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Universal Forest Products Inc (NASDAQ:UFPI)
Q3 2020 Earnings Call
Oct 22, 2020, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Q3 2020 UFP Industries Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker Mr. Dick Gauthier, Vice President of Business Outreach.

Please go ahead sir.

Dick Gauthier -- Vice President Business Outreach

Welcome to the UFP Industries Third Quarter 2020 Conference Call. Hosting the call today are CEO Matt Missad and CFO, Mike Cole. Matt and Mike will offer prepared remarks and then answer questions. This conference call is available simultaneously and in its entirety, to all interested investors and news media through our webcast at www.UFPI.com. A replay will also be available at that website through November 22, 2020. Before I turn the call over to Matt Missad, let me remind you that yesterday's press release and today's 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 the company's expectations and projections. These risks and uncertainties include, but are not limited to those factors identified in the press release and in the filings with the Securities and Exchange Commission.

I will now turn the call over to Matt Missad.

Matthew J. Missad -- Chief Executive Officer

Thank you Dick and good morning everyone. When we decided to reorganize our company to unleash the full power of UFP, we believe it would help us create greater success. We had no idea of the challenges we would face this year and our team members responded with an amazing performance that Aerosmith could sing about. I can't tell you how proud I am of the effort of the UFP Industries team in the third quarter. The team blew past our expectations and posted a record quarter for both earnings and profits for UFP.

One of the many lessons I will take from 2020 is that UFP Industries has the business diversification, processes and experienced team members to face serious challenges and continue to serve our customers while delivering strong results for our stakeholders. So far, this year, we faced a pandemic shutdown orders that disrupted economic activity, a record increase in lumber price, supply constraints, wildfires hurricanes and rail shortages. The only things missing are pestilence and a contested election but, we still have another two months to go and anything can happen.

Despite the uncontrollables, our teams worked diligently at things they could control by responding quickly to shifting customer demands, managing inventory wisely and delivering record results. They set the bar of what is achievable even higher. I want to thank each and every one of our over 13,000 team members for their fantastic efforts. While Mike Cole, will cover the numbers in detail, I wanted to hit on a couple of standouts. The first is net sales of $1.9 billion. The second is a unit sales increase of 8% overall. The third is a gross profit increase of 29% and the fourth is net earnings up 49%.

In addition, our new product sales for the third quarter were $153.7 million and are $398.1 million year-to-date. Enough of the numbers though and a little background on the third quarter story is as follows. UFP Retail Solutions again carried in the quarter. Unit sales to retail customers grew 34% organically over this period, led by the company's Dimensions, Home and Decor where unit sales were up 57%

Deckorators was up 50%, ProWood was up 30% and Outdoor Essentials, which is our Fence Lawn and Garden products were up 28%. E-commerce sales were up 107% in the quarter and totaled $139 million year-to-date. Of course, Retail was helped by the rising lumber market throughout the third quarter, and will be impacted as the lumber market declines, although the lower seasonal volumes will blunt some of that impact.

UFP Construction overall demand was strong, but margins were impacted on fixed-priced products as lumber prices rose faster than contract prices. Generally the reverse will be true in a declining lumber market. Site-built and factory built housing demand stayed strong while parts of commercial construction, particularly in hospitality, office and retail slowed in response to lockdowns. UFP Industrial continued to rebound with the reopening of many geographies, but faced similar margin pressures as the construction segment on fixed-priced items.

Heavy demand for appliances and other durable goods has outpaced our customers' ability to supply so we expect continued improvement in this end market. OEM furniture customers have seen strong order files as well and we saw increased demand for our total foundation solutions product line. The aforementioned lumber market declined much of the quarter and reached record levels. Near the end of the quarter, supply caught up with demand and the market has trended downwards on most items -- we expect that trend to continue.

The current challenges still exist for our company. The first is to analyze and improve struggling locations; we are in the midst of 2021 budget and planning season, and have instructed our operations that aren't meeting their PBOP and ROI targets that they must have a realistic plan to do so, or they will be consolidated. While we expect the vast majority of our operations to meet their targets and recover from COVID and lumber market challenges, we have to react fairly and quickly to fix those that don't. Labor is another challenge; we are currently seeking over 300 employees, primarily in our production facilities.

We appreciate the extra effort and overtime given by our loyal employees, but are also seeking to provide them with some relief and give them more time to spend with their families. The third challenge is economic and social uncertainty; concerns about the safety and security of our team members whether due to COVID, the response to COVID or violence and rioting have created an unacceptable level of fear and tension.

The financial hardships brought on by lockdowns exacerbate those concerns. We are hopeful for reasonable approaches to restoring constitutional rights to the citizens which include both the rights of peaceful protest and the right for safety and protection from those wishing to cause harm to persons or property. Regardless of the political outcome, we are pursuing our goals with the belief that we still can chart our own destiny. We have strong prospects and several goals to share with you.

First goal is growing our sales and profitability. We continue to approve automation capital projects, as well as the equipment to support new products and further business development. In the Retail Solutions segment our acquisition of FRCT is a great example of a scalable new product as we drive increased fire retardant sales as discussed earlier this year. Our patented Vault and Voyage mineral composite decking products sold under the Deckorators brand are performing very well, and we will be adding more capacity in 2021. Deckorators will also be launching its new price point wood-plastic composite board under the Trailhead brand and will absorb most of the new capacity coming online in the fourth quarter of 2020, for this product.

The Deckorators sales and marketing team will have several new distributors for 2021, including five internal UFP distribution facilities to make us more responsive to customer needs in each market. Additional certified professional installers are expected to also drive more volume. We will be adding capacity to our finishing operation for siding, pattern and trim as well as our own UFP-Edge branded products. And our Dimension and Decor lines are adding 10 new hardwood kits for do-it-yourselfers and crafters.

In factory built, we look for continued new product growth in 2021. We have designed and engineered two new products which are in the final testing stages. Customers and Factory Built have strong order files through year-end and we are optimistic for a solid 2021 as well. Concrete Forming products will continue to grow as we focus on design, engineered and manufactured solutions together with our equipment program for project use. In the Industrial segment we are looking to expand our packaging capabilities in wood, steel plastics and other materials utilizing our design, engineering and manufacturing capabilities to provide the most value to our customers.

We plan to scale our recent acquisitions nationally, as well as adding other acquisitions to achieve our growth targets. We will also expand our ability to market protective packaging products to our customers through distribution partners. Another area of focus is capital allocation. In addition to cash dividends and opportunistic share repurchases, we expect to have around $100 million in capital expenditures in 2021 and will continue to pursue acquisition targets while keeping a strong balance sheet. More new products; these are the lifeblood of our growth and profitability improvement goals.

Each of our business segments is increasing their investment in new products and services, whether organically or via acquisition. We also believe that consolidation in our end markets and with our competitors will continue. We will look to consolidate product manufacturing within UFP Industries where strategically appropriate. We also expect external markets to consolidate in areas such as wood packaging, wood preservation, protective packaging and construction components.

We intend to participate in these consolidations to improve our customer growth and enhance our ability to be the preferred solutions provider to our customers and prospects. The recent BFS ProBuild and [Indecipherable] merger is an example of second level consolidation between two companies who themselves recently consolidated. We believe the lumber market will decline until it reaches the new demand supply balance. Our rational approach is that 2021 should reflect the second year of normal growth when using 2019 as a base year which removes the anomaly of the 2020 spike.

Finally, our e-commerce growth has been impressive, and while our previous investments have provided great reward so far in 2020, we expect an increase in our investment in technology to meet the growing demand and we'll add more distribution through our internal locations to increase speed to customer. On the acquisition trail, we continue to maintain a strong pipeline of acquisition targets, while maintaining a disciplined approach to the capital allocation model. Each business unit has identified targets to fit its growth runways.

These selected transactions will be based on the best long-term return on investment and strategic fit. We also will continue to refine our management structure. Our new management structure implemented January 1, 2020 has helped us serve our end markets better and enables us to tighten our focus to scale new products and to execute initiatives with greater speed. We continue to discover and exploit opportunities to improve the new structure to unlock even more value.

Now, I'd like to turn it over to Mike Cole, so he can highlight the incredible numbers for the quarter and take a victory lap. Mike?

Mike Cole -- Chief Financial Officer & Treasurer

Thanks Matt. This quarter provided another example of how UFP's balanced business model and diversified product portfolio are a great advantages in challenging times. Our results this quarter are highlighted by a 51% increase in operating profits, and a 110 basis point improvement in operating margins to 7.2% a 230 basis point improvement in our trailing 12 months return on invested capital to 17.5%.

Operating cash flow of $185 million and total liquidity of $707 million at the end of September, a $315 million increase since the end of the first quarter when the pandemic hit, and in spite of average lumber prices for the quarter that have more than doubled. Moving on to highlights from the income statement, our overall net sales increased 28% compared to last year and consisted of an 8% increase in our units sold and a 20% increase in our selling prices, as a result of the impact of lumber market on our variable priced products.

Similar to last quarter, our unit sales results vary greatly by segment. Sales to the retail segment increased 76%, consisting of a 34% organic unit increase and a 42% increase in prices. Unit growth was driven by our Deckorators, ProWood, Outdoor Essentials and Dimensions business units as a result of strong consumer demand for repair and remodel projects and outdoor living trends. New product sales for the retail segment were also strong, growing by over 59%. Given the time of the year demand trends in this segment continue to be strong. Sales to the Industrial segment increased by 4% due to a 6% increase in selling prices and a 3% contribution from recent acquisitions, offset by a 5% decrease in organic unit sales, as our customers' businesses recovered from government imposed shutdowns and a temporary drop in demand.

This decline was a substantial improvement from the 27% decrease we experienced last quarter. These results are encouraging, considering the strain travel continues to have on our ability to gain share by adding new customers and additional locations of existing customers. Finally, our sales to the construction segment were flat compared to last year with a 9% increase in selling prices, offset by a 9% decline in units, a sequential improvement from last quarter when our unit sales declined 16%. Our overall unit decline this quarter was comprised of a 2% drop in concrete forming an 8% decrease in site-built and a 43% decline in commercial.

These decreases were offset by a 7% increase in factory built housing. Looking forward, we're encouraged by our order files and the current demand trends in our two largest business units, site-built and manufactured housing and anticipate commercial will continue to remain challenging. Moving down the income statement, our third quarter gross profits increased by almost $54 million or nearly 29%. This increase was primarily due to a $62 million improvement in retail, offset by a $10 million decline in construction.

Improvements in the profitability of our retail segment were primarily due to the impact of strong organic growth, which allowed us to leverage fixed costs, and the sequential rise in lumber prices which favorably impacted our gross profit per unit of products sold on a variable price like ProWood pressure-treated lumber. The decline in construction profitability was primarily due to higher commodity lumber costs, which adversely impacted our profit per unit of products we sell on a fixed price for a period of time, and the decline in sales volume of our commercial business unit, which is a more significant fixed cost structure.

As lumber prices continue to fall from peak levels at the end of September this should favorably impact our site-built business unit and represent a headwind for products sold on a variable price. Continuing to move down the income statement SG&A expenses increased by almost $19 million to $135 million for the quarter due to a $20 million increase in our accrued bonus expense to $42 million.

As a reminder, our bonus plan is based on a combination of pre-bonus operating profit and return on investment, which are both considerably higher this year. moving on to our cash flow statement, we've generated $185 million of operating cash flow for the year to date. Cash flow declined by $13 million compared to the same period last year due to an increase in our net working capital since year-end. In a typical year, our net working capital declines during the third quarter, and it is a source of cash flow. In 2019, this amounted to $3 million. This year due to volume growth and record high lumber prices net working capital increased $60 million since year end.

As lumber prices continue to normalize downward and volumes declined seasonally, we anticipate net working capital being a source of cash flow in Q4. Our cash cycle, which measures how efficiently we're managing our working capital, improved to 43 days compared to 52 days last year. This improvement was due to a reduction in our day's supply of inventory, driven by strong demand in our Retail segment and shortages of supply. Our receivables remain at over 95%, current.

We continue to have a balanced approach to capital allocation. Our investing and financing activities consisted of capital expenditures totaling $67 million, including expansionary and efficiency capex of $26 million, $35 million used to purchase Quest Design and Architectural Millwork in March and T&R Lumber in July. In addition, early in fiscal October, we announced the acquisition of Fire Retardant Chemical Technologies and invested approximately $6 million. $150 million issuance of long-term debt as we evaluate acquisitions and other growth opportunities, $23 million of dividends and $29 million of share repurchases we completed in Q1.

With respect to our balance sheet, at the end of September, we had approximately $32 million in net cash compared to $99 million in net debt last year, and our total liquidity increased $707 million at the end of September, consisting of $346 million in cash and $361 million in availability under our long-term credit facility, providing us with ample resources to not only operate our business, but take advantage of wise investment opportunities during this challenging time.

That's all I have in the financials Matt.

Matthew J. Missad -- Chief Executive Officer

Thank you Mike. Now, I'd like to turn it over for questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question will come from Ketan Mamtora with BMO Capital Markets. Please go ahead.

Ketan Mamtora -- BMO Capital Markets -- Analyst

Good morning Matt; Mike. Congrats on a very strong third quarter. First question just starting off on the retail side, we've seen really strong demand over the last five to six months I'm just curious, as we get into fall and winter and typically demand slows seasonally. I'm just curious to see what you are hearing and seeing from your customers, obviously it's been a very different year this time, so I'm just trying to get a sense of are we seeing the normal pattern of seasonal slowing in demand?

Matthew J. Missad -- Chief Executive Officer

Yeah, I think Ketan, what we're seeing is demand still is remaining strong. We do expect there to be seasonality more weather driven than anything else, and our customers are very optimistic and bullish on 2021 as well. So, they are seeing a lot of solid growth and obviously we're going to be there to provide the products they need.

Ketan Mamtora -- BMO Capital Markets -- Analyst

Got it. So, I mean some of the strength you say you would say that has carried into October, is that fair?

Matthew J. Missad -- Chief Executive Officer

Yes.

Ketan Mamtora -- BMO Capital Markets -- Analyst

Got it. And then switching to lumber so we started to see pricing fall and fall quite sharply, maybe just give us an update in terms of how it impacts you -- sort of this time of the year. Mike alluded to it in terms of some contracts that are on fixed prices. So just maybe give us an update on the balance, kind of, how does it impact you during this time of the year?

Matthew J. Missad -- Chief Executive Officer

Yeah. So again, we talk a lot about the variable pricing model and the fixed pricing model and the different businesses and different products that are priced differently, and it's all about the balance of that product mix. And as we look at it typically second and third quarter, tend to be heavier to variable priced product and less so in the fourth and first quarters. We expect that to be consistent again this year, so while the Retail side, which tends to be more variable price for the, I'll call it Dimension lumber products that, that will be a headwind for us in the Q4.

But on the other side, on the fixed-priced items it will actually be a tailwind for all the fixed price items which tend to be more in the construction and in the industrial segments.

Ketan Mamtora -- BMO Capital Markets -- Analyst

Got it. And then just turning to M&A, Matt, has your view changed at all in terms of growth opportunity, let's say in industrials, which was clearly a focus area in the last few years versus finding more opportunity on the outdoor living product side, given what has happened this year?

Matthew J. Missad -- Chief Executive Officer

Yeah, I think Ketan that's a great observation. There are some things that we've looked at, and I think a big part of the driver I give credit to the business unit leaders who have come up with growth runways and while we're still committed to growing our industrial business, growing our construction business and may have looked like we weren't as interested in growing some of the retail businesses, but we still see really strong runways and each one of the business unit leaders has identified targets, whether those are for new products, whether those are for expansion and growth or whether those are to provide us with more opportunities to get closer to customers and sell them our entire product line, we see a lot of opportunities there, and obviously if you -- a couple of years ago everybody was talking about people moving into cities and the suburbs were dying. Now, it appears that the reverse is true. So, we're going to keep our balanced model and we're going to have targets in each of our segments and each of our business units and we just are very optimistic about the opportunities that are there.

Ketan Mamtora -- BMO Capital Markets -- Analyst

Got it. That's very helpful. I'll jump back in the queue. Good luck for the rest of this year and into 2021.

Matthew J. Missad -- Chief Executive Officer

Thank you Ketan.

Operator

Thank you. Our next question will come from Reuben Garner with The Benchmark Company. Please go ahead.

Reuben Garner -- The Benchmark Company -- Analyst

Thank you. Good morning everybody.

Matthew J. Missad -- Chief Executive Officer

Good morning Reuben.

Reuben Garner -- The Benchmark Company -- Analyst

First, I just want to express my condolences to the UFPI team for your loss yesterday, very fitting that you posted such an amazing quarter but just wanted to say that before we get started. It's hard not to start with the retail strength, maybe can you just talk about, you guys relative to the industry and where things stand or standed in the quarter and where they stand kind of as we move into next year from a supply standpoint, did you miss out on potentially some volume again in the third quarter?

I know you mentioned having trouble keeping up earlier in the year or were you guys in a better position maybe, did you gain some business in both the Deckorators segment and the treated lumber space from competitors not being able to keep up? Just talk about kind of you guys versus the industry in the third quarter.

Matthew J. Missad -- Chief Executive Officer

Yeah, that's a great point. One of the things that we saw, probably early in the third quarter where there were still supply shortages and there was, I will call the missed opportunities just simply because we didn't have the product. Having said that, relative to a lot of the smaller competitors we were able to get product that they may not have been able to get, so that enabled us to take more share, and hopefully that trend will continue going forward as we continue to see retail retain its strength and we'll also have to be looking to time -- the time to get back into the market, as you know for the treating business we have to make sure that we have ample inventory. We don't want to run our customers out of product so everybody will be paying attention to that this fall and early this winter to make sure that we have ample supply for next year.

Reuben Garner -- The Benchmark Company -- Analyst

And on the Deckorator side up 50% -- I mean did you -- we heard in the quarter that some of your larger peers may have had some supply availability issues, I mean, were you guys able to take advantage of that or is this just kind of underlying strength that you're seeing because you guys are building out your distribution network and growing new products or is it a combination of both?

Matthew J. Missad -- Chief Executive Officer

Yeah. I think it's a combination Reuben, and I think we were able to take advantage of some situations, but I also think it's a growing strength in the product line and as people get more familiar with it they love the product, and so I would say it's -- some of it's due to competitors may be not being able to supply and some of it's just due to the quality of our products. I would tell you that as we mentioned earlier this year, we were a little bit behind where we thought we would be earlier in the year -- the year-over-year comp issues, but we've clearly made that up as we said before, we thought we would be to our target by the end of the year, and we still feel very comfortable with that.

Reuben Garner -- The Benchmark Company -- Analyst

And Matt, that's the first time I think I've heard you guys mentioned a new price point and absorbing your new capacity with that and adding new capacity in Vault and Voyage. Can you just talk about what those couple of items Trailhead, is that a lower price point a higher price point and then the Vault and Voyage new capacity, how much are you planning to add in 2021?

Matthew J. Missad -- Chief Executive Officer

Yes. So, the Trailhead is a lower price point kind of an entry-level WPC product that is intended to fall in line with some of the competitive products out there. We're excited about where it's going to position us, and so that's going to utilize some of the capacity that we are adding this year for wood-plastic composite, and in 2021 because of the strong demand for the Vault and Voyage products we want to add another 20% or so of capacity for those product lines as well. So, very bullish on the future of those product lines and it's exciting times right now.

Reuben Garner -- The Benchmark Company -- Analyst

And I hate to harp on this, but just curious the Trailhead, the lower price point I mean, is the goal there to just kind of, I mean is that an equally profitable business for you guys or is the goal just to continue to drive interest in the Deckorators suite of products and maybe upsell them to some of your other products. I mean, talk to me about kind of how you're thinking about that?

Matthew J. Missad -- Chief Executive Officer

Yeah. So again, from our standpoint, we have always tried to have a good-better-best kind of mentality, we're going to add a couple of different levels of good for us -- our pressure treated lumber is a very good product line and that's a price point product line, kind of the next level up between that and the entry level or what we would call our better product line, our midpoint wood-plastic composite product. There is a gap and pricing there so we can fill that gap with the Trailhead product, and still continue to grow that business, and then we have our premium product, which is the Vault Voyage the mineral composite line. So, it's really just an extension of that product line and trying to make sure that we're competitive in the marketplace as well.

Reuben Garner -- The Benchmark Company -- Analyst

Got it, and then I'm going to sneak one more in, if that's all right. The construction business, I was a little bit surprised to see the volume declines in site-built, is that just a function of the weakness in the starts environment back in March and April, is that a geographical thing where there are issues with some of your facilities related to COVID, or is that just kind of what the market looks like right now and a lot of the data you've seen in the housing space maybe will come -- evolve into business for you as we move into later this year in 2021?

Matthew J. Missad -- Chief Executive Officer

Yeah, there is a number of different factors in there Reuben, and you hit on most of them; one upstate New York, for example had a longer lockdown, they still -- we still have not fully optimized the facilities there so that is certainly part of that decline. There was still a little hangover on starts, I'll call it in July in some of the other markets. But I would tell you that in the Southeast and in Texas, our facilities are running full out. So, they are geographic pockets where it's just -- either demand hasn't come back or we haven't been able to operate given the COVID situation in those areas.

Reuben Garner -- The Benchmark Company -- Analyst

Great, thank you, guys, congrats on the quarter and good luck as we move through the rest of the year.

Matthew J. Missad -- Chief Executive Officer

Thanks Reuben.

Operator

Thank you. Our next question will come from Steve Chercover with D.A. Davidson. Please go ahead.

Steve Chercover -- D.A. Davidson -- Analyst

Thanks, good morning Matt and Mike.

Matthew J. Missad -- Chief Executive Officer

Good morning Steve.

Steve Chercover -- D.A. Davidson -- Analyst

So, while we are spending a bit of time on decking I just wanted to get a couple of almost point answers obviously Deckorators rebounded from a tough comp. Can you give us what the year-to-date growth is so far for Deckorators?

Matthew J. Missad -- Chief Executive Officer

I don't have that number specifically. Mike, do you have that?

Mike Cole -- Chief Financial Officer & Treasurer

I can look that up Steve, hold on a second. You have another follow-up question?

Steve Chercover -- D.A. Davidson -- Analyst

Well, yeah which is growing faster do you think, I guess, it's hard to tell from the pricing dynamics but do you think wood is recouping share from composites or does composite still continue to gain share?

Matthew J. Missad -- Chief Executive Officer

So, I think overall the market exploded this year. So, I would say that there was tremendous growth in all product lines, relative share, treated lumber versus composites. I think composites still are gaining share, although I don't know how significant it was this year. I think the rising tide lifted all the boats this year, so from my perspective, long-term treated lumber is a very good do-it-yourself product. It's a higher end wood-plastic composite or our mineral composite products tend to be more of an installer product, so I think a lot of people who are home -- who are doing do-it-yourself products and projects so that really drove a lot of lumber stuff.

Mike Cole -- Chief Financial Officer & Treasurer

I'm sorry, to answer your first question Steve, it's up 11% year to date.

Steve Chercover -- D.A. Davidson -- Analyst

Thanks Mike. And this is might seem like an oddball tangential, but a lot of people are using these outdoor sheds as almost offices or play rooms for the kids thanks to COVID. So, it's one thing that I don't think I've heard you guys specifically talk about, but if we were to buy a wood Tuff Shed that's kind of a kit, is there a strong likelihood that you make that anyhow?

Matthew J. Missad -- Chief Executive Officer

So we supply the companies that make those products throughout the country, and I don't know if you were referring specifically to the company called Tuff Shed or that was just an example. But yes, so there is, we definitely supply the shed manufacturers so, our products are likely in those units.

Steve Chercover -- D.A. Davidson -- Analyst

Yeah, I was just referring to them, because it's the one that came to mind, but ever any consideration of you having a UFPI branded shed, whether it's a playhouse or a man cave or she shed or whatever they call them these days.

Matthew J. Missad -- Chief Executive Officer

Yeah, without going too deep into history. We've went down that path before I would never say never, but I think right now, we're really comfortable with our relationship with our customers on that product.

Steve Chercover -- D.A. Davidson -- Analyst

Makes sense, and I think you're doing just fine with the current stance. Okay. And then switching gears, the growth performance in Q3, was quite extraordinary given the spike in lumber. I guess it was a bit of a source of concern for us. Can you give us some insight on how you accomplished it and are you concerned about a reversal if lumber really does crater?

Matthew J. Missad -- Chief Executive Officer

Yes. So, all of the credit goes to our teams, our purchasing team was outstanding and the operations were incredible in terms of how they managed the craziness of the lumber market. So again, I think if we didn't have the experience that we have within our company, it could have been disastrous but they were outstanding throughout. We recognize that the part of part of the performance is due to the headwind, excuse me the tailwind from the market in the third quarter, and of course we're going to face a headwind in the fourth quarter as the market drops, but again, I think we've gotten out in front of it and we've been able to blunt a lot of that -- a lot of that headwind I think. So again, it's just experienced management kind of working with our managed inventory programs, working with our vendor partners, and as we've maintained -- we're not really too concerned about the level of the lumber market on a general basis, it's just if it falls faster, rises fast in a period of time it causes us some concern for 30 or 60 days. So, we'll see some of that, but again I think our team is managing it very well so far, and we look to be able to weather that storm, as well.

Steve Chercover -- D.A. Davidson -- Analyst

Okay. And finally, Reuben kind of asked anticipated question I was going to ask in terms of site-built construction, but maybe I'll ask you to put up -- look at a crystal ball. Do you think there's any long-term permanent impacts from COVID, whether it's the demise of the down towns back into suburban living or permanent changes in shopping habits and how they might impact commercial construction?

Matthew J. Missad -- Chief Executive Officer

Yeah, I think there is a lot of takeaways, and I hesitate to make too many real long-term decisions based on the short-term information, but I think you hit on a few things. I think the retail environment is definitely changing -- it was changing before COVID, it just accelerated, so I think we have to -- we have to look at the reality of that and change our customer profile, customer mix on the commercial side, which we're already doing. But, I think if you also look at the cities, kind of the urban areas a lot of it might be related to COVID, but quite honestly, I think a fair amount is related to the safety and security in those urban areas and I think people who feel unsafe are going to move out, and so I do see that being a potential trend, particularly if we -- if we don't take the necessary steps to bring back safety and security and obviously we're prepared for it either way we. We see a much greater interest more recently here in the suburbs and moving out, which is creating more pressure on housing demand and that's a good thing overall for us.

Steve Chercover -- D.A. Davidson -- Analyst

Yeah, I can tell you that downtown Portland is shambles. Okay, well thank you and stay safe for the remainder of 2020.

Matthew J. Missad -- Chief Executive Officer

All right. Thank you Steve.

Operator

Thank you. Our next question will come from Julio Romero with Sidoti & Co. Please go ahead.

Julio Romero -- Sidoti -- Analyst

Hey good morning. Hope you're doing well.

Matthew J. Missad -- Chief Executive Officer

Good morning Julio.

Julio Romero -- Sidoti -- Analyst

So, certainly a really strong quarter, how much of the growth within the quarter, did the fixed price portion of your portfolio maybe see if it was on a stand-alone basis. I don't know if you can touch on that either on a percentage basis, unit basis or dollar basis, but kind of any of the above would be helpful.

Matthew J. Missad -- Chief Executive Officer

Yeah, I think I'd like Mike to try to take a stab at that.

Mike Cole -- Chief Financial Officer & Treasurer

Yeah, that's a difficult question to answer Julio. We don't go about trying to measure it that way. I guess, I would probably point you to more of the business units and segments that have more variable and fixed price. So, retail has more variable priced product a lot and lot of treated lumber goes through there. I mentioned earlier what the price increase was in retail and that's predominantly the ProWood pressure-treated. When you get into the industrial and the cycle -- excuse me, the construction segments that's going to be much more fixed price.

Julio Romero -- Sidoti -- Analyst

Okay, got it. The cost controls continue to trend really well. I mean, the SG&A excluding bonus was down on a dollar basis, I think in the quarter and year-to-date, maybe how much of that would be due to some temporary reductions within the year that could potentially swing back in 2021?

Matthew J. Missad -- Chief Executive Officer

There is a fair amount of temporary reductions, at this particular quarter. I think travel and related costs were down about $3 million versus last year, we called out travel earlier in Q2 as well, healthcare costs have also trended much lower. So, there are a handful of costs for the last two quarters that are definitely lower than what we would have normally planned for.

Mike Cole -- Chief Financial Officer & Treasurer

And I guess I would add there Julio. So, some of the travel, some of the business meetings that we have historically done we weren't able to do, but we have -- using technology, been able to accomplish a lot of meetings and things that we didn't do in the past. So, while some of those costs will come back, I think we've learned that we can we can do a lot more with less and so, we should be able to recoup a lot of those savings in the future too.

Matthew J. Missad -- Chief Executive Officer

Off the top of my head Julio, I think we called out maybe $10 million of costs last quarter that we felt like were not at a normalized level, the categories I mentioned and then in this quarter $3 million to $5 million or so. So, about $15 million so far for the year.

Julio Romero -- Sidoti -- Analyst

Got it. Yeah, that makes sense. And I guess just last one for me is on the M&A pipeline, I think you touched on it earlier, but you mentioned in the prepared remarks about consolidation -- you just talked broadly about the industry and you did issue some senior notes earlier in the summer. So, I guess is the inference maybe a step up in maybe the quantity of potential bolt-ons that you're targeting for 2021?

Matthew J. Missad -- Chief Executive Officer

You have very good instincts Julio.

Julio Romero -- Sidoti -- Analyst

Thanks. Okay, that's all from me. Thanks very much guys.

Operator

Thank you. And speakers, I'm showing no further questions in the queue at this time, I would now like to turn the call back over to management for any further remarks.

Matthew J. Missad -- Chief Executive Officer

Well, thank you again. Yes the third quarter was a remarkable quarter for UFP Industries. With Halloween in mind, the frightening part of this quarter, at least for our leadership is that our team now sees what's possible for our future performance. Until recently an 8% EBITDA as a percent of sales was thought to be far in our future, if reachable at all. Yes. A crazy lumber market provided a tailwind, but still our teams proved it can be done and now have set that bar even higher for themselves. We're very excited about our future and are proud to be a small but dynamic part of the land of the free and the home of the brave, and we will continue to work to ensure that these freedoms and opportunities are preserved for all Americans. Thank you for listening and have a great day.

Operator

[Operator Closing Remarks]

Duration: 44 minutes

Call participants:

Dick Gauthier -- Vice President Business Outreach

Matthew J. Missad -- Chief Executive Officer

Mike Cole -- Chief Financial Officer & Treasurer

Ketan Mamtora -- BMO Capital Markets -- Analyst

Reuben Garner -- The Benchmark Company -- Analyst

Steve Chercover -- D.A. Davidson -- Analyst

Julio Romero -- Sidoti -- Analyst

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