margins due to improved ProWood profitability and Deckorators volume growth. And I was just wondering how we should think about segment margins in the back half of the year as Deckorators production continues to ramp.

Do you want to speak to that, Mike?

Yes. I guess 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 gradually gets better, right, as the year progresses. and for the reasons we talked about before.

With respect to the operating business, I expect improvement. So if I'm talking about retail, we have the closure of the Bonner facilities that substantially, those benefits are occurring in the back half of the year. We have a mix improvement relative to the Surestone wood plastic composite decking growth, excited about that and continue to optimize in capacity. So it's not just growth, it's dialing in cost.

Then ProWood 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, 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, Q4, just probably not as large of an impact as we saw last year. I appreciate all that color.

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

Yes. 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, yes, you detailed it really well. We have seen improvement on the multifamily side. And 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 continues to be difficult. We expect it to remain difficult, and that's really cloud business we got from an outlook perspective.

Got it. And then lastly, I apologize if you discussed this, I got on a little late. But just an update on the MoistureShield integration since the deal closed? And has there been any decisions made on the Arkansas manufacturing facility moving forward as well?

Yes. 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 capacity. 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 roll under the Deckorators brand in the future. And no, but all as well.

And we do have a follow-up question from Kurt Yinger with D.A. Davidson.

Just wanted to talk a little bit about Deckorators kind of gross margins. Could you maybe back up and talk about kind of the last couple of quarters and how those have trended? And then as we think ahead with Buffalo ramping, obviously, very strong volume growth. I guess, do those two things offset each other? Or should margins kind of naturally improve with volume?

Yes. I would say that if we go Q1 to Q2, Kurt, because Buffalo was operating, right, but it wasn't shipping anything yet. So as a greenfield, it was a pretty good sized drag in Q1. In Q2, it's still not at kind of full optimum capacity. So it still has room for improvement. But I would say that the expectation from first half of the year to the back half of the year is that we would see volume-related improvements. So if we're talking about absolute dollars, we're going to expect higher gross profits as a result of just the volume improvements, but also we'd expect the productivity improvements as those plants reach closer to optimal capacity. So our outlook is for better margins within Deckorators back half of the year.

Okay. That's super helpful. And then just on the capital spending side, 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, should 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?

Yes, certainly depends on the market. And part of that reduction is where the market is today. But yes, 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. Start-ups, greenfields are tough. But we're willing to go there in markets that are opportunities for us, I'll say that.

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.

Good day, and welcome to UFP Industries Q1 2026 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. Thank you for joining us to discuss UFP Industries' First Quarter 2026 Results. Joining me on our call are Will Schwartz, our President and Chief Executive Officer; and Mike Cole, our Chief Financial Officer. Following our prepared remarks, we will open the call for questions.

Before I turn the call over, let me remind you that yesterday's press release and presentation include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from expectations. These risks and uncertainties include, but are not limited to, the factors identified in this release and 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 a 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, and thank you for joining today's call to discuss our financial results for the First Quarter of Fiscal Year 2026. We'll start by sharing our thoughts on the quarter, what we are seeing in the marketplace and provide some thoughts on how we see the business performing for the balance of the year before opening the call for questions. Many of these same dynamics that we saw through much of 2025 continued into our first quarter. After seeing some stabilization through much of the quarter, macro headwinds and competitive pressures increased volatility as the quarter progressed.

We were also adversely affected this quarter by a longer-than-normal winter season, and so the normal seasonal uplift during the month of March failed to materialize. In addition to the impact of softer demand, our results were impacted by higher medical costs than the previous year. This abnormal activity throughout March contributed to roughly 60% of the year-over-year decline in profitability in the quarter. Business conditions have since leveled out, but given the ongoing geopolitical uncertainty and broadening inflation, particularly around higher transportation costs, we are approaching the remainder of the year with a slightly more cautious outlook.

Our Q1 results are reflective of the current operating environment. Net sales of $1.46 billion were down 8% from Q1 of 2025, representing a 7% decrease in units and a 1% decrease in price. Our adjusted EBITDA margin for the quarter was 7.6% and earnings per share for the quarter was $0.89. Despite the temporarily challenged environment, we will continue to be focused on refining and growing our core business. We will focus on controlling costs, and we plan to use this period of uncertainty to be more opportunistic and leverage our strong financial position. With approximately $2 billion in liquidity, we intend to pursue meaningful M&A, while returning our free cash flow to shareholders through opportunistic share repurchase and dividends. As we've said before, we continue to target above-market growth with an emphasis on returns, and we continue to make strategic investments that contribute to the long-term success of our business.

In the immediate term, new product sales remain consistent at 7.5% of sales on a trailing 12-month basis. We also have a sharp eye towards strengthening our core business for the long term, deploying capital for greenfield investments and M&A, introducing innovative products and structurally lowering our cost base. On the cost side, we are actively mitigating higher costs and remain on track to deliver the remaining $25 million of our $60 million cost-out program by year-end with the potential to capture incremental savings beyond our initial targets. While Mike will share additional color on the results, we were also pleased to announce two post-quarter-end acquisitions that align with our disciplined strategy to deploy capital toward high-quality strategic fits.

Before I get into the details, I'd like to start by welcoming the employees of MoistureShield and Berry Pallets into the UFP family. These companies were a strategic financial fit, but equally important, they aligned well with our future. In our Deckorators business unit, we announced the acquisition of MoistureShield decking operations from Oldcastle APG. The acquisition adds a wood/plastic composite plant in Springdale, Arkansas, which meaningfully expands our capacity, adds redundancy to our operation and enhances our ability to bring unique products to market.

Additionally, this acquisition eliminates the need to spend capital on a new greenfield as demand for our product has outpaced capacity. We anticipate that this acquisition gives us the needed footprint to double our wood/plastic composite decking manufacturing capacity by 2027. Additionally, the acquisition also brings the rights to MoistureShield's CoolDeck technology, a proprietary heat mitigating technology, which reduces heat transfer by up to 35%. We believe this would fit alongside our Deckorators decking line, including integration into our Surestone technology boards.

In our Packaging segment, we also welcome to the UFP family Berry Pallets, a new pallet manufacturer in the Upper Midwest that expands our geographic reach and strengthens the density of our pallet network. These opportunities to increase the scale and synergy of our business only create value if we integrate it well, and that's exactly why earlier this month, we announced Patrick Benton will transition from his role as President of UFP Industries Construction segment to the newly created Executive Vice President of Operations Integration position.

Patrick has spent his career running some of our most profitable plants and business units, and he knows firsthand what it takes to drive efficiency, reduce cost and accelerate the path to strong returns. In his new role, Patrick will apply that operational discipline across our growing portfolio of acquisitions, ensuring we move faster from close to contribution and that every business we bring into the UFP family performs to its full potential.

Now moving on to segment highlights, beginning with retail. Our largest business unit, ProWood, continues to make progress on lowering our cost positions and improving our manufacturing process. Some of this progress was overshadowed by the levels of inflation we saw in the quarter as well as the later-than-usual winter conditions. ProWood is an industry-leading brand, and we continue to add more value across our portfolio. A great example of this is our TrueFrame Joists product launched last month at JLC. As a reminder, this is the business unit's first proprietary product designed specifically for use in deck substructures.

The value we add on the front end eases several common pain points for contractors, saving time and money. We have expanded production into four manufacturing plants and increased our sales efforts to capitalize on the demand pull. While still relatively small, this is a compelling product line extension in our core pressure treating and decking products.

Similarly, we are pleased with the repositioning of our Edge business and prospects for profitable growth. Our new Arris Trim made with Surestone technology will begin shipping to customers late this quarter. Early demand indicators look quite favorable as contractors are gravitating to the same product features that has made our Surestone decking offering so compelling.

Turning to Deckorators. We continue to see strong momentum from last year carry over into our first quarter. Our Surestone decking sales increased 27% and our traditional wood/plastic composite decking increased by 4%, both from the same quarter a year ago. We believe both metrics remain ahead of the broader industry. We were pleased with the results of our efforts last year to enhance Deckorators brand and intend to maintain that effort in 2026.

In addition to our elevated sales volumes, our measures of consumer interest have more than doubled over the past year. These metrics include where to find a contractor, where to buy decorators and sample requests, both at big box retailers and through our website. The outperforming demand stated earlier, combined with a measurable customer feedback gives us confidence in our stated plan to double market share over the next five years. We remain excited about the progress we are making within both our Surestone and wood/plastic manufacturing facilities to increase capacity and meet growing consumer demand.

Our first truck left Buffalo in mid-April, and we continue to ramp up production at both our Surestone production locations. We look forward to being fully operational in Q2, which will help us continue to work through the sales backlog that we were not able to realize in the first quarter. Coupled with the recent MoistureShield acquisition, we are well positioned to capture growth entering 2026 and beyond. Despite near-term macro uncertainty, our confidence in the business remains strong, and we continue to expect $100 million of incremental Deckorators growth this year.

Our Packaging segment continues to make progress despite an uneven macro backdrop. We are positioning the business for longer-term success by introducing new value-add products to our customers, investing in automation and investing in new and lower-cost manufacturing. Quoting activity has remained strong, but customer takeaway remained mixed, which is reflective of the uncertainty across many end markets. The combination of higher commodity prices and a competitive market remain an overhang on profitability.

That said, we are encouraged that our margins continue to stabilize sequentially and supports our view that we are closer to the bottom of the cycle. We continue to believe that our national footprint gives us geographic expansion opportunities and our design and engineering capabilities separate us from many of our smaller, more regional competitors who lack the manufacturing scale and financial position to compete with national customers. With the improvements we made to the business, we can deliver above-market growth in a recovery.

Moving on to construction. The macro story in our Construction segment has been fairly consistent for the past several quarters, but we continue to actively reposition our portfolio. A challenging new residential construction environment continues to weigh on results, overshadowing improvements across our other businesses. Residential builders remain cautious, managing home inventories carefully ahead of the spring selling season, while consumer confidence and affordability headwinds persist. We continue to make investments in automation and other initiatives to improve our cost position and throughput.

One of these initiatives is the Frame Forward Systems brand that we launched in February at the International Builders Show. Frame Forward Systems positions our site-built business unit to move our Wood Framing business beyond commodity component sale to capture increased margin through a system selling approach and to drive greater customer loyalty. While early, Frame Forward Systems has been very well received by the construction trade as we continue to raise the bar on offsite manufacturing to address the onsite challenges in the construction industry.

Similarly, in our Factory-Built business, this business unit continues to actively add more value to our customers through partnerships, expansion of distribution capabilities and by facilitating cross-selling with other parts of our business. Our Concrete Forming business continues to expand our products and services offerings to capture more of our customers' wallets, while helping them address labor challenges on the job site.

Finally, our Commercial business continues to build on new products, new customer relationships and the benefits from prior restructuring actions to deliver improved results. Across our Construction segment, we are actively finding ways to solve our customers' problems by helping address labor, quality, production cost and reduce build time to help our customers win in the marketplace. Looking ahead, we remain committed to our long-term targets and believe the steps we are taking today will position us to achieve these results in the future.

As a reminder, we are driving towards the following goals: a 12.5% EBITDA margin; 7% to 10% unit sales growth, some of which will come from M&A and new products; ROIC in excess of 15%, which is well ahead of our cost of capital. And lastly, to achieve all of this while maintaining a conservative capital structure. While the market dynamic has changed since our last call in February, it has not dampened our enthusiasm for our business longer term. As we've said before, we have confidence in our model and our focus remains on the most attractive opportunities that enhance our core business. We're taking action to reduce costs, rightsize capacity and exit underperforming or non-core businesses, while positioning the company to deliver above-market growth and margin expansion as market conditions normalize.

With that, I'll turn it over to Mike Cole.

Thank you, Will. Net sales for the March quarter were $1.5 billion, down 8% from $1.6 billion last year. The change reflected a 7% decline in units and a 1% decline in pricing. Units declined due to continued weakness in residential construction activity, adverse weather, the exiting of select low-margin commodity sales and softer demand for new pallets. Pricing was impacted by a 6% decline in lumber and continued price pressure in our Site Built business. Adjusted EBITDA was $111 million, down $31 million year-over-year, and adjusted EBITDA margin was 7.6% compared with 8.9% in the prior year period.

The decline was driven primarily by Site Built, where gross profit decreased by nearly $19 million, along with higher health care and transportation costs across the portfolio, which increased approximately $7 million and $3 million, respectively. Despite these headwinds, our trailing 12-month return on invested capital remained above our weighted average cost of capital at nearly 11%, demonstrating continued value creation through the current phase of the cycle.

Turning to our segments. I'll begin with the Retail. Retail sales were $531 million, down 12% year-over-year, driven by a 13% decline in units, partially offset by 1% higher pricing. ProWood units declined 15%, reflecting soft demand driven by adverse weather, weaker consumer sentiment and the absence of storm-related demand. We also exited certain low-margin commodity sales starting in Q2 of 2025. Deckorators delivered 2% unit growth as decking continued to outperform the market. Overall, decking sales increased 16%, led by 27% growth in Surestone, which was supported by capacity added at our Alabama plant. And wood/plastic composite decking increased 4%. We continue to target above-market growth in our Deckorators business unit.

In April, we added wood/plastic composite manufacturing capacity in Arkansas through an acquisition. Our new Surestone plant in Buffalo just started shipping, and we continue to expand distribution across professional and retail channels, all of which is expected to support additional share gains in 2026 and beyond.

Edge volume declined 20% as we closed our Bonner facilities and narrowed the portfolio to products we expect to meet profitability targets by the end of 2026, representing the significant actions needed to restructure the business unit. Retail adjusted EBITDA was down $1 million year-over-year. Gross profit and SG&A were both essentially flat, reflecting improved mix and continued cost control, while we continue to invest in the Deckorators brand. We remain focused on improving ProWood distribution and increasing throughput and margins in Deckorators. With these initiatives and the Edge restructuring substantially complete, the Retail segment is well positioned for improved results in 2026.

Packaging sales were $394 million, down 4% year-over-year, reflecting a 2% decline in units and a 2% decline in pricing. Structural packaging volumes were flat. PalletOne units declined 7% and protective packaging units increased 5% as new greenfield locations continue to ramp up. Across the segment, we continue to gain share with key customers because of our ability to provide value-added solutions and a comprehensive product portfolio on a national scale. Packaging adjusted EBITDA was $28 million, down $7 million year-over-year. The decline reflected lower volumes and higher input costs in PalletOne, along with unabsorbed overhead as protective packaging greenfield operations continue to focus on achieving targeted volumes. We partially offset this gross profit impact with a $2 million reduction in SG&A, primarily from incentives tied to profitability.

Construction sales were $465 million, down 10% year-over-year with a 5% decline in price and a 5% decline in units. The change was driven primarily by a 14% unit decline in Site Built as housing demand remains pressured by affordability and weaker consumer sentiment and larger builders are focused on lowering inventory. We are, however, seeing improving trends among multifamily customers. Factory-Built units declined 7% as we exited certain low-margin commodity sales. While volume was lower, mix improved and supported higher profitability. And Commercial and Concrete Forming each achieved mid-teens unit growth. Construction adjusted EBITDA was $26 million, down $12 million year-over-year, driven by market weakness and competitive pricing pressure in Site Built. The other three business units improved profitability through growth and more favorable mix, partially offsetting the decline.

As we manage through this cycle, we're balancing cost discipline with continued investment on our long-term strategy. We remain focused on aligning our cost structure with current demand, while continuing to fund growth initiatives, product innovation, brand awareness and technology-enabled productivity improvements. Consolidated SG&A declined over $3 million year-over-year due to lower incentive compensation tied to profitability.

For 2026, our key cost structure targets are $25 million in cost savings from capacity consolidations, reducing cost of goods sold and keeping us on track to achieve the $60 million cost-out goal we announced last year. Core SG&A of approximately $570 million, including Deckorators advertising and excluding the following incentive-related items. Bonus expense of 17% to 18% of pre-bonus operating profit, sales incentives of about 3% of gross profit and $21 million of vesting expense for prior year stock-based incentives, and effective tax rate of 25% to 26% and total depreciation, amortization and other noncash expenses of approximately $200 million.

Turning to capital resources and capital allocation. The company continues to maintain a strong balance sheet. At the end of March, the company had $714 million in surplus cash and no borrowings under its credit agreements for a total liquidity of approximately $2 billion. Our surplus cash was approximately $200 million lower than at year-end, driven by a typical seasonal working capital build that we expect to convert to cash by early Q4. We believe our diversified business portfolio generates meaningful and consistent free cash flow to support organic growth and M&A. Last year, we converted 80% of adjusted EBITDA into free cash flow.

Our highest capital allocation priority is to invest in opportunities, organic and inorganic that grow our core businesses and increase margins and returns over time. Our focus areas are expanding geographically in core higher-margin businesses where we have sustainable competitive advantages, expanding capacity for new and value-added products and driving operational excellence through automation, consolidation and enhanced productivity.

Consistent with this framework, in April, we completed one acquisition and announced a second that we expect to close in May. On April 6, we purchased the net operating assets of MoistureShield, Inc. And on April 28, we announced our plan to acquire the net operating assets of Berry Pallets. These transactions are aligned with our capital allocation strategy to strengthen our core portfolio, expand capacity in the geographies we serve and improve margins. We also intend to return capital by growing our dividend in line with long-term free cash flow and repurchasing shares primarily to offset dilution from stock-based compensation. We will evaluate additional repurchases opportunistically when we believe our shares are trading below intrinsic value, and we'll preserve our balance sheet strength to fund growth.

With these points in mind, the Board approved a quarterly dividend of $0.36 per share, a 3% increase from a year ago. We have a $300 million share repurchase authorization in place through July 2026. Year-to-date, we've repurchased 30 million shares at an average price under $90 per share. We currently expect $250 million to $275 million of CapEx, about $50 million lower than our February target due to the MoistureShield transaction. And we continue to build our M&A pipeline around targets that fit strategically, offer higher margin and return potential and present opportunities to meaningfully scale our core businesses. As we pursue these opportunities, we'll remain disciplined on valuation.

I'll conclude with our outlook. We expect the current market environment to persist through 2026. Based on current headwinds and visibility, we believe demand for the balance of the year is trending toward the lower end of our prior guidance, which assumes flat to slightly down unit volumes across our segments based on mix. With respect to input costs, we expect continued pressure from energy and transportation. While pricing actions are underway to offset these items, the benefit is expected to take time to flow through the income statement this year. Positively, we believe market share gains, capital investments and operating improvements should help offset headwinds in markets tied to new residential construction. For example, we continue to target $100 million of growth in Deckorators, decking and railing sales.

With that, we'll open the line for questions.

[Operator Instructions]

Our first question will come from the line of Kurt Yinger with D.A. Davidson.

I just wanted to start off on ProWood. I know that you lost some lower-margin business last year, but it also sounds like kind of that slow progression into spring impacted the March period. I guess with the commentary that April has maybe leveled out a little bit, would you expect to see some better volume trends there?

Yes. I think that's fair to say, Kurt. If you look at it, there's factors and points that we referenced in some of the commentary, whether it's kind of carryover of really a very slow storm season from last year. A lot of that tail drags into 2026 into the first quarter. We didn't have that, obviously. You combine that with unusual weather patterns and then the change in business mix, some of those volumes we talked about. So yes, we -- I think if you take some of that noise out, it really matches up well to some of the guidance we've talked about for single-digit down, and I think that carries forward.

That's helpful. And then on the Deckorators side, obviously, still a very good quarter in terms of decking sales growth. Can you just talk about how that matches up maybe internally versus your plan? And then as we think about the need to hit accelerating growth to get to that $100 million target with Buffalo online, does that really help ramp things up in Q2, or is it maybe more of a back half kind of phenomenon in terms of when a lot of that starts to flow through?

Kurt, it's a combination of both. I think you're -- what you're reading into Q1 exactly aligns with the amount of production that we have. So with those CapEx improvements coming online, some are fully operational. But as described, we shipped our first truck mid-April out of Buffalo. So that's a quick ramp-up. But really, as you get to Q3, Q4, we'll be able to capitalize on a lot of backlog of orders. So our first quarter sales matched up to what we had to sell. So we were very happy. It's right on track in those CapEx advance. It's right where we expect it to be at this point.

Okay, okay. Great. And then just last one on the transportation and energy side. Without maybe putting too fine a point on it, could you just help us kind of frame maybe what type of headwind do you expect that to be relative to what you're kind of budgeting at the start of the year? And then also talk a little bit about kind of the process of passing that additional cost on. Is it something that a portion of your contracts with customers might be embedded with just a time lag or something that's more negotiated? Just help us understand that dynamic a little bit.

Yes. The -- that's a hard one. The month of March is where we really felt the impact. And certainly, when the conflict started, we didn't know how prolonged that would be at the point that we realized we were a month in that looks like this is going to have a longer-lasting effect, we started those conversations with customers. And fortunately, for us, because of the relationships we have, they understand. We're not the only ones in that game with the cost out of our control. And so those are starting to go into place or already in place in most cases and will continue as -- in the different markets that we serve. But yes, as it looks right now, it looks like that's going to continue to be a bit of a headwind, but we've got it covered in the form of covering those costs and continue to work through it with customers.

Is it fair to say then that we kind of see that headwind in Q2 and then the back half, you feel like you're pretty well set in offsetting it, barring another kind of material inflation shock, or is it maybe going to be really the latter part of the year where you think...

Yes. I think as you described it, I think it's a very fair assessment of it. Most of those are already in place at this point, those offsets, but we continue to work through things through the quarter. But by the back half of the year for certain, I wouldn't expect to be taking hit as a result of those increased fuel costs.

One moment for our next question, and that will come from the line of Jeff Stevenson with Loop Capital.

First, I was wondering if you could provide some more color on how the MoistureShield assets fit into your long-term Deckorator strategy and then the opportunity to leverage your Deckorators products at existing MoistureShield distribution partnerships that you previously were not working with?

Yes. You hit the nail on the head. There's a combination. That was certainly an opportunity that we were happy to be able to take advantage of. We needed additional capacity. We've been challenged there. We needed a secondary plant. And so we had budgeted. It was reflected in the CapEx expectation for another plant. That eliminated that need. So we got immediately a product that's really, really good, a manufacturing plant that satisfies that additional capacity need.

But I'll tell you the CoolDeck technology and being able to apply that across the Deckorators portfolio of products also is extremely exciting. And then lastly, coming with it, as you described, some other distributor partners that we think are extremely valuable and potentially, we can expand on that. So it was a win all the way around.

That's great to hear. And then at a high level, how should we think about the margin cadence over the next several quarters in your retail business, given the full load-in of your low-end some of decking products across the 1,500 retail stores and then the new Deckorators capacity coming online here in mid-April. Just any more color there would be helpful.

Yes. And let's go back to last quarter, we kind of re-pivoted on that 1,500 stores. It's a little different. So store count, where products flow in from distribution centers, et cetera, and that's why we really explained the $100 million of additional Deckorator sales that we expected to get. You'll see that continue to build throughout the year. So describing back to the last question, we've only been limited by the production that we've had. So as that additional capacity comes on, Jeff, you'll see those sales build and revenues grow. So super excited about that.

And that will come from the line of William Carter with Stifel.

What I wanted to ask is on the kind of inflation, the energy pass-through. I think just to make sure, you are saying that when it's a headwind, it's transitory like in March. Could you give us a sense of how big that transitory headwind particularly was in the first quarter? How long you live with the lag? And then if it's just we see diesel stop or whatever, then the lag goes the other way. Any other incremental color to get some clarity around that incremental headwind this year?

Yes, absolutely. I think Mike is chomping at the bit to get a word in. So I'm going to let him kind of jump in here.

Yes, it was about a $3 million headwind in March, Andrew (sic) [ William ] and it did increase in April. But the good news is that in April, as Will had indicated, that's when we started taking actions with our customers and now through freight surcharges and price increases on the products, depending on which approach the customers prefer, we're now beginning to pass that through. And so working through that process, like Will said, and I expect that's going to be completed here in pretty short order in Q2.

And I 100% apologize if you all answered this to Jeff's question because I actually cut out, but it's kind of something that we were chomping at the bit to ask about. The MoistureShield locations, basically, if you look at the kind of the dealer locations for MoistureShield and kind of Deckorators where you are today, it's highly incremental in terms of incremental distribution points. So I guess the first thing is, obviously, MoistureShield is going to go more 2-step. Is it an easy conversation to pick that up for kind of Deckorators or Surestone? Obviously, you'd also be the factory constrained that you -- kind of your kind of playbook for launching MoistureShield. And I guess, long term, what's the brand strategy here? Is it to keep MoistureShield, is it to kind -- and make it more of the brand, or just anything to help out there?

Yes. Good question. And I'm going to start with the last question, first, or the last point. So the intent is to run the MoistureShield brand for the remainder of the year and in 2027, we'll start to transition moving that under the Deckorators umbrella, starting to introduce some of those products into the mix as well as the CoolDeck technology, applying that towards the whole portfolio of products where we deem fit. Yes, we're excited, and we're working through that with those customers and partners that were part of MoistureShield that weren't part of the Deckorators customer mix, and we're working through that right now and -- but very, very excited about the opportunities that presents to us.

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

Let's see, this may be too early days, but any plans from a branding perspective? Will the MoistureShield assets ultimately become Deckorators wood/plastic composite, or is there a need or a reason to keep the separate branding longer term?

Yes. So Reuben, I think you probably cut out in the queue for asking the question. And yes, so we will transition that MoistureShield brand under the Deckorators umbrella at some point in 2027. So we'll carry it through the year, and then we'll start that transition process.

Got it. Sorry, I missed that. And then the -- a lot of moving parts the last couple of years with both demand and the supply you've been adding and now MoistureShield. Can you give us an idea of what total wood/plastic composite business you have today, what total Surestone business you have today? And then like what the capacity is today, and where it's ultimately headed in each of those so we can kind of level set it on a go-forward basis?

Yes. So I'll work off with the 2025 numbers, Reuben. I think we finished the year in total decking and railing sales of about $245 million. I think of that $245 million, there was $165 million of decking. And of the $165 million in decking, about $90 million was mineral-based in Surestone and about $75 million was wood/plastic composite. And the balance there, $80 million was railing. Now to your point about capacity, prior to this year, we had about $100 million, I think, in capacity of mineral-based in Surestone. We had about $100 million in wood/plastic composite. We've now doubled as a result of the -- or have the ability to double as a result of the MoistureShield acquisition, wood/plastic composites. So that's going to go from $100 million to $200 million. And as a result of Selma and Buffalo, we go from $100 million of capacity to adding another $250 million. So we'll be at $350 million of capacity for Surestone. And some of that will be -- most of it will be lion's share for decking, but we don't want to forget about the churn product that we're launching this year as well.

Perfect. Very helpful. And then a question about -- you mentioned -- I think you used the term price mechanisms and maybe there being a lag for offsetting some of the inflationary pressures that you've seen. What exactly are those mechanisms? Are you using surcharges for fuel and transportation and they're delayed for some reason? Just walk me through that comment.

Yes, it's a combination. And so you're exactly right. Fuel surcharges in certain situations, others want repricing, building that into the price. So each of those scenarios is different. So when we speak mechanisms, we have a lot of business that we quote each time. And so you obviously take that into account the new updated costs, and what's reflected in the market. So it's just a combination of all of those and each of the segments we serve have different pricing timelines. So Site Built is very different than Retail, an example.

And that will come from the line of Ketan Mamtora with BMO Capital Markets.

So sticking with the flavor of the day, which is Deckorators. So just help me understand a little bit on Q1. Obviously, Surestone and wood/plastic composite both grew quite nicely in Q1. Yet overall Deckorators sort of bucket was up 2%. So what are the other offsetting sort of factors there?

Yes. Railing was off 6%. I think we called that out in the release. So that was an offset. And then the other product categories that are sitting inside the Deckorators business unit are decorative aluminum fencing, deck accessories, generally post caps, balusters and then vinyl lattice is also in the category. So those are areas that were softer. And obviously, the decking sales themselves are obviously very strong.

I see. Okay. No, that's helpful. So as I think about sort of Deckorators and now with MoistureShield coming into the fold, Mike, is the right way to sort of think about as $100 million incremental sales you all talked about previously. And now we've got MoistureShield for probably 8 months of the year or something like that. So is that the way we should be thinking about Deckorators growth in '26?

Yes, that's exactly right. The $100 million that we originally talked about with the capacity coming online that goes a long way towards helping us achieve that and now the incremental increase from the MoistureShield transaction.

Got it. Okay. That's helpful. And then just switching to the construction side. In Site Built, are you seeing sort of continued price competition among players, or is that sort of largely leveling out at this point given that we've been at it for a while now?

Yes. That's the hardest part of the business for us today. Obviously, that business is very tough. And when you talk about even some of the cost inputs that we recognized in the first quarter, it's hardest to pass along. So that's reflected in margins, too, when you talk fuel increases, lumber costs going up during the quarter. And so it continues to be a very pressured market for us on the margin side.

Understood. But has the competitive dynamics changed at all since the start of this year? Obviously, at the start of this year, there was expectation that things will -- that housing activity will get better. And then with sort of the geopolitical events, it sort of feels like things have become a little softer since then, has there been any change?

Yes. I think your assessment is exactly right. From the start of the year until today, it has certainly not gotten better in the geopolitical tensions, interest rate increases, consumer sentiment, all those factors in play, it's a tough environment.

Although we did expect a tougher front half of the year. We had tougher year-over-year comparisons. Obviously, housing was pretty tough coming into the beginning of the year. We had anticipated it being tougher. But yes, exactly the recent events have made it even more so.

Okay. That's fair. And then just final one for me. On capital allocation, are you -- sort of how are you thinking about M&A opportunities? And it seems like that pipeline is growing and you are seeing more opportunities versus kind of the other tool that you all have on share repurchases. How are you stacking those two at this point, and if you were to rank order?

Yes, we are definitely more focused on growing. That's where we start. We talk about that a lot, but never losing sight of return. And I would tell you the pipeline is the best we've had in 5-plus years. I think a lot of that is intent and action. We've done a lot more prospecting. I personally have done more prospecting, allocated more time towards it for strategic opportunities that fit where we want to take the corporation. And so when you think about the liquidity, we want to put that to work, but it's got to be the right opportunities.

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

Thank you for joining us this morning. While the operating environment remains challenging and visibility limited, we're confident in the strategy we have in place and the actions underway to strengthen our business. We're staying disciplined. We're focused on what we can control, investing thoughtfully in our core businesses and managing costs, while remaining patient in how we deploy capital. I want to thank our employees for their continued execution and commitment and our customers and shareholders for their trust and support. Thank you, and have a great day.

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

Good day, and welcome to the UFP Industries Fourth Quarter and Full Year 2025 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 fourth quarter results. With me on the call are William 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 investors and news media through the Investor Relations section of our 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.

Good morning, everyone, and thank you for joining today's call to discuss our fourth quarter financial results for fiscal year 2025. We'll start by sharing our thoughts on the quarter and what we're seeing in the marketplace before providing some thoughts on where we see the business heading into 2026 and opening the call for questions. The market dynamics we saw in early 2025 continued into our fourth quarter with net sales totaling $1.33 billion, representing a 7% decline in units and a 2% decline in price. Our profitability remained pressured, although the structural improvements we've made to the business were masked by several onetime accounting items Mike will detail later in the call.

2025 proved to be a difficult operating environment with several of our key markets facing both cyclical and competitive pricing pressures. Despite generally soft end market demand, our fourth quarter sales and profits were in line with internal expectations. On a trailing 12-month basis, our margins continue to flatten, and we continue to see stabilizing trends across the majority of our businesses. Throughout the year 2025, we took disciplined steps to invest in the future success of our business while returning capital to our shareholders.

Last year, we executed on share repurchases of $443 million, representing 7% of outstanding shares. Further, we paid $82 million in dividends, and we announced a 3% dividend increase for 2026. We spent $270 million on maintenance and growth CapEx, Together with share repurchases and dividends, that's roughly $800 million of capital deployed in a disciplined and balanced fashion, and we still have $2.2 billion in balance sheet capacity. A hallmark of our balanced portfolio is our ability to generate strong and consistent free cash flow. This only enhances our position looking ahead. We plan to use our strong balance sheet to pursue meaningful M&A opportunities while continuing to return capital to shareholders through opportunistic share repurchases and dividends.

Finally, our team made progress navigating a tough environment and executing on our strategy to manage things within our control. We exited underperforming businesses, reduced excess capacity, and we are on a path to successfully achieving our $60 million cost-out program. We expect to see the savings continue to build throughout the year as we remain committed to lowering our cost structure. As a result, we are entering 2026 in a stronger position to drive improved results. As we've said before, we continue to focus on innovation across the portfolio to bring value-added and higher-margin products to market.

New product sales totaled 7.6% of total sales, and we like the trajectory and opportunities ahead of us. As we move into 2026, we are in position to build on that momentum. Last week at the International Builder Show, we showcased 5 new products and brands. We continue to build on the success of our Surestone technology introduced to the market last year. In the decking space, we are responding to market demand with a new color pallet and continue to enhance our offering with a patent-pending process designed to closely mimic the look of natural wood. We further leveraged the success of our Surestone technology with the introduction of a new trim board, which brings the outstanding qualities of Surestone into the trim space.

Additionally, our Deckorators brand continues to expand our lineup of decking and railing products. Deckorators introduced to our traditional wood plastic composite offering, a Class B rated option at a price point targeting the retail and do-it-yourself customer. We have expanded our railing portfolio, giving us product at all price points in all consumer styles. Capitalizing on our strength and knowledge in the decking space, ProWood recently introduced TrueFrame Joist, the business unit's first proprietary product designed specifically for use in deck substructures. The value we add on the front end eases several common pain points for contractors, saving time and money.

Finally, UFP Site-built launched Frame Forward Systems, which leverages our depth of experience in construction and our investment in automation to ease some of the bottlenecks common to on-site construction with an off-site system solution. I also want to note that while not featured at IBS this month, our packaging business continues to design and engineer proprietary packaging solutions that promote in-line safety and improve productivity. We are encouraged by the patent awarded to our nailgun-free crate fastener U-Loc 200 this past December, and we'll continue to build on this success. These are just a few examples of the types of actions up and down our brand portfolio to position us for success and market share gains.

M&A has always been a key part of our growth strategy, and that will not change. With $2.2 billion in liquidity and strong recurring free cash flow, we are entering the year with flexibility. Our pipeline is more active today than it has been in the past 36 months, and we have identified targets across each of our business units that can strengthen our core. At the same time, we have taken intentional steps to be more strategic in our deal evaluation. We remain focused on complementing our core business and how a potential asset meets those criteria while delivering strong future growth and margin accretion. Above all, we will remain disciplined on valuation and stay true to our return targeted approach.

Let's start with our Retail segment. Our largest business, ProWood, has performed well even in a tougher market. Results in the ProWood segment were impacted by the lack of storm activity in the quarter versus a year ago, creating an unfavorable comp. We continue to work on lowering our cost positions and improving our manufacturing processes. Turning to Deckorators. We continue to see strong demand across our portfolio of products, and we were very pleased with our early buy program for our proprietary Surestone product. Demand for our Surestone product outstripped our ability to produce for much of the year. However, recently added capacity is helping our teams work through those strong backlogs.

The Selma expansion is complete and the start-up at our Buffalo plant is progressing nicely. We expect that the additional capacity will come online by the end of the first quarter. Both the Buffalo expansion and the expansion at Selma are on track to support robust demand in our spring selling season. Increased output, combined with strong demand drove a 44% increase in Shorestone sales in the quarter and 35% increase in wood plastic composite sales. We believe both metrics are well ahead of the broader industry, and we remain optimistic about the 2026.

For 2026, as a reminder, we invested $30 million to support the brand, and we are pleased with the initial success. Our internal metrics indicate a successful return on the investment. -- unaided brand awareness, product sample requests and website traffic, just to name a few, have exceeded our expectations. Finally, we continue to expand our distribution partnerships as well as investing in internal distribution capabilities. We believe our ability to distribute internally remains a key competitive advantage for us long term. These expansion plans and investments are consistent with our plans to double our composite decking market share over the next 5 years. Moving on to our Packaging segment. The business continues to show signs of stabilizing, both in terms of sales volume and gross profit. Pricing remains competitive given the softness in certain markets. The lack of visibility caused by ongoing tariff discussions and volatile lumber pricing made 2025 a challenging market, but our team was busy working to position us for success.

Our national footprint gives us the ability to support strategic customers in multiple geographies across the country. And our design and engineering capabilities separate us from many of our smaller more regional competitors. Our business has become a trusted partner for major global brands and customers with highly specific specialty needs a like. This coupled with our scale and financial flexibility gives us the opportunity to invest in automation to lower our cost position while developing innovative and patented solutions for our customers. With the improvements we made to the business, we expect above-market growth when the market recovers.

To finish with construction, markets remained pretty consistent to our last quarter, where we reported a competitive new residential construction environment impacting results and overshadowing improvements in our other businesses. Residential builders continue to look to manage home inventories while consumer confidence and affordability remain challenged. While we don't have a national footprint, we do overlap with some of the markets that have been more pressured, particularly in the West. We continue to make investments in automation and other initiatives to improve our cost position and throughput.

As previously mentioned, our Site Built business launched frame Forward Systems, which joins our successful and durable building products and Pivot Systems brands into a single solution selling approach. We have already been able to leverage this to secure major contracts with new national customers. Our factory-built business continues to add more value to our customers by using our expertise to develop products that improve the aesthetics of manufactured housing such as the addition of our endurable drop-down debt with Decorators decking.

Our concrete forming business continues to expand our product portfolio and services offering to capture more of our customers' wallets while helping them address labor challenge on the job site. Finally, our commercial business continues to yield improved results built on new products, new customer wins and the benefits from prior [indiscernible].

Looking ahead, we remain committed to our long-term targets and believe the steps we are taking today will position us to achieve these results in the future. As a reminder, we are driving towards the following goals: a 12.5% EBITDA margin, 7% to 10% unit sales growth, some of which will come from M&A and new products. return on invested capital in excess of 15%, which is well ahead of our cost of capital; and lastly, to achieve all of this while maintaining a conservative capital structure. We are entering 2026 in a position of strength. We are excited about the changes underway as we continue to refine and strategically refocus our business.

As we've said before, our focus remains on the most attractive opportunities that enhance our core business. We are making progress even in this down cycle, and we finished the year with an EBITDA margin that is 170 basis points higher than in 2019. We will continue to bring to market value-added solutions that will strengthen our company all for the benefit of our shareholders, our customers and our communities. Thank you again for joining us today. We're proud of the progress we've made and the talented teams behind it, and we remain confident in our path forward.

With that, I'll hand the call over to our Chief Financial Officer, Mike Cole.

Thank you, Will. Net sales for our December quarter were $1.3 billion, down 9% from $1.46 billion last year. Results were driven by a 7% decline in units and a 2% decline in pricing. The decline was a continuation of the trends we've experienced in 2025, resulting from weaker demand in a more competitive market, particularly in our business exposed to new home construction. These headwinds resulted in a 10% decline in our gross profits to $217 million from $240 million last year, primarily due to our Site Built and ProWood business units. Positively, we continue to make strong progress on our $60 million cost out program in the fourth quarter, and we're pleased to achieve an $11 million reduction in our core SG&A despite a $3 million increase in advertising costs to support future growth in our decorators business unit.

The overall increase in our total SG&A was due to bonus expense. Last year, our estimate of bonus expense was overstated in the first 3 quarters of the year, and that resulted in very little expense in Q4. This resulted in a $14 million increase in bonus expense for the fourth quarter compared to the year ago period. This was also a quarter that had certain nonrecurring noncash adjustments including gains from insurance settlements and from the sale of real estate as well as losses from asset impairments and from additional deferred income tax expense. For these reasons, we think adjusted EBITDA is a good metric to assess our performance this quarter and the difference in year-end bonus adjustments is also important to consider.

Excluding bonus expense from each period, adjusted EBITDA was $124 million this year compared to $135 million last year, an 8% decline, reflecting our decline in gross profit offset by the reduction in core SG&A I mentioned earlier. Even with these headwinds and in the most challenging part of the current business cycle, our return on invested capital for the year remained resilient at 13.2% and well above our weighted average cost of capital. And our free cash flow for the year was strong at $451 million, off only 5% from 2024 and providing ample resources to complete $443 million of share repurchases this year or roughly 7% of our shares outstanding at the beginning of the year.

Moving on to our segments. Sales in our Retail segment were $444 million, a 15% decline compared to last year, consisting of a 13% decline in unit sales and a 2% decrease in prices. By business unit, we experienced a 13% unit decrease in Prowood and a 57% decrease in edge due to the restructuring and repositioning of that unit offset by a 17% increase in decorators as our market share gains are becoming more evident. Our Prowood volume last year was impacted by storm-related demand as well as softer demand generally resulting from higher interest rates and weaker consumer sentiment. Within our decorators unit, growth was driven by our wood plastic composite decking, which increased 35% in our Surestone composite decking, which increased 44%.

Our reeling sales declined 7% due to the loss of placement with a large retail customer we mentioned in previous quarters. Looking ahead, we lapped difficult comparisons in early 2026 and and believe next year's results will be more reflective of our position in the marketplace because of momentum in both our traditional wood plastic composite and our new Surestone products as we expand distribution in both the pro and retail channels.

Moving on to packaging. Sales in this segment declined 1% to $370 million, consisting of a 1% decline in units and flat pricing. Customer demand in this segment remains consistent with prior quarters, while pricing remains competitive. Importantly, we continue to gain share with key customers across all 3 business units. Structural packaging volume increased by 1%, which marked the first positive year-over-year comparison since 2021. Our Protective Packaging and Pallet One businesses experienced 2% and 4% unit declines, respectively, as market conditions remain challenging.

Turning to construction. Sales in this segment declined 10% to $440 million due to a 5% decline in selling prices and a 5% decline in units. The decline in the quarter was driven by a 17% unit decline in our site built business. Demand for housing remains challenged due to affordability and weak consumer sentiment which is amplified by many of our larger builder customers working to lower inventory. Our regional footprint and product mix both negatively impacted results as we are more heavily weighted to single-family housing and have a strong footprint in Texas and Colorado, which have seen more significant declines in demand. Positively, we saw low single-digit volume increases in each of our factory bill, commercial and concrete forming business units as an offset.

With respect to our overall profitability, our consolidated gross profits decreased by $23 million driven primarily by our site-built and Prowood business units as a result of lower volumes. These decreases were offset by modest improvements in our concrete forming, commercial and decorators business units, along with our captive insurance company. Total SG&A increased by $3 million because of bonus expense, as I previously mentioned, offset by an $11 million reduction in our core SG&A despite a $3 million increase in decorators advertising costs. As we manage through this cycle, we're focused on maintaining the right balance between cost discipline and advancing our long-term objectives. That means ensuring the company is appropriately sized relative to current demand while continuing to invest in the resources needed to drive growth, expand market share, further product innovation, strengthen brand awareness and improve operational efficiency through technology.

With these objectives in mind, we set a goal at the beginning of 2025 to achieve $60 million of cost reductions by the end of 2026 with half coming from SG&A and the other half coming from capacity consolidations that reduce our cost of goods sold. I'll give you a status update on that objective. Our annual core SG&A expense, which excludes bonus and sales incentives, decreased by $21 million for the year because of $35 million of targeted cost reductions, surpassing our $30 million target, and a $6 million gain from an insurance settlement. These reductions were partially offset by a $20 million increase in decorators advertising costs.

Looking ahead to 2026, we anticipate core SG&A of $570 million, a $20 million increase primarily because of higher compensation, health care and other benefit costs. Further, we estimate current period bonus expense will be 17% to 18% of pre-bonus operating profit. vesting expense associated with share-based bonus awards will total $21 million. and sales incentives will be approximately 3% of gross profit. We also achieved $7 million of cost reductions for capacity consolidations in 2025 and believe we will achieve an additional $25 million in 2026 surpassing that $30 million target as well.

We're very proud of the efforts of our leaders to lower our cost structure in all our businesses and support teams. When combined with the successful efforts of our sales teams to win market share, and the capacity we've added to grow our higher-margin businesses, we believe we are positioned well for better bottom line results in 2026.

Moving on to our cash flow statement. Our operating cash flow was a robust $546 million for the year. When combined with our strong balance sheet, we have ample resources to pursue our strategic growth objectives while also providing additional returns to shareholders through increasing dividends and opportunistic share repurchases. Our investing activities included $106 million in maintenance CapEx and $164 million in capital to drive future growth and profitability. Total CapEx was below our $275 million to $300 million target for the year due to longer lead times and our decision to postpone adding new capacity in markets where we see end market weakness coupled with sufficient capacity.

As a reminder, our expansionary investments are primarily focused on 3 key areas: expanding our capacity to manufacture new and value-added products geographic expansion in core higher-margin businesses and achieving operational excellence and efficiencies through automation. With regard to our capital expenditures for 2026, we currently plan to spend approximately $300 million to $325 million. Finally, our financing activities primarily consisted of returning capital to shareholders through almost $82 million in dividends and $443 million in share repurchases. The strength of our cash flow generation and balance sheet allows us to continue to invest in growing the business while also being more aggressive on share buybacks. We currently believe 2026 will return to a more normalized cadence of repurchases.

However, we will remain opportunistic. And as we displayed in 2025, we can easily allocate more free cash flow towards repurchases while preserving the balance sheet for more meaningful M&A and other growth investments.

Turning to our capital structure and resources. We continue to have a strong balance sheet. At the end of December, we had $914 million in surplus cash and no borrowings outstanding under our lending agreements, bringing our total liquidity to $2.2 billion. Our balanced business model generates meaningful and consistent free cash flow, which totaled $451 million in 2025 and was substantially used to return cash to shareholders. As we've discussed in the past, our highest priority for capital allocation is to drive organic and inorganic growth that results in higher margins and returns for the enterprise. Our strategy also includes growing our dividends in line with our long-term anticipated free cash flow growth and repurchasing our stock to offset dilution from share-based compensation plans.

As we've demonstrated, we'll opportunistically buy back more stock when we believe it's trading at a discounted value. With these points in mind, our Board approved a quarterly dividend of $0.36 a share to be paid in March. This is a 1% increase from our October dividend and represents a 3% increase from the dividend paid a year ago. Last July, our Board of Directors approved a $300 million share repurchase authorization effective through the end of July 2026. We were very active in the quarter and for the year, repurchasing $443 million of our shares at an average price just over $98 per share.

Finally, we continue to pursue a growing pipeline of M&A opportunities that are a strong strategic fit with our core business that adds higher margin and growth potential to our current portfolio of businesses. As we pursue these opportunities, we will remain disciplined on valuation to ensure we earn appropriate returns on our investments.

I'll finish with comments about our outlook. We expect that many of the trends we saw in 2025 will continue in 2026, resulting in full year organic volumes being flat to down low single digits for the year. Nevertheless, we are cautiously optimistic for 2026 and anticipate market share gains and our cost-out initiatives will offset the headwinds in our business is tied to new residential construction. We have confidence in our business model, and we continue to focus on things within our control. We believe we've taken the right actions to reduce costs, eliminate excess capacity and exit underperforming or noncore businesses while positioning the company to deliver above-market growth and margin expansion as market conditions normalize.

With that, we'll open it up for questions.

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

I wanted to start off on decorators, sort of a 2-parter. First, can you just provide us an update in terms of where you're at with the Summit store rollout? And maybe how much of that benefit you still have ahead recognizing 2025 wasn't kind of a full year by any stretch. And then second, on the cost side, you talked about Selma, the new lines being implemented. You've got the new facility in Buffalo. What kind of opportunities are there on kind of the margin front as you grow into that new capacity this year?

Yes. So let's start with the first question and revolving around, and I know that's top of mind for a lot of folks is where are we in we continue to gain share and increasing that store count as the capacity comes online. I think it's actually, when you start to think about whether it's on shelf or whether it's in the distribution centers that support those stores, I think it's more important to really kind of pivot that or think about it, Kurt, I think it would be better for you. we expect $100 million of increase in decorator sales in 2026. So if you think about that, the increase of $100 million heavily weighted towards decking, I think, is a better representation. And that's because of wins in both retailers as well as the independent channel. So I think that's probably a better number for you because it gets a little cloudy when you're trying to figure distribution center on shelf, et cetera.

So -- as you pivot to the second question that you had, we still have tons of opportunity when you talk about margin growth. And we're not going to get to the point of giving you margin, we don't share margins. But we're bringing things in-house that we're outsourcing production capacities are threefold with the new equipment. And so we've still got a lot of gains to make there, and I think that will be represented as we go forward.

Got it. And that $100 million, you said a lot of that was decking, I mean that's off, what, like $190 million kind of decking base this year. Is that kind of in the ballpark?

Yes. I think decking this year was about $165 million with mineral-based composite second technology being a little bit more than the wood plastic composite. And then we had another $80 million in rating sales. I know that's another number you guys are usually interested in.

That's super helpful. And then on the SG&A line, are there any other kind of facility consolidation or rationalization opportunities you're considering just kind of given the tepid demand environment continues to drag on? Or how might we think about potential upside levers to that $60 million target you guys outlined for this year?

Yes. Kurt, I guess I would answer that. I was saying the heavy lift is done. we did a lot of work, but we're constantly looking at that, looking for opportunities to control capacity where we don't need it. And so that's an ongoing effort, but I think the heavy lift is -- has been done.

Yes, for my comments, you can tell that we feel like we're going to surpass the cost out got capacity consolidations this year. We accomplished the SG&A goal in '25. I mean, if there's one other area I suppose where there's some profit improvement that we're looking to mine out of this is maybe on the greenfield side. We still have some greenfields that take time to get to the level where you want them at in terms of profitability. So we do -- and then you always have a few operations that are kind of performing to expectations. So -- those are not -- those are additional kind of upside opportunities in addition to the decorators growth, which is the biggest lever.

Got it. Okay. Perfect. And lastly, just on M&A. Is there anything to kind of read into the meaningful comment in terms of maybe the size of opportunities that you're looking at today? And then secondly, what's kind of shifted in terms of the pipeline being so much fuller today than maybe the last couple of years? Is it just different businesses coming to market, maybe selling price expectations? Just trying to understand that piece. .

Yes. I think a lot of the work we're doing internal. I would tell you, one, we're building on the team both from strategy and M&A, and that's to really drive. We're doing more outreach than we've done in the past in prospecting, but that is for strategic priorities. We're laser-focused on where we want to go. And so we're doing the outreach where in the past, we probably waited for a lot of things to come to us that were for sale. We're trying to encourage that activity today.

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

Just to start, I've lost you a little bit on the decorators comments. Can you just clarify, did you say that you guys did $165 million in decking business split between Surestone and composite in 2025 and you're expecting to add $100 million to that in '26. Is that right?

Yes. Yes. I further went on to say to the was $165 a little more weighted to the mineral-based in decking. And then there's $80 million in [indiscernible] with $245 million total. And then to get to the business unit total, there's another $70 million in fence and dec accessories. So those are -- that's kind of the breakdown for '25. And then yes, the $100 million in growth in decorators is predominantly on the decking side.

Okay. And just -- so maybe the follow-up to clarification of that is like it sounds like you have a lot of visibility into that. How much kind of of the load end did you benefit from in '25 and what of that $100 million is sort of load in, in '26? And is it sort of just one specific retail? You mentioned distribution. Are there others? I know you picked up a one, I think, out in the West Coast last year. Is there more external distribution that you've had access to that you can kind of quantify where you are in that process as well? .

Yes. So Reuben, there's certainly a load-in exercise, and you'll see that in the first and second quarter, leading into the selling season. But I would tell you, it's across all the areas that we do business. And the main thing to think about is we were really limited in 2025 from a capacity standpoint. And so whether it was our internal distribution, distributors all areas, we were limited and our sales would have been better in 2025. So you're going to kind of see that materialize in 2026 with those additional capacities. And kind of as a reminder, between between Selma and Buffalo, there's $250 million of capacity between the 2 once they're both running totally.

I should mention. We don't want to lose the margin he e either. Reuben, I would say we experienced very little margin lift because the capacity wasn't fully optimized. And so really, the large -- almost all of the margin lift we see coming and then we had to sell through those inventories, right? So we see the margin lift coming in '26.

Okay. And to be clear, where are you at in terms of like how much of that new capacity? What percentage of it is up and running today? How much more work do you have to do to get it fully optimized? Is it a quarter away? Are we already there and the benefits are going to start flowing through as soon as the first quarter?

Yes. So think of the 2 plants, Selma, fully operational, everything is in place and operating. There's still optimization that happens with new equipment, et cetera. Buffalo comes online end of Q1, early Q2. So give it a quarter to really get up and ramped up. So back half of the year, you're starting to see full capacity.

Okay. Great. And then switching gears on the packaging business. It seems like another good quarter of stabilization. What about like actual green shoots or leading indicators of any kind? Do you see anything internally that would suggest we might actually -- I know your outlook kind of talked about flat to down. I guess I'm curious how conservative is that? It seems like there has been some encouraging metrics we would have historically looked at for you guys? Like is it just too early to call that we're inflecting to growth but those signs are there? Or are you not seeing the same kind of signals?

Yes, it's still early. I would point to our structural packaging group. The work that our strategic sales teams are doing with multinationals and things of that nature, really starting to make progress there. And and the near-shoring opportunities that we believe will come. So we're seeing some green shoots, but it's still early.

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

I appreciate all the color on Deckorators expectations. That's been very helpful. And -- just wondered, is it fair to assume the pace of share gains should accelerate in 2026, especially with the new capacity coming online to meet the elevated backlog you spoke of. And also, do you see additional opportunities moving forward to further expand your distribution partnerships to complement your direct business, given some of the changes we've seen with the 2 market leaders over the last year?

Yes, I think that's a very fair assessment. And yes, we're extremely excited, as you can tell that internal distribution side is big for us. And honestly, we didn't really get to capitalize on that last year. Again, going back to the capacity challenges. So yes, in the market today, there's excitement around the brand, excitement around the product. and we're trying to decide who the right partners are from a distribution perspective to really expand the brand.

Great. That's good to hear. And shifting to site built. Obviously, it's been a challenging year of deflation headwinds and do you think you could see any signs of price stabilization in the first half of the year especially if the builder spring selling season comes at least in line with the current expectations. .

Yes. Certainly, that remains probably the cloudiest and most challenged market. Mike, do you want to add any color to that?

Yes. I think thinking about the site, [indiscernible] midyear seems to be about the point where we lap the really difficult comparisons. We saw some sequential pricing challenges, I guess, going from Q3 to Q4. We know that year-over-year, the first half of the year is going to be tough comparisons. But about midyear last year, where we really saw volumes begin to drop pricing become even more challenging as the large builders, in particular, worked hard to reduce their inventory.

So -- the back half of the year, I think we've got an opportunity to maybe compare a little better, but the first half of the year is going to be tougher.

Got it. Got it. Makes sense. And then one clarification question. The $300 million to $325 million you announced in capital project investments this year. Just for clarification, will this be primarily in the retail business, just given you've announced future organic growth investments in all 3 of your primary operating segments?

Yes, that is most heavily weighted towards building out -- finishing the build-out with Deckorators and be talking about the Buffalo plan a lot, but also adding capacity in [indiscernible] the wood plastic composite.

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

Maybe to start with on the balance sheet side, clearly, it's really strong. Can you talk about a little more about the M&A pipeline and where you see the most opportunity. It sounded like that in 2026, you are skewing more to M&A versus 2025, which was more share repurchase is focused.

Yes. The pipeline is really -- it's better than it's been in the last 3 years, for sure. And some of that's intentional and because of the efforts we're putting in, where I see the best opportunities, we're going to continue to strengthen the core of our business. That's where we're going to go and remain return-focused, Ketan. That's key to everything we're looking at. And they've got to match up to the strategic priorities that we're going after. So we're talking to companies and creating outreach that drives that.

Understood. And just related to that, has your view changed at all on to cycle profitability on the packaging business. I know in the past several years, that has been a growth -- M&A growth focused area. How are you thinking about packaging in terms of just M&A opportunity?

Yes, that's certainly a highlight area for us and one that we think is extremely fragmented and a place that we can make a real difference. It's a good business for us. We understand it. And so that's definitely an area of target.

Got it. And then just switching to ProWood and just broad R&R. Can you talk through some of the trends that you are seeing? We know and we've read so much about new resi being weak. I'm curious -- on the broad repair and remodeling side, what sort of trends are you seeing?

Yes. We're -- we continue to see -- I mean, it's -- right now, it's just a soft market. Consumer confidence is challenged, affordability is challenged, but we feel strongly that our portfolio and mix of businesses allows us to capture wherever those opportunities come from Ketan.

So maybe it makes sense to kind of break down the ProWood numbers to the 13% decline the way we estimated that, that storm-related demand, which really you had that '23 and '24, I didn't have it obviously in '25. We think that was about and 8% of the unit decline. So if units were off 13% in ProWood, 8% of that, we think, was storm related, which takes you down to mid-single digits on the rest of the business. And we think that's just soft demand generally with higher interest rates and weaker sentiment. Looking forward -- we haven't lost any share or anything like that. Looking forward, we would probably look to our customers' outlook for the year there. And I think those are flat for the most part.

Got it. That's helpful. And then just last one on factory build, 2025 was a pretty healthy year. Curious what kind of trends you're seeing so far this year and your expectations for '26?

Yes. That's an area that we believe and continue to believe has the ability to tackle some of the affordability challenges in housing. And so we've committed to it. We've talked about bringing products to that market that enhance the visual appeal, bring it closer to a traditional site-built home. And I think it's a place we can really capitalize. I think there's some opportunity there, especially in an affordability challenge market.

Should also mention we did lose a little bit of share on some commodity business. So the units there could be a little challenged for that. I don't want you to be surprised by that, but there's been really good momentum on the new product side. So there could be a positive mix change with some new product momentum. Will had mentioned in the dropdown deck, the [indiscernible] drop-down deck and the branding efforts on our -- some of our other products, the [indiscernible].

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

So what I wanted to ask is, I know you don't want to give explicit guidance, but given that you have a more manageable unit decline line this year, low single digits, you talked about the cost savings coming through the $100 million of incremental decorators I'm assuming that will be margin accretive. -- or I'm sorry, expenses look normalized but correct me on that. Why wouldn't EBITDA margin stabilize this year potentially through the year? And any kind of guidance about -- will go a deeper decline first half second half? Anything you can give us there on kind of the stabilization of the margin in this business?

Yes. You can tell that we feel like with stabilization in packaging, site built is going to continue to be a challenge, but we feel like we have some offsets in the concrete forming and in the commercial side and the factory build, as I mentioned, with new products. And then on retail, there's lots of opportunities for margin improvement in retail, and that's our expectation with the -- with not only Deckorators but also with ProWood. ProWood also has with the ability to capture that, that incremental margin from the distribution but also not selling into a down market, hopefully, in the primary selling season and some other initiatives that they -- that are in place for cost out and cost of goods sold. There's a lot of things to be excited about from a margin standpoint. So the one challenge I guess I would point to is we expect site built to be a challenge, particularly in the first half of the year. But otherwise, we are optimistic about the margin profile moving forward.

I want to focus on that back on the construction gross margin in the quarter. I mean it was down 67 basis points year-over-year, significant improvement from minus [indiscernible] margins dropped actually got a little bit worse sequentially. I guess, I would say that was more stable versus my expectations. You still have the headwinds, some site built underperforming the rest of the portfolio. But is there anything to call out in that stability and would we expect any of that stability to continue in the next year? I know you just told me site build will be tough, but I just want to -- I'll stop there. .

Yes. Sequentially, it was under pressure from Q3 to Q4. But hopefully, we've hit a bottom here. We know that when it comes to the year-over-year in Q1 and Q2, it's going to be a tougher comparison, right, because we've stepped down throughout the year this year, the entire year. So hopefully, we've reached the bottom here and once we get to the point where we lap in middle of the year, that will no longer be a drag.

Just a final question around kind of Deckorators, the $30 million in advertising investment. Could you remind us among that $30 million how much is dedicated to contractors, how much is dedicated to consumers, what metrics you have to keep that investment in place? And how long do you expect to sustain that $30 million investment through '27 to '28? Will there be a big step down? Or are you going to wait for the business to just grow into that level of advertising support?

Yes. We do not expect to step that down anytime soon. I think the brand is gaining momentum, as evidenced by the sales and demand for the product. And we've got to reach that end consumer to describe and explain the attributes associated with that product, what makes it different. And so right now, we're really hitting on all fronts and attacking all markets from a marketing perspective and strategy perspective, but we've got to get to that end consumer. So they understand the value around that product. And -- but you should expect to see that continue into the future. And at some point, we'll probably become a percentage of sales type marketing spend.

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 Schwartz for any closing remarks.

Thank you all for joining us for our fourth quarter call. It's clear that we rose to the challenge and navigated a tough year, and that's because we have the right team in place. Thank you to our employees, to our customers and vendor partners who make our success possible. I'm optimistic about what 2026 will bring. Thank you, and take care.

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

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 restructuring efforts, but in some cases, divestitures. We continue to make the necessary investments to upgrade our capital base and capabilities as we've discussed with our $1 billion CapEx program. Within this framework, we have earmarked $200 million towards automation to improve throughput and lower our cost structure. We are making select greenfield investments for certain products to expand geographically or expand capacity.

In addition to what we are doing organically to drive outcomes, we remain very active on the M&A front and continue to explore transactions of various sizes. M&A has always been a key part of the UFP growth story and will be an important part of the story and a great complement to the other actions we're taking to win in the marketplace. We have completed three bolt-on acquisitions this year, all smaller in nature, but all are great fit from both a cultural and product perspective.

The first, a wood packaging manufacturer located in Mexico and allows us to strengthen our business with certain multinational customers. Two, a supplier to the manufactured Housing, RV and Cargo markets whose location is complementary to our existing footprint and allows us to execute strategies to reduce our operating costs while providing additional capacity for growth.

And lastly, a distributor to the RV market that complements our existing locations and product lines. We have taken steps to become more intentional, more strategic and focused in our deal evaluation.

Our process around M&A targeting continues to mature. Centered around this is how an asset aligns with our core business while delivering on growth, margins and return targets. While the pace has improved, we will remain patient and disciplined. And to that point, we have been able to pivot to share repurchases this year given the market conditions and market volatility and have bought back roughly $350 million or 6% of our market cap through October. As we look ahead, the opportunities for our business are positive across the board, and we are using this period of softer demand to strengthen the core of our business. We believe we have the right team in place to weather the current climate and capitalize aggressively on opportunities when the market recovers to deliver on our long-term targets.

Now turning to the individual segments. In our Retail segment, let's start with ProWood, which has performed well even in a tougher market. We continue to work on our cost positions and improving our manufacturing process. ProWood recently introduced TrueFrame, a proprietary kiln-dried factory plain joist product. The value we add on the front end helps the structure resist warping and twisting, which reduces build time and improves product quality and aesthetics. Along those lines, Surestone is another area of focus. We continue to see strong demand for our Surestone products and efforts to raise brand awareness are beginning to yield results. Consumers and contractors understand we collectively have something that they can't get anywhere else.

While we're waiting for these investments to fully scale, we're confident in its potential once capacity is in place. That includes expansion efforts in Selma and our new plant in Buffalo, New York. Both expansion efforts are progressing well and will be fully operational and realized in first quarter 2026. These expansion plans are consistent with our plans to double market share over the next 5 years.

Throughput improved every month of the quarter and into October. We remain on track to be fully stocked for the 2026 selling season as a part of our big box program as well as positioned to service our expanding relationships with 2-step distributors.

ProWood also continues to serve as an important distribution partner for our Surestone products, and we see distribution as a competitive advantage for our ProWood business. I strongly believe our ability to self-distribute product, both pressure-treated lumber and composite decking products at the same location are true differentiators versus our market peers. The leveraging of these two strong brands allows us to provide a very high level of service in order fulfillment.

To support the launch of this product, we have invested $30 million to support the brand, and we are pleased with the initial success. All of the metrics we are tracking to determine a successful return on our investment, including unaided brand awareness, product sample questions and website traffic, to name a few, have exceeded our expectations. We will continue to build on this platform to increase exposure, and we like our position looking ahead to 2026.

Moving on to our Packaging segment. It was the first to fill the impacts of a down cycle. And based on performance for the past several quarters, we feel it is among the first to begin to stabilize from a sales and margin perspective. We like the long-term trends in these businesses and the complementary nature of packaging to other parts of our portfolio. We're well positioned to aggressively grow market share across the business given our engineering and design capabilities and structural packaging, geographic expansion on our Protective Packaging business and leveraging our low-cost position in our Pallet business.

Like other parts of our portfolio, we continue to invest and drive cost out of the business. While developing new solutions to help customers reduce labor while improving safety in their packaging operations. We are working through patent process approval for our U-Loc 200 product and received an award for one of our structural packaging solutions this October.

Now wrapping up with Construction. Markets remain pretty consistent to our last quarter, while we reported a very competitive Site Built business. Builders look to manage home inventories while consumer confidence and affordability remain challenged. And while we don't have a national footprint, we do overlap with some of the markets that have been more pressured. We continue to position this business for longer-term success with investments in automation to improve our cost position and throughput. Our Factory Built business continues to outperform our end markets as we develop new products that add content and expand our addressable market. We continue to believe our Factory Built business addresses the affordability issues impacting the residential marketplace, and we believe our Site Built offerings address these challenges as well. In both cases, we are working to bring solutions to the market that can help improve build times and reduce labor content at the job site.

We also bring solutions to the nonresidential and public construction markets with our Concrete Forming business where we provide solutions that reduce job site labor. We have had great success in this fragmented marketplace and appreciate that our products are fungible across all types of concrete construction work.

Looking ahead, we remain focused on driving innovation across the portfolio and making strategic investments to create shareholder value. We believe we're in a position of strength when it comes to M&A given our $2.3 billion in liquidity. As we've said before, our focus remains on the most attractive opportunities that enhance our core business. We have identified targets across each of our business units that complement our core strengths. We continue to refine the business, and we are looking to put capital deployment strategies towards the places with the greatest opportunities for shareholder return. Our balance sheet is ready for transaction that strengthen these areas. And we have the right team in place. We'll be patient and discerning and we're prepared to act when the right opportunity matures. We continue to be committed to our long-term targets and believe the steps we're taking today will position us to achieve these results in the future.

As a reminder, we are driving towards a 12.5% EBITDA margin. to achieve 7% to 10% unit sales growth, some of which will come from M&A and new products. We will focus on driving ROIC in excess of 15%, which is well ahead of our cost of capital. and all of this while maintaining a conservative capital structure. We are making progress even in this down cycle and performing 200 basis points better than we did in 2019. That's a testament to the strength of our business model, which as previously stated, we continue to refine.

In closing, I believe in the work UFP Industries is doing for the benefit of our shareholders, our customers and our communities. We will continue to bring to market value-added solutions that strengthen all three. Thank you again for joining us today. We're proud of the progress we've made and confident in our path forward. With that, I'll hand it over to Mike Cole, our Chief Financial Officer.

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 and 9% growth in wood plastic composite decking. These gains were partially offset by a 13% decline in railing sales.

As we discussed last quarter, our reeling sales declined due to the loss of placement with a large retail customer, which, to a lesser extent, offset some of our wood plastic composite decking growth. Positively, we gained share with another major retailer through the launch of our Summit Surestone decking, positioning us for a net market share gain as we expand capacity to supply approximately 1,500 stores.

We expect to capture the full benefit of the share gain in 2026, an important step toward our goal of doubling our composite ducking and railing market share over the next 5 years. While our year-over-year gross profits in retail declined by $13 million, we consider the causes to be temporary. Falling lumber prices weighed on the profitability of our ProWood pressure-treated products.

Inefficiencies associated with implementing and running our new composite decking capacity will be overcome as the lines reach optimal efficiency shortly. And lower volumes and inefficiencies resulting from the wind-down activities at our Edge manufacturing locations will be eliminated as we move production to other plants.

Adjusted EBITDA in retail declined by $11 million because of the decline in gross profit and foreign exchange gains last year offset by a decrease in SG&A expenses despite significant investments we've made in building the Surestone brand. As we indicated last quarter, the closure of the two Edge manufacturing facilities is expected to improve adjusted EBITDA by $16 million in 2026. Looking ahead, we believe the continued improvement and resiliency of our ProWood business growth and margin potential of our Deckorators unit, restructuring of Edge and SG&A improvements position us well for stronger results ahead.

Packaging sales were $395 million, down 2% with a 3% organic unit decline, offset by 1% growth from recent acquisitions. Pricing remains stable, and we continue to gain share with key customers. Protective Packaging volumes grew 15% driven by geographic expansion. While gross profit declined by $4 million due to price competition in PalletOne, overall sequential trends in this segment are stabilizing, providing cautious optimism for 2026. Adjusted EBITDA in this segment was flat year-over-year, supported by SG&A reductions.

Construction sales were $496 million, down 7%, primarily due to volume and pricing pressure in Site Built as we protect our share. positively, volumes grew significantly in Factory Built, commercial and concrete forming, highlighting the strength of our diversified portfolio. Gross profit declined $20 million year-over-year, entirely due to Site Built but it's important to note profitability remains above 2019 levels, reflecting structural improvements. Adjusted EBITDA declined $9 million as we reduced SG&A by $10 million and align costs with current demand. In this environment, we remain focused on balancing cost discipline with long-term growth investments, expanding market share, driving innovation, strengthening our brands and improving efficiency through technology.

Consolidated SG&A declined $13 million this quarter, even though we invested significantly in advertising for Surestone driven by a $7 million decline in incentive compensation and a $12 million reduction in our core SG&A. Looking ahead, we've targeted an annual run rate of EBITDA improvements from cost and capacity reductions, of $60 million by 2026. Our plan for SG&A expenses in 2025, excluding highly variable sales and bonus incentives is $137 million for Q4 and $553 million for the year. The annual target is $11 million lower compared to 2024, and it's comprised of $31 million of anticipated cost reductions offset by a $20 million increase in Deckorators advertising costs.

Additionally, our Q4 targets are 3% of gross profit for sales incentives, 18% of pre-bonus operating profit for current year bonuses and $7 million of vesting expense associated with prior year share grants under our bonus plan. In addition to SG&A reductions, we've taken actions to reduce and consolidate capacity at locations that don't meet our profitability targets. We anticipate these actions will have a favorable impact on gross profits totaling nearly $14 million in 2025.

And as I previously mentioned, the closure of our Bonner facilities is expected to eliminate operating losses totaling $16 million in 2026. Based on the actions we've taken to date and opportunities for continued improvement, we're confident in our ability to meet or exceed our goal of $60 million in cost out by the end of 2026.

Moving on to our cash flow statement. Our operating cash flow was $399 million for the year, supported by strong working capital management. The strength of our free cash flow generation has allowed us to continue to invest in growing and improving key parts of our business. while also more aggressively pursuing share repurchases at an attractive price. For the year, our investing activities include $206 million in capital expenditures, comprising $81 million in maintenance CapEx and $124 million of expansionary CapEx. Our expansionary investments are primarily focused on capacity expansion for manufacturing new and value-added products geographic growth in our core higher-margin businesses and efficiency gains through automation. Our investing activities also include three small acquisitions.

Finally, our financing activities primarily consisted of returning capital to shareholders through almost $62 million in dividends and $291 million in share repurchases.

Turning to our capital structure and resources. We continue to have a strong balance sheet with over $1 billion in cash and total liquidity of $2.3 billion. Our capital allocation priorities remain unchanged: invest in organic and inorganic growth grow dividends in line with long-term free cash flow and repurchased our stock to offset dilution from share-based compensation plans and opportunistically buy back more stock when we believe it's trading at a discounted value.

With these points in mind, our Board approved a quarterly dividend of $0.35 a share to be paid in December, representing a 6% increase from the rate paid a year ago. Last July, our Board of Directors approved a new $300 million share repurchase authorization that's effective through the end of July 2026. We were active in the quarter and repurchased almost 840,000 shares or nearly $78 million through October under this authorization. This brings our total repurchases in 2025, to $347 million or roughly 6.5% of our market capitalization.

We currently plan to spend approximately $275 million to $300 million for CapEx for the year, slightly lower than previously anticipated due to longer lead times for launching and completing certain projects.

Finally, we continue to pursue a healthy pipeline of M&A opportunities across our portfolio. that are a strong strategic fit and provide higher margin return and growth potential. We'll remain patient and disciplined on valuation as we pursue these opportunities. Finally, our outlook remains consistent. Low single-digit unit declines across each of our segments through year-end, reflecting soft demand and pricing pressure. Cycle faces the most pronounced headwinds, while our other businesses show signs of stabilization or modest growth. We're confident that our actions, cost reductions, capacity optimization and strategic investments position us well for above-market growth and margin expansion as business conditions normalize. With that, we'll open it up for questions.

[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.