Universal Forest Products Shares Plunged: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of lumber and wood products manufacturer Universal Forest Products (Nasdaq: UFPI  ) make me want to yell "Timber!" today, having fallen more than 12% on heavy volume.

So what: After Friday's closing bell, the company issued "Measures to Align Costs with Current Business" -- a euphemism for "Deep Cuts Because of Weak Sales." Companies often tacitly admit defeat at the start of a long trading lull to diminish that bad news's impact, but the trick didn't work this time. Investors are punishing Universal Forest with abandon, even after sleeping on it over the weekend.

Now what: "These are terribly difficult adjustments that cause us, in many cases, to say goodbye to valuable employees who have been with Universal for many years," said CEO Michael Glenn. That reminds me of the practices that killed Circuit City: slashing costs by releasing experienced team members, and always training new hires at minimum wage. Circuit City's terrible staffers led Best Buy (NYSE: BBY  ) to dominance, and the same strategy should lend similar business advantages to Forest rivals Louisiana-Pacific (NYSE: LPX  ) and Bluelinx Holdings (NYSE: BXC  ) .

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