UFP Industries Inc: Form 10-Q for the period ended Jun 28, 2025

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

UFP Industries, Inc. is a holding company with subsidiaries in North America, Europe, Asia, and Australia that design, manufacture, and supply products made from wood, wood and non-wood composites, and other materials to three segments: retail, packaging, and construction. Our business segments are functionally interdependent and are supported by common corporate services, such as accounting and finance, information technology, human resources, marketing, purchasing, transportation, legal and compliance, among others. We regularly invest in automation and implement best practices to improve the efficiency of our manufacturing facilities across each of the segments. The results and improvements from these investments are shared among the segments. This exchange of ideas drives faster innovation for new products, processes, and product improvements. While the majority of our facilities serve only one business segment, many of our larger facilities serve two or more segments.

We believe that our operating structure allows us to better evaluate market conditions and opportunities and more effectively allocate capital and resources to the appropriate segments and business units. Also, we believe our diversification and manner in which we operate our business provide an inherent hedge against the business cycles our end markets experience and over which we have limited control. Accordingly, we have the ability to provide more stable earnings and cash flows to our shareholders. Our diversification and operating practices also mitigate the impact that more volatile lumber market conditions have on traditional lumber companies. We are headquartered in Grand Rapids, Mich.

This report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act, as amended, that are based on management’s beliefs, assumptions, current expectations, estimates and projections about the markets we serve, the economy and the Company itself. Words like “anticipates,” “believes,” “confident,” “estimates,” “expects,” “forecasts,” “likely,” “plans,” “projects,” “should,” variations of such words, and similar expressions identify such forward-looking statements. These statements do not guarantee future performance and involve certain risks, uncertainties and assumptions that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. We do not undertake to update forward-looking statements to reflect facts, circumstances, events, or assumptions that occur after the date the forward-looking statements are made. Actual results could differ materially from those included in such forward-looking statements. Investors are cautioned that all forward-looking statements involve risks and uncertainty. Among the factors that could cause actual results to differ materially from forward-looking statements are the following: fluctuations in currency and inflation; fluctuations in the price of lumber; adverse economic conditions in the markets we serve; changes in tariffs, import/export regulations, and other trade policies; concentration of sales to customers; the success of vertical integration strategies; excess capacity or supply chain challenges; our ability to make successful business acquisitions; government regulations, particularly involving environmental and safety regulations; adverse or unusual weather conditions; inbound and outbound transportation costs; alternatives to replace treated wood products; cybersecurity breaches; and potential pandemics. Certain of these risk factors as well as other risk factors and additional information are included in our reports on Form 10-K and 10-Q on file with the Securities and Exchange Commission.

OVERVIEW

Our results for the second quarter of 2025 include the following highlights:

• Our net sales decreased 4% compared to the second quarter of 2024, which was comprised of a 1% decrease in selling prices and a 3% decrease in unit sales. The overall decrease in our selling prices is primarily due to more competitive pricing in our Site Built, Factory Built, Structural Packaging and PalletOne business units. Organic unit sales declined due to a 7% decrease in our retail segment, partially offset by a 2% increase in our construction segment. An acquired business contributed a 2% unit increase in our packaging segment.
• Our gross profits decreased by $50 million, or 14%, compared to the same period of the prior year. By segment, gross profits decreased by $25 million in Construction, $13 million in Packaging, and $13 million in Retail. The overall decrease in our gross profits is primarily due to weaker demand impacting volumes in our Site-Built and ProWood business units, competitive pricing in our Site Built, Structural Packaging, and PalletOne business units, and cost increases in our Site Built, Deckorators, and Edge business units.
• Our operating profits decreased $36 million, or 23%, compared to the second quarter of 2024. The overall decrease is a result of the decrease in gross profits mentioned above partially offset by a decrease in selling, general, and administrative (“SG&A”) expenses. Our SG&A decreased primarily due to our initiatives to reduce our cost structure to align it with current demand and because of bonus expense and other incentive compensation tied to profitability and return on investment. These decreases were partially offset by an increase in advertising costs to build brand awareness of our Deckorators’ SureStone composite decking.
• Our cash flows from operations was $113 million in the first six months of 2025 compared to $239 million during the first six months of 2024. The $126 million decline resulted from a decrease in net earnings and non-cash expenses of $59 million and an increase in our investment in net working capital since year end that was $67 million higher in the first six months of 2025 than it was in 2024. We anticipate the increase in net working capital since year end will convert to cash by the end of the third quarter as we move past the typical seasonal peak in our net working capital, as well as approximately $40 million of cash flow benefits from the OBBBA in the third and fourth quarter.
• Our Cash and cash equivalents at the end of June 2025 was $842 million compared to $1.0 billion at the end of June 2024. Our unused borrowing capacity under our revolving credit facility and a shelf agreement with certain lenders along with our cash resulted in total liquidity of approximately $2.1 billion at the end of the second quarter of 2025.

HISTORICAL LUMBER PRICES

We experience significant fluctuations in the cost of commodity lumber products from primary producers (“Lumber Market”). The following table presents the Random Lengths framing lumber composite price:

In addition, a Southern Yellow Pine (“SYP”) composite price, which we prepare and use, is presented below. Our purchases of this species comprise almost two-thirds of our total lumber purchases.

Higher overall lumber prices in 2025 compared to 2024 is primarily due to recent production curtailments. A change in lumber prices impacts profitability of products sold with fixed and variable prices, as discussed below.

IMPACT OF THE LUMBER MARKET ON OUR OPERATING RESULTS

We generally price our products to pass lumber costs through to our customers so that our profitability is based on the value-added manufacturing, distribution, engineering, and other services we provide. As a result, our dollar sales levels (and working capital requirements) are impacted by the lumber costs of our products. Lumber costs were 42.9% and 38.9% of our sales in the first six months of 2025 and 2024, respectively.

Our gross margins are impacted by (1) the relative level of the Lumber Market (i.e. whether prices are higher or lower from comparative periods), and (2) the trend in the market price of lumber (i.e. whether the price of lumber is increasing or decreasing within a period or from period to period). Additionally, as explained below, product categories can be priced differently. Some of our products have fixed selling prices, while the selling prices of other products are indexed to the reported Lumber Market with a fixed dollar adder to cover conversion costs and profits. Consequently, the level and trend of the Lumber Market impact our products differently.

Below is a general description of the primary ways in which our products are priced.

• Products with fixed selling prices. These products include value-added products, such as manufactured items, sold within all segments. Prices for these products are generally fixed at the time of the sales quotation for a specified period of time. In order to reduce any exposure to adverse trends in the price of component lumber products, we attempt to lock in costs with our suppliers or purchase necessary inventory for these sales commitments. The time period limitation eventually allows us to periodically re-price our products for changes in lumber costs from our suppliers.
• Products with selling prices indexed to the reported Lumber Market with a fixed dollar “adder” to cover conversion costs and profit. These products primarily include treated lumber, panel goods, other commodity-type items, and trusses sold to the manufactured housing industry. For these products, we estimate customers’ needs and carry appropriate levels of inventory. Because lumber costs are incurred in advance of final sale prices, subsequent increases or decreases in the market price of lumber impact our gross margins. We believe our sales of these products are at their highest relative level in our second quarter, primarily due to pressure-treated lumber sold in our retail segment.

For each of the product pricing categories above, our margins are exposed to changes in the trend of lumber prices. As a result of the balance in our net sales to each of our end markets, we believe our gross profits are more stable than those of our competitors who are less diversified.

The greatest risk associated with changes in the trend of lumber prices is on the following products:

• Products with significant inventory levels with low turnover rates, whose selling prices are indexed to the Lumber Market. In other words, the longer the period of time these products remain in inventory, the greater the exposure to changes in the price of lumber. This includes treated lumber, which comprised approximately 22% of our total net sales in the first six months of 2025. This exposure is less significant with remanufactured lumber, panel goods, other commodity-type items, and trusses sold to the manufactured housing market due to the higher rate of inventory turnover. We attempt to mitigate the risk associated with treated lumber through managed inventory programs with our vendors. We estimate that 19% of our total purchases for the first six months of 2025 were transacted under these programs. (Please refer to the “Risk Factors” section of our annual report on form 10-K, filed with the United States Securities and Exchange Commission.)
• Products with fixed selling prices sold under long-term supply arrangements, particularly those involving multi-family construction projects. We attempt to mitigate this risk through our purchasing practices and longer vendor commitments.

In addition to the impact of Lumber Market trends on gross margins, changes in the level of the market cause fluctuations in gross margins when comparing operating results from period to period. This is explained in the following example, which assumes the price of lumber has increased from period one to period two, with no changes in the trend within each period.

As is apparent from the preceding example, the level of lumber prices does not impact our overall profits but does impact our margins. Gross margins and operating margins are negatively impacted during periods of high lumber prices; conversely, we experience margin improvement when lumber prices are relatively low.

IMPACT OF TARIFFS ON OUR OPERATING RESULTS

The proposed tariffs in Mexico and Canada continue to be paused. If they are activated, the demand for domestic lumber products is expected to increase, which will likely result in higher costs as capacity gets challenged. Although the trade landscape continues to evolve, since we do not own any foreign sawmills and have excellent relationships with our mill partners, we believe we are currently in a strong position to adapt quickly to tariffs without material adverse financial impact after a short adjustment period. We will continue to monitor the market and intend to make decisions quickly to minimize disruption. As of June 28, 2025, 84% of our lumber purchases are from domestic suppliers and 16% are imported from Canada and other international suppliers.

BUSINESS COMBINATIONS AND ASSET PURCHASES

We completed one business acquisition in fiscal 2025 and one in fiscal 2024. The annual historical sales attributable to these acquisitions are approximately $32 million. These business combinations are not significant to our quarterly results and thus proforma results for 2025 and 2024 are not presented.

See Notes to the Unaudited Interim Condensed Consolidated Financial Statements, Note F, “Business Combinations” for additional information.

RESULTS OF OPERATIONS

The following table presents, for the periods indicated, the components of our Unaudited Condensed Consolidated Statements of Earnings as a percentage of net sales.

Note: Actual percentages are calculated and may not sum to total due to rounding.

As a result of the impact of the level of lumber prices on the percentages displayed in the table above (see Impact of the Lumber Market on Our Operating Results), we believe it is useful to compare our change in units sold with our change in gross profits, selling, general, and administrative expenses, and operating profits as presented in the following table.

The following table presents, for the periods indicated, our selling, general, and administrative (SG&A) costs as a percentage of gross profit. Over time, we believe this ratio provides an enhanced view of our effectiveness in managing these costs given our strategies to enhance our capabilities and improve our value-added product offering and recognizing the higher relative level of SG&A these strategies require. This ratio also mitigates the impact of changing lumber prices. The increase in the ratio of SG&A as a percentage of gross profit from the prior year is primarily due to the impact of competitive pricing and higher material costs, which has reduced our gross profits.

Operating Results by Segment:

Our business segments consist of UFP Retail Solutions (“Retail”), UFP Packaging (“Packaging”) and UFP Construction (“Construction”), and align with the end markets we serve. Among other advantages, this structure allows for a more specialized and consistent sales approach, more efficient use of resources and capital, and quicker introduction of new products and services. We manage the operations of our individual locations primarily through a market-centered reporting structure under which each location is included in a business unit, and business units are included in our Retail, Packaging, and Construction segments. The exception to this market-centered reporting and management structure is our International segment, which comprises our packaging operations in Mexico, Canada, Spain, India, and Australia and sales and buying offices in other parts of the world. Our International segment and Ardellis (our insurance captive) are included in the “All Other” column of the table below. The “Corporate” column includes purchasing, transportation, corporate ventures, and administrative functions that serve our operating segments. Operating results of Corporate primarily consists of over (under) allocated costs. The operating results of UFP Real Estate, Inc., which owns and leases real estate, and UFP Transportation Ltd., which owns, leases, and operates transportation equipment, are also included in the Corporate column. Inter-company lease and services charges are assessed to our operating segments for the use of these assets and services at fair market value rates.

The following tables present our operating results, for the periods indicated, by segment (in thousands).

UFP INDUSTRIES, INC.

The following tables present the components of our operating results, for the periods indicated, as a percentage of net sales by segment.

Note: Actual percentages are calculated and may not sum to total due to rounding.

UFP INDUSTRIES, INC.

Note: Actual percentages are calculated and may not sum to total due to rounding.

Note: Actual percentages are calculated and may not sum to total due to rounding.

Note: Actual percentages are calculated and may not sum to total due to rounding.

NET SALES

We design, manufacture and market wood and wood-alternative products, primarily used to enhance outdoor living environments; for national home centers and other retailers; for engineered wood components, structural lumber, and other products for factory-built and site-built residential and commercial construction; customized interior fixtures used in a variety of retail stores, commercial, and other structures; and structural wood packaging, components and packing materials for various industries. Our strategic long-term sales objectives include:

• Maximizing unit sales growth while achieving return on investment goals. The following table presents estimates, for the periods indicated, of our percentage change in net sales attributable to changes in overall selling prices versus changes in units shipped by segment.

• Expanding geographically in our core businesses, domestically and internationally.
• Increasing our sales of “value-added” products and enhancing our product offering with new or improved products. Value-added products generally consist of fencing, decking, lattice, and other specialty products sold in the Retail segment; structural and protective packaging and machine-built pallets sold in the Packaging segment; engineered wood components, customized interior fixtures, manufactured and assembled concrete forms sold in the Construction segment; and “wood alternative” products. Engineered wood components include roof trusses, wall panels, and floor systems. Wood-alternative products consist of products manufactured with wood and non-wood composites, metals and plastics sold in each of our segments. Although we consider the treatment of dimensional lumber and panels with certain chemical preservatives a value-added process, treated lumber is not presently included in the value-added sales totals. Remanufactured lumber and panels that are components of finished goods are also generally categorized as “commodity-based” products. We estimate that approximately 81% of our sales consist of products we manufacture at our locations, while 19% of our sales consist of products manufactured by suppliers that we inventory and distribute to customers.

The following table presents, for the periods indicated, our percentage of value-added and commodity-based sales to total sales by our segments:

Our overall unit sales of value-added products were down 4% in the second quarter and 1% in the first six months of 2025 compared to the prior year. Our overall unit sales of commodity-based products decreased approximately 4% in the second quarter and 3% in the first six months of 2025 compared to the prior year.

• Developing new products. We define new products as those that will generate sales of at least $1 million per year within 4 years of launch and are still growing and gaining market penetration and meet our internal definition of value-added products. New product sales in the second quarter and first six months of 2025 increased 2% and decreased 2%, respectively. Approximately $39.5 million of new product sales for the first six months of 2024, while they continue to be sold, were sunset in 2025 and excluded from the table below because they no longer meet the definition above. Our short-term goal is to achieve annual new product sales of at least $550 million in 2025. For the first six months of 2025, new product sales totaled $239 million. Our long-term goal is for new products to comprise at least 10% of our total net sales.

The table below presents new product sales in thousands:

30

UFP INDUSTRIES, INC.

Retail Segment

Net sales in the second quarter of 2025 decreased by 3% compared to the same period of 2024 due to a 7% decrease in units, partially offset by a 4% increase in selling prices. Unit changes within this segment consisted of decreases of 3% in Deckorators and 7% in ProWood. Our unit sales to big box customers, which we believe are more closely correlated with repair and remodel activity, decreased approximately 7%, while unit sales to independent retailers, which we believe are more closely correlated to new housing starts, decreased approximately 6%. Within our Deckorators business unit, our sales of railings declined 25%, wood-plastic composite decking was flat, and our mineral-based-composite decking (sold under our new Surestone tradename) increased 45%. The decline in our railing sales is due to lost market share with a big box customer which began impacting sales at the beginning of the year. Our sales or wood-plastic composite decking were also impacted by this loss of business. However, we gained market share with another big box customer which will begin to more favorably impact our sales beginning in July as initial stocking orders are received for one of our mineral-based composite decking products. Overall, for the remainder of this year, we believe we will benefit from a modest net gain in market share as we begin stocking approximately 1,500 stores and continue to add capacity to produce our mineral-based composite decking. We expect to realize the full benefit of our net market share gain in 2026. Our long-term goal is to double our market share of composite decking and railing over the next 5 years. The decline in ProWood volume is primarily due to soft demand due to higher interest rates and weaker consumer sentiment and ongoing efforts to discontinue sales of products that do not meet our profitability targets.

Gross profits decreased by $13 million, or 10% to $114 million for the second quarter of 2025 compared to the same period last year. The change in gross profit was attributable to the following:

• The gross profit of our ProWood pressure-treated products decreased by $2 million, primarily due to a decline in unit sales as an increase in material costs was offset by an increase in selling prices. Additionally, gross profits associated with our Edge products declined by $4 million. Please see footnote K to our condensed consolidated financial statements regarding our plan to close our Edge manufacturing facilities in Bonner, Montana and move volume to existing facilities in California and Mexico.
• The gross profit of our Deckorators business unit decreased by $4 million primarily due to lower railing sales and an increase in our cost per unit of wood-based composite decking associated with unfavorable cost variances and product mix, and an increase in the cost per unit of our mineral-based composite decking due to product mix. We believe the new, more efficient equipment we’re installing to manufacture our mineral-based composite decking will allow us to achieve our targeted cost per unit.

SG&A decreased by $7 million, or 10%, in the second quarter of 2025 compared to the same period of 2024. Accrued bonus expense, which varies with the overall profitability and return on investment of the segment, decreased $4 million from the second quarter of 2024 and totaled $15 million for the quarter. This decrease, along with other smaller decreases in several accounts totaling $9 million, was partially offset by an increase in advertising of $6 million related to our efforts to build brand awareness of our Deckorators SureStone decking.

Earnings from operations decreased in the second quarter of 2025 compared to 2024 by $6 million, or 11%, as a result of the factors mentioned above.

Net sales in the first six months of 2025 decreased by 3% compared to the same period of 2024, due to a 5% decrease in units, partially offset by a 2% increase in selling prices. Unit changes within this segment consisted of decreases of 6% in Deckorators and 5% in ProWood. Unit sales to big box customers decreased approximately 5%, while unit sales to independent retailers decreased approximately 6%. Within our Deckorators business unit, our sales of railings decreased by 31% and wood-plastic composite decking decreased by 3% due to the lost market share described above. These decreases were partially offset by a 36% increase in our mineral-based-composite decking as consumers continue to see the benefits of its superior product attributes.

Gross profits decreased by $33 million, or 14% to $195 million for the first six months of 2025 compared to the same period in 2024. The change in gross profit was attributable to the following:

• The gross profits of our ProWood business unit decreased $18 million, primarily due to a decline in unit sales as a result of softer demand and an unfavorable increase in material costs. Additionally, gross profits associated with our Edge products declined by $5 million. Please see footnote K to our condensed consolidated financial statements regarding our plan to close our Edge manufacturing facilities in Bonner MT and move volume to existing facilities in California and Mexico.
• The gross profit of our Deckorators business unit decreased by $8 million due to the decline in railing and wood-plastic composite decking sales mentioned above and an increase in our cost per unit of composite decking.

SG&A decreased by approximately $7 million, or 6%, in the first six months of 2025 compared to the same period of 2024. The overall decrease was due to a decline in accrued bonus expense of $8 million, which totaled $24 million for the first six months of 2025, as well as a $2 million decrease in wages and benefits and many smaller decreases in several accounts totaling $8 million. This decrease was partially offset by an increase in advertising of $11 million primarily related to Deckorators.

Earnings from operations decreased in the first six months of 2025 compared to 2024 by $26 million, or 25%, as a result of the factors mentioned above.

Packaging Segment

Net sales in the second quarter of 2025 decreased 2% compared to the same period of 2024, due to a 4% decrease in selling prices, partially offset by an acquired business which contributed 2% to unit growth. Organic unit changes consist of decreases of 2% in Structural Packaging, primarily due to a decline in demand, offset by growth of 8% in Protective Packaging and 5% in PalletOne due to market share gains. The decrease in selling prices is due to competitive price pressure primarily in our PalletOne and Structural Packaging business units.

Gross profits decreased by $13 million, or 16%, for the second quarter of 2025 compared to the same period last year. The change in gross profit was attributable to the following:

• The gross profit of our structural packaging business unit decreased by $7 million. The decline in gross profit is attributable to competitive price pressure and a decline in volume due to lower demand.
• The gross profit of our PalletOne business unit decreased by $6 million primarily due to competitive price pressure which more than offset the favorable impact of unit sales growth as we continue to execute our strategy to gain market share.
• The gross profit of our protective packaging business unit remained flat compared to last year.

SG&A decreased by approximately $10 million, or 19%, in the second quarter of 2025 compared to the same period of 2024. Accrued bonus expense decreased approximately $3 million relative to the same period of 2024, and totaled $8 million for the quarter. The remaining decrease is attributable to an adjustment to reduce earnout expense by $1.5 million and many smaller decreases in several accounts.

Earnings from operations decreased in the second quarter of 2025 compared to 2024 by $3 million, or 11%, due to the factors discussed above.

Net sales in the first six months of 2025 decreased 2% compared to the same period of 2024, due to a 2% decrease in selling prices and a 1% decrease in organic unit sales, partially offset by an acquired business which contributed 1% to unit growth. Organic unit changes consist of a 4% decrease in structural packaging, primarily due to a decline in demand, partially offset by 10% unit growth in Protective Packaging and 2% unit growth in PalletOne due to market share gains. The decline in prices is due to competitive price pressure.

Gross profits decreased by $29 million, or 17%, for the first six months of 2025 compared to the same period in 2024. The change in gross profits was attributable to the following.

• The gross profit of our structural packaging business unit decreased by a total of $18 million. The decline in gross profit is primarily due to lower unit sales and competitive price pressure due to lower demand.
• The gross profit of our PalletOne business unit decreased by $11 million primarily due to competitive price pressure which more than offset the favorable impact from unit sales growth as we continue to execute our strategy to gain market share.
• The gross profit of our protective packaging business unit decreased by $1 million due to unfavorable cost variances as a result of fixed manufacturing costs.

SG&A decreased by approximately $16 million, or 15%, in the first six months of 2025 compared to the same period of 2024. Accrued bonus expense decreased $5 million, and totaled $16 million for the six months of 2025. Additionally, our sales incentive compensation decreased by $2 million. The remaining decrease is attributable to many smaller decreases in several accounts.

Earnings from operations decreased in the first six months of 2025 compared to 2024 by $13 million, or 21%, due to the factors discussed above.

Construction Segment

Net sales in the second quarter of 2025 decreased 4% compared to the same period of 2024 due to a 6% decrease in selling prices offset by a 2% increase in unit sales. We experienced unit increases of 8% in factory-built, 6% in commercial construction, and 11% in concrete forming. Our growth in factory-built is primarily due to an increase in industry production. These increases were partially offset by a 7% decrease in site-built, primarily due to softer demand for housing. As of June 28, 2025 and June 29, 2024, we estimate that our backlog of orders in our site-built housing business unit were $59 million and $82 million, respectively. The decrease in pricing was primarily due to competitive price pressure in our site-built business unit.

Gross profits decreased by $25 million, or 20%, in the second quarter of 2025 compared to the same period of 2024. The change in our gross profit was comprised of the following:

• The gross profit of our site-built housing business unit decreased by $28 million, primarily due to a decline in unit sales and competitive price pressure due to softer demand. Higher material costs also contributed modestly to the decline in gross profits.
• The gross profit of our commercial construction business unit decreased by $1 million due to increased labor and overhead costs, which more than offset the favorable impact from unit sales growth.
• The gross profit of our factory-built business unit increased by $1 million due to an increase in unit sales.
• The gross profit of our concrete-forming business unit increased by $1 million due to an increase in unit sales.

SG&A decreased by approximately $10 million, or 13%, in the second quarter of 2025 compared to the same period of 2024. Accrued bonus expense declined by $6 million and totaled $10 million for the quarter. The decline in SG&A was also attributable to a decline in our sales incentive compensation totaling $2 million and many smaller decreases in several accounts.

Earnings from operations decreased in the second quarter of 2025 compared to 2024 by $16 million, or 31%, due to the factors mentioned above.

Net sales in the first six months of 2025 decreased 2% compared to the same period of 2024 and consisted of a 5% decrease in selling prices, partially offset by a 3% increase in unit sales. Unit changes within this segment consist of increases of 10% in factory-built, primarily due to an increase in industry production, 7% in concrete forming, and 5% in commercial construction. These increases were partially offset by a unit decline of 6% in site-built housing due to lower demand.

Gross profits decreased by $49 million, or 20% for the first six months of 2025 compared to the same period of 2024. The change in our gross profit was comprised of the following:

• The gross profit of our site-built housing business unit decreased by $52 million primarily due to a decline in unit sales and competitive price pressure. Higher material costs also contributed modestly to the decline in gross profits.
• The gross profit of our commercial construction business unit decreased by $3 million as a result of increased labor and overhead costs, which more than offset the favorable impact from unit sales growth.
• The gross profit of our concrete forming business unit increased by $2 million due to higher unit sales.
• The gross profit of our factory-built business unit increased $2 million as a result of increased unit sales.

SG&A decreased by approximately $16 million, or 11%, in the first six months of 2025 compared to the same period of 2024. Accrued bonus expenses decreased $10 million and totaled $20 million for the first six months of 2025. The decline in SG&A was also attributable to a decline in our sales incentive compensation totaling $3 million and many smaller decreases in several accounts.

Earnings from operations decreased in the first six months of 2025 compared to 2024 by $34 million, or 34%, due to the factors mentioned above.

All Other Segment

Our All Other reportable segment consists of our International and Ardellis (our insurance captive) segments that are not significant.

Corporate

The corporate segment consists of over (under) allocated costs that are not significant.

INCOME TAXES

Effective tax rates differ from statutory federal income tax rates, primarily due to provisions for foreign, state and local income taxes and permanent tax differences. Our effective tax rate was 23.6% in the second quarter of 2025 compared to 25.1% in the same period of 2024 and was 22.5% in the first six months of 2025 compared to 21.5% for the same period in 2024. The decrease in our effective tax rate for the second quarter was primarily due to one-time state income tax benefits recorded as discrete items in 2025. The increase in our effective tax rate for the first six months of 2025 was primarily due to a decrease in our tax deduction from stock-based compensation accounted for as a permanent difference.

OFF-BALANCE SHEET TRANSACTIONS

We have no significant off-balance sheet transactions.

LIQUIDITY AND CAPITAL RESOURCES

The table below presents, for the periods indicated, a summary of our cash flow statement (in thousands):

In general, we fund our growth through a combination of operating cash flows, our revolving credit facility, and issuance of long-term notes payable at times when interest rates are favorable. We have not issued equity to finance growth except in the case of a large acquisition that occurred many years ago. We manage our capital structure by attempting to maintain a targeted ratio of debt to equity and debt to earnings before interest, taxes, depreciation and amortization. We believe this is one of many important factors to maintaining a strong credit profile, which in turn helps ensure timely access to capital when needed.

Seasonality has a significant impact on our working capital due to our primary selling season which occurs during the period from March to September. Consequently, our working capital typically increases during our first and second quarters resulting in negative or modest cash flows from operations during those periods. Conversely, we tend to experience a substantial decrease in working capital once we move beyond our peak selling season which typically results in significant cash flows from operations in our third and fourth quarters.

Due to the seasonality of our business and the effects of the Lumber Market, we believe our cash cycle (days of sales outstanding plus days supply of inventory less days of payables outstanding) is a good indicator of our working capital management. As indicated in the table below, our cash cycle increased to 59 days from 56 days during the second quarter of 2025 and increased to 60 days from 59 days during the first six months of 2025 compared to the same periods of the prior year.

The increase in our days supply of inventory for the quarter and first six months of 2025 is due to slower inventory turns in our Retail and Packaging segments. The increase in our days of sales outstanding is primarily due to our Retail and Packaging segments. We continue to focus on past due account balances with customers, and the percentage of our accounts receivable that are current was 94% at the end of the second quarter of 2025 and 2024.

In the first six months of 2025, our cash flows from operations were $113 million and were comprised of net earnings of $180 million, $99 million of non-cash expenses, offset by a $166 million increase in working capital since the end of December 2024 due to seasonal demand. Our cash flows from operations decreased by $126 million compared to the same period of last year primarily due to the increase in our investment in net working capital since year end, which was $67 million higher in 2025 compared to 2024. We anticipate the seasonal increase in net working capital in 2025 will be converted to cash by the end of the third quarter, as well as approximately $40 million of cash flow benefits from the OBBBA in the third and fourth quarter.

Purchases of property, plant, and equipment of $130 million comprised most of our cash used in investing activities during the first six months of 2025. Outstanding purchase commitments on existing capital projects totaled approximately $133.4 million on June 28, 2025. Capital spending primarily consists of several projects to expand capacity to manufacture new and value-added products, primarily in our Packaging segment and our Site-Built and Deckorators business units, to achieve efficiencies through automation in all segments, and make improvements to a number of facilities. We intend to fund capital expenditures and purchase commitments through our operating cash flows for the balance of the year.

Cash flows used in financing activities during the first six months of 2025 primarily consisted of the following:

• We repurchased 2,523,339 shares of our common stock for $262 million during the first six months of 2025 at an average price of $103.63 per share. Of this amount, 87,027 shares were repurchased in order to settle tax withholding obligations of long-term stock incentive plan participants’ awards which vested in the current year. The shares were purchased at an average price of $109.85 per share, totaling $10 million.
• Dividends paid during the first six months of 2025 were $42 million ($0.35 per share).

On June 28, 2025, we had no amount outstanding on our $750 million revolving credit facility, and we had approximately $711 million in remaining availability after considering $39 million in outstanding letters of credit under the revolving credit facility. Financial covenants on the unsecured revolving credit facility and unsecured notes include minimum interest tests and a maximum leverage ratio. The agreements also restrict the amount of additional indebtedness we may incur and the amount of assets which may be sold. We were in compliance with all our covenant requirements on June 28, 2025.

At the end of the second quarter of 2025, we had approximately $2.1 billion in total liquidity, consisting of our cash, remaining availability under our revolving credit facility, and a shelf agreement with certain lenders providing up to $575 million in remaining borrowing capacity.

ENVIRONMENTAL CONSIDERATIONS AND REGULATIONS

See Notes to Unaudited Consolidated Condensed Financial Statements, Note E, “Commitments, Contingencies, and Guarantees.”

CRITICAL ACCOUNTING POLICIES

In preparing our consolidated financial statements, we follow accounting principles generally accepted in the United States. These principles require us to make certain estimates and apply judgments that affect our financial position and results of operations. We continually review our accounting policies and financial information disclosures. There have been no material changes in our policies or estimates since December 28, 2024.

FORWARD OUTLOOK

Our long-term financial goals include:

• Growing our annual unit sales by 7 to 10 percent (including smaller tuck-in acquisitions) with at least 10 percent of all sales coming from new products;
• Achieving and sustaining a 12.5 percent EBITDA margin by continuing to enhance our capabilities and grow our portfolio and sales of value-added products, expanding geographically in our higher margin business units, and achieving operating improvements;
• Earning an incremental return on new investment over our hurdle rate; and
• Maintaining a conservative capital structure.

We believe improvements in demand in the end markets we serve and effectively executing our strategies will allow us to achieve our long-term goals. However, in the short-term, demand in our markets has contracted due to a variety of factors, which will continue to impact our results and vary depending on the severity and duration of this cycle. As a result of these more challenging conditions, we have developed and are executing plans for reducing costs, eliminating excess capacity, divesting under-performing assets, and exiting business that does not meet our profitability targets. Our goal through these actions is to lower our cost structure and improve our operating profits by $60 million by year-end 2026. We anticipate benefits of approximately $43 million by the end of 2025, including $13 million from planned capacity reductions and approximately $30 million from planned SG&A cost reductions. The planned decreases will be partially offset by an anticipated $20 million increase in advertising costs in our Deckorators business unit to build our Surestone brand.

The following factors should be considered when evaluating our future prospects:

• Lumber prices, which impact our cost of goods sold and selling prices, have normalized due to additional capacity added by sawmills and demand falling from peak levels. We anticipate lumber prices will remain near current levels, and experience more typical seasonal trends, until there is a substantial change in the balance of supply and demand. In the event higher duties on Canadian softwood lumber and new tariffs are enacted on imports generally, we anticipate lumber prices will increase accordingly. We believe we are currently in a strong position to adapt quickly to duties and tariffs without a material adverse financial impact after a short adjustment period. However, a widespread increase in tariffs may adversely impact demand in the markets we serve.
• Retail sales accounted for 41% of our net sales for the first six months of 2025. When evaluating future demand for the segment, we analyze data such as the same-store sales growth of national home improvement retailers and forecasts of home remodeling activity. Based on this data, we currently anticipate market demand to be slightly down for the remainder of 2025.
• Packaging sales accounted for 24% of our net sales for the first six months of 2025. When evaluating future demand, we consider a number of metrics, including the Purchasing Managers Index (PMI), durable goods manufacturing, and U.S. real GDP. We currently believe overall demand in the markets we serve to be slightly down for the remainder of 2025.
• Construction sales accounted for 31% of our net sales for the first six months of 2025.
• The site-built business unit accounted for approximately 11% of our net sales for the first six months of 2025. Approximately one-third of site-built customers are multifamily builders. The industry consensus estimate of national housing starts for 2025 is 1.36 million, with estimates generally predicting flat to slightly negative growth in the coming year with multi-family generally showing stronger performance compared to single-family. We anticipate demand in the regions we operate to be down mid-single digits for the remainder of 2025.
• The factory-built housing business unit accounted for 13% of our net sales for the first six months of 2025. When evaluating future demand, we analyze data from production and shipments of manufactured housing. We currently believe overall demand will be slightly up for the remainder of 2025.
• The commercial construction and concrete forming business units accounted for approximately 7% of our net sales for the first six months of 2025. When evaluating future demand, we analyze data from non-residential construction spending. We anticipate overall demand in these business units to be flat to slightly up for the remainder of 2025.

Capital Allocation:

We believe the strength of our cash flow generation and conservative capital structure provide us with sufficient resources to grow our business and also fund returns to our shareholders. We plan to continue to pursue a balanced and return-driven approach to capital allocation across dividends, share buybacks, capital investments and acquisitions. Specifically:

• On July 23, 2025, our board approved a quarterly cash dividend of $0.35 per share, which represents a 6% year over year increase. This dividend is payable on September 15, 2025, to shareholders of record on September 1, 2025. We continue to consider our payout ratio and yield when determining the appropriate dividend rate and have a long-term objective of increasing our dividend in line with our earnings growth.
• On July 23, 2025, our board authorized the repurchase of up to $300 million worth of our shares through July 31, 2026. This share authorization supersedes and replaces our prior share repurchase authorizations. Our objective is to repurchase our stock at sufficient amounts to offset issuances under our share-based compensation plans. In addition, we will opportunistically buy shares when the price trades at pre-determined levels we believe is at a significant discount to intrinsic value. Through August 4, 2025, we have approximately $290 million of remaining availability under this authorization.
• Our targeted range for capital expenditures for 2025 is $300-$325 million, which will continue to be impacted by extended lead times required for most equipment and rolling stock as well as the time required for site selection in the case of investments in new locations. Priority continues to be given to projects that enhance the working environments of our plants and take advantage of automation opportunities and drive strategies that have strong long-term growth potential for new and value-added products. Approximately $207 million in capital projects have been approved so far in 2025 and another $101 million are pending approval.
• We continue to pursue a healthy pipeline of acquisition opportunities of companies that are a strong strategic fit and enhance our capabilities while providing higher margin, return, and growth potential.

We are exposed to market risks related to fluctuations in interest rates on our variable rate debt, which consists of a revolving credit facility and industrial development revenue bonds. We do not currently enter into any material interest rate swaps, futures contracts or options on futures, or other types of derivative financial instruments to mitigate this risk.

For fixed rate debt, changes in interest rates generally affect the fair market value, but not earnings or cash flows. Conversely, for variable rate debt, changes in interest rates generally do not influence fair market value, but do affect future earnings and cash flows. We do not have an obligation to prepay fixed rate debt prior to maturity, and as a result, interest rate risk and changes in fair market value should not have a significant impact on such debt until we are required to refinance it.

We are subject to fluctuations in the price of lumber. We experience significant fluctuations in the cost of commodity lumber products from primary producers (the “Lumber Market”). A variety of factors over which we have no control, including government regulations, tariffs and trade policies, transportation, environmental regulations, weather conditions, economic conditions, and natural disasters, impact the cost of lumber products and our selling prices. While we attempt to minimize our risk from severe price fluctuations, substantial, prolonged trends in lumber prices can affect our sales volume, our gross margins, and our profitability. We anticipate that these fluctuations will continue in the future. (See “Impact of the Lumber Market on Our Operating Results.”)

Our international operations have exposure to foreign currency rate risks, primarily due to fluctuations in their local currency, which is their functional currency, compared to the U.S. Dollar. Additionally, certain of our operations enter into transactions that will be settled in a currency other than the U.S. Dollar. We may enter into forward foreign exchange rate contracts in the future to mitigate foreign currency exchange risk. Historically, our hedge contracts have been immaterial to the financial statements.

(a) Evaluation of Disclosure Controls and Procedures. With the participation of management, our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in SEC Rules 13a–15(e) and 15d–15(e)) in the manner required by SEC Rule 13a-15(b) and 15d-15(b), have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

(b) Changes in Internal Controls. During the quarter ended June 28, 2025, there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There have been no material changes to the risk factors disclosed in Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 28, 2024.