Universal Forest Products Inc.

views updated

Universal Forest Products Inc.

2801 E. Beltline N.E.
Grand Rapids, Michigan 49505
U.S.A.
(616) 364-6161
Fax:(616) 361-7534

Public Company
Incorporated: 1955
Employees: 1,900
Sales: $661 million
Stock Exchanges: NASDAQ
SICs: 2421 Sawmills & Planing Mills, General

Universal Forest Products Inc. manufactures, treats, and distributes lumber products for the manufactured housing, wholesale lumber, industrial, and do-it-yourself markets. The largest producer of pressure-treated lumber in the United States, the company is also North America’s leading manufacturer of engineered roof trusses for the manufactured housing market. Other major product lines include dimension lumber and value-added lumber products such as lattice, fence panels, deck components, and various kits for individual home renovation projects. With 28 manufacturing, treating, and distribution plants in the United States and Canada, Universal ranked among Fortune magazine’s list of 500 top grossing American companies in 1994, for the first time in its 49-year history. Moreover, Universal’s 43 percent increase in sales represented one of the top 20 largest gains among “Fortune 500” companies.

Universal Forest Products was established in 1955 to distribute lumber to the burgeoning postwar mobile home manufacturing industry. In its early years, the company’s major stockholder, William F. Grant, also served as its only salesperson. Universal initially relied solely on the railway system to distribute the lumber it sold. However, as the country’s railway system began to decline in the 1960s, and demand for the company’s product increased, Universal sought to gain greater control of its distribution process. Toward that end, in 1970, the company purchased the assets of a component yard in Georgia; the following year, the company acquired a second component yard, in Pennsylvania. The establishment of such distribution centers was part of plan to meet the demand for lumber wherever it most frequently arose; the company therefore became less dependent on the railway system and was able to pass on its rail service savings to the customer. After the success of the first two component plants, others were opened in Florida and North Carolina, and Universal made its first direct business acquisition, Lumber Specialties of Granger, Indiana.

In 1971, Universal reported sales of $12 million. That year, company vice-president Peter F. Secchia, who had joined Universal upon graduation from Michigan State University in 1962, purchased a controlling share of the company. Soon thereafter, Secchia initiated a plan which would allow salaried employees to share in the equity of the corporation; by 1994, employees owned approximately 18 percent of Universal. Secchia also introduced a policy of remanufacturing Universal’s inventory as supply needs changed.

Expansion continued through the 1970s, and, by 1983, a reorganization along geographic lines became necessary. The new Universal divisions oversaw manufacturing and distribution in the Atlantic, Midwest, Northeast, Southeast, and Southwest. Affiliate companies, such as Lumber Specialties, also adopted the name of the parent company in hopes of enhancing Universal’s national presence and public recognition.

The U.S. market for manufactured housing units experienced substantial declines during the 1980s. In an effort to offset similar declines in the company’s growth rate, Universal began to offer a more varied array of manufactured products, including re-graded items, mixed loads of lumber, particle board, and plywood. Moreover, a research and development department was introduced, comprised of a full-time engineering staff.

Also during this time, Universal entered the wood treating business, representing an investment that fortuitously coincided with the rise of the do-it-yourself market. The do-it-yourself revolution, beginning in the 1980s, had a profound effect on the lumber industry, as smaller lumber yards were replaced by huge retail warehouses catering to individual home renovation projects. Universal’s distribution network proved well suited to this change in the industry.

Manufactured housing, which had represented 90 percent of Universal’s sales in the late 1970s, was responsible for only 35 percent of sales in 1985. By 1989, Universal had become the nation’s largest producer of CCA-preserved lumber. Over the next five years, the company established 15 treating plants and planned for two more. With 28 locations in 18 states and two in Canada, Universal focused on guaranteeing customers stock availability, which smaller suppliers often could not supply. Seeking to never let a customer down by not having available product, Universal also remained committed to curbing the financial loss involved in overstocking merchandise.

In 1989, President George Bush appointed Universal board chairperson and CEO Peter Secchia as U.S. Ambassador to Italy. Secchia, the son of Italian immigrants, had a long association with the National Italian-American Foundation. He had also been active in Republican politics in the Midwest, acting as vice-chairman of the Republican National Committee for the 13 states of the Midwest and campaigning for George Bush during the 1988 elections. Universal President Bill Currie, hired by Secchia in 1972, replaced Secchia during his tenure as American Ambassador to Italy. After President Bush was defeated in the 1992 election, Secchia’s tenure as ambassador came to an end, and he returned as chairperson of Universal.

Under the Clinton administration, Universal and others in the lumber industry faced stricter limitations on annual timber harvests. The short term effect of Clinton’s environmental policy actually helped companies with large inventories, such as Universal, by creating a temporary shortage in the lumber industry that prompted a sharp rise in prices. Moreover, unusually wet conditions in the country’s forests during this time, as well as a public debate over the effects of logging on the preservation of the spotted owl, inflated lumber prices further. Nevertheless, the long term effects of Clinton’s policy were regarded as potentially harmful to the lumber industry. In May 1993, an inevitable dip in lumber prices occurred.

Meanwhile Universal continued to grow, making new acquisitions of smaller companies that were less well positioned to adjust to the changing lumber industry. Although growth through acquisitions clearly became an important part of Universal’s strategy for the 1990s, Secchia preferred to downplay this aspect of their business plan. In a 1993 article in the Grand Rapids Business Journal, for which he was questioned about the aggressiveness of the company’s acquisition strategy, Secchia commented, “I’m very reticent about that because some of our acquisitions have not been that successful.”

Between 1992 and 1993, Universal had a remarkable 43 percent rise in sales from $449.5 million to $643 million. During this time, Universal acquired Chesapeake Wood Treating Co., a division of Chesapeake Corp., a deal that included five wood treatment plants. With $90 million in sales in 1991, Chesapeake Wood Treating Co. accounted for approximately ten percent of Chesapeake Corp.’s consolidated net sales. The acquisition was the largest in Universal’s history, and it came just one month before the company went public.

Universal’s exceptional gains, as well as the return of Secchia as chairperson, boosted investor confidence in Universal. The company went public in November 1993, offering 5.2 million shares of common stock at $7 per share, and gaining approximately $33.4 million from its initial public offering. These funds were used to reduce notes payable to banks and to invest in new machinery connected with the acquisition of Chesapeake. By 1994, Universal was in an excellent position for continued growth. The previously depressed manufactured home market was again on the rise, and Universal’s share of that market remained strong. Moreover, Universal’s reputation for adapting to changes in the lumber market was expected to ensure its success, even if the do-it yourself segment declined.