UFP Industries, Inc. (UFPI) Q2 2021 Earnings Call Transcript

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UFP Industries, Inc. (UFPI -0.99%)
Q2 2021 Earnings Call
Jul 21, 2021, 4:30 p.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 UFP Industries Second Quarter 2021 Earnings Conference Call. [Operator Instructions]

I would now like to hand the conference over to your speaker, Mr. Dick Gauthier, Vice President of Business Outreach.

Dick Gauthier -- Vice President, Business Outreach

Welcome to the second quarter 2021 conference call for UFP Industries.

Hosting the call today are CEO, Matt Missad; and CFO, Mike Cole. Matt and Mike will offer prepared remarks, and then the call will be opened for questions. This conference call is available simultaneously in its entirety to all interested investors and news media through our webcast at ufpi.com. A replay will also be available at that website.

Before I turn the call over to Matt Missad, let me remind you that today's press release and presentation include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from 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.

Now, I would like to turn the call over to Matt Missad.

Matthew J. Missad -- Chief Executive Officer

Thank you, Dick, and good afternoon, everyone.

As you can see from the press release, the UFP family is en fuego. While Mr. Bezos is flying into suborbital space, the UFP team made a quantum leap to another galaxy in the second quarter. The first six months of 2021 constitute the best earnings year in UFP's 66-year history. I send a sincere thank you to all of the UFP family of companies for your incredible effort.

When the Company is successful, we share that success with our teammates, and we are grateful to share over $10 million in additional benefits and bonuses with our hourly employees for the first six months of 2021 to thank them for their exceptional effort too. You have seen a truly remarkable financial performance, and Mike will provide more analysis shortly. I would like to highlight a few items, while providing some insight into the balance of 2021.

We saw more records in the second quarter than the Grammys, yet our team is not focused on receiving awards; for them, it is about competing, improving, growing our people and opportunities, and making our company stronger. They had a grand slam in the second quarter.

We can't talk about Q2 without acknowledging the significant impact of the lumber market. We had top line help from a rising lumber market during the first half of the quarter. However, the last half saw a drastic drop in lumber prices, which made an impact on our retail variable-priced products. While we had anticipated a market reduction in that late second or third quarter, we did not anticipate that it would fall as far and as fast as it did. Included in our quarterly results was a charge of $23 million to reduce the value of inventory on certain of our variable-priced products in our Retail segment.

Since the Southern Yellow Pine market has dropped nearly a $1,000 per 1,000 in the last several weeks, the impact would have been much worse if not for the skill and dedication of our purchasing and operations teams, who managed inventories very well under the circumstances. This lumber market drop also highlighted another benefit of our new structure as our teams were able to coordinate movements of inventory and maximize utilization of on-hand items to limit the impact of the market decline. Thanks to our balanced business model, diverse product and customer mix, and a variety of pricing methodologies, we are well positioned to weather these kinds of events.

As we have discussed on many occasions, these diverse markets and pricing methodologies enables us to create a natural hedge against lumber market fluctuations like we just experienced. Last fall, when prices were rising, the Retail segment benefited overall, while the Industrial and Construction segment to suffered. Going forward for the balance of 2021, we expect that Retail will lag while Construction and Industrial will benefit.

We expect the lumber market to normalize and believe that mills will try to balance inventories to match demand. We believe the lumber market is trading today within the range where it should remain for the next 30 to 60 days, with slight fluctuations. Since most of the lumber products are sold under agreements between suppliers and customers, a significantly smaller volume is actively traded and reported via Random Lengths and other market reporting services. Therefore, this metric is subject to more fluctuation and it is less reflective of the overall lumber market than it used to be.

Certain products such as OSB remained tight. However, DIY demand is not as robust as it was a year ago, while professionals are still very busy and maintaining robust purchases for their businesses. Many believe that DIY demand is paused due to other pursuits, such as vacations and travel, which were severely curtailed due to the lockdowns in 2020. Overall, however, we remain confident in our original [Indecipherable] targets for the year.

A quick review by market shows that our Retail Solutions team was the most impacted by the lumber market decline. The segment recorded a 6% decline in unit sales versus a year ago. Looking at retail business units, the ProWood unit sales were down 17% as demand returned to more normalized levels from a significantly higher sales in Q2 of 2020.

The Sunbelt team has done a great job growing their business, and more recently, integrating the acquisition of Spartanburg Forest Products. We have been impressed with their treating operations and quality, and have worked together to target synergies in our purchasing and administrative areas. This team suffered the most from the lumber market drop as customer orders did not match customer forecast.

UFP-Edge, our siding pattern and trim business unit, was up 27% in unit sales, as new capacity came online during the quarter. More capacity will be added in Q4 and early in 2022 to meet expected demand for our high-quality finishing services and our pattern and trim products.

The Deckorators unit sales increased 11% over record Q2 2020 levels. The patented Deckorators' Voyage and Vault mineral-based composite products continue to grow their fan base among contractors as the strength to weight ratio, product flexibility and ease of installation, make it a preferred product. As a result, the production is sold out through year end. And as previously disclosed, additional mineral-based capacity will be coming online starting in November of '21, and by the end of '22, we will have doubled the mineral-based capacity. Our wood-plastic composite line is sold out through November, with additional capacity coming online in 2022, which will add around 30% to 35% more capacity in those product lines. Deckorators continue to feel some of the impacts of higher resin and transportation costs in Q2, while passing along some of these costs to customers during the quarter.

Handprint, the new home and decor business unit, formally known as Dimensions, will be rolling out its new website in late Q3 and will be adding to its ready-to-make craft and product -- and project line of products. Handprint continues to gain more sales volume with its cut-to-size [Phonetic] product offering for building materials retailers too.

Outdoor Essentials has expanded its fencing range to include a variety of materials, including aluminum and composite. It is also unveiling a new raised planter for 2022, specifically targeted for customers' e-commerce portals.

Moving to the UFP Construction segment. Unit sales increased 29% over the second quarter of 2020. Strong single-family residential demand continues in the geographic markets we serve. And multi-family remains solid and may even begin to expand again as developers who held off due to high prices reengage as commodity prices normalize. Steel products, such as the connectors used in our trust [Phonetic] manufacturing, remain in short supply due in part to overseas shipping constraints.

Unit sales to the factory-built business unit rose 56%, as strong demand continues. The robust growth in factory-built reflects the growing recognition that it is an authentic and much needed affordable housing option, and our factory-built team has been working hard to meet this need. Our team continues to grow its new product portfolio for the factory-built market, and we should see growing new product sales units by Q4, and several new product lines. The factory-built customers have also seen shortages in certain items such as appliances and other items using microchips, which has moderated their growth somewhat.

Unit sales to the site-built customers rose 32% in the quarter. The customers in this business unit are bullish on the market and have been very complimentary of the ability of our teams to supply product in this challenging market. They're also imploring us to add more capacity to serve their growing needs.

Unit sales to the commercial construction unit rose 11%. More importantly, our commercial business unit was profitable in Q2 and focused on improving margins and rationalizing customer concentration. We continued to position the commercial business unit for significant improvements in performance and have been refining our customer mix to ensure that we do not work for free, or worse yet, pay a customer to do work for them.

Our concrete forming business unit continues to grow. The team has been offering new solutions to its customers and expanding its supply network geographically. We expect continued organic growth in this market and are looking at potential targeted acquisitions as well.

UFP Industrial segment grew unit sales 73% over lockdown-impacted 2020. Organic growth accounted for 26% of unit sales growth. Acquisitions, led by PalletOne, T&R and Pallet USA, comprised 47% of the unit growth.

The assimilation and integration of these acquisitions is going very well operationally. Both TNR and Pallet USA have been part of the family for over a year and they've been working well in their geographic regions. PalletOne was a very large acquisition for us and the cultural fit has been incredibly good. They have great team members and have a can-do spirit and treat each other well. They are also becoming an integral part of our Industrial leadership team and the exchange of best practices has been exceptional. We have already utilized the PalletOne experience with automation and technology to fuel our adoption in existing facilities, and we expect that process to grow. Unit sales of protective packaging products, our newest runway in Industrial, rose 53% in the quarter.

Gross profit for the Industrial segment rose 262%, well in excess of unit sales growth. And PalletOne made a big impact by contributing 54% of the increase in gross profit. Rationalizing capacity, enhancing operating leverage and utilizing better analytics helped improve this gross profit return. The Industrial team is working together to drive increased automation, consolidate capacity and utilization of its vast facility network to serve national and regional customers better.

New product sales increased to $232.1 million for the quarter and are $396.9 million year-to-date, well in excess of our year-to-date budget. We also launched our new innovation accelerator initiative in June, and it will work with the business units to identify new product opportunities and rapidly design prototype and test them to increase our speed to market. We have increased the breadth of products in each business unit, but we need to be even faster to vet and bring these new products to consumers more quickly.

We continue to deploy capital, targeted on automation and expansion to promote and invest in new products and technology and to develop our teams. We have been forced to increase our spend on regulatory issues, cyber security, and other non-value added requirements as well. Acquisitions remain a strategic growth initiative as we pursue targets in each segment with an emphasis on scalable and synergistic new products or services, complementary value-added products and core competencies. Our capital allocation strategy targets acquisitions at reasonable ROI-based values first, followed by greenfield growth and automation and efficiency projects.

During the quarter, we completed Sunbelt's acquisition of Spartanburg Forest Products, which added scale to the Sunbelt operations. We expect to scale the Endurable Building Products acquisition with our existing site-build business unit geography as it adds adjacent product lines for both new and existing customers. And our Handprint unit added Walnut Hollow Farm, which introduces Handprint to craft and decor customers and allows expansion through the existing manufacturing and distribution network of UFP Retail.

Given the number of automation opportunities available to us, which help us become the low cost producer and grow our businesses, we are adding an additional $25 million for capital expenditures in 2021. Given long lead times for equipment, most of the installations will not occur until late Q4 or early Q1 of 2022.

Labor continues to be a challenge as we have more than 500 open positions posted on a weekly basis. In geographic areas where the states have eliminated the additional $300 a week bonus, the labor market has loosened up somewhat. In other areas, where tax payers are subsidizing cash and benefits to the tune of nearly $20 an hour, not surprisingly, hard working employees are tougher to find. However, our HR teams and business operators have worked together to craft creative solutions for the markets where our facilities are located. And by taking care of our strong performing team members, using as one example I previously mentioned, the $10 million and year-to-date bonuses and extra benefits paid to our hourly employees, we hope to be able to alleviate challenges in finding and retaining talent. We have expanded our recruiting to discover additional sources of employees and broaden our outreach to make sure that all demographic groups are aware of the opportunities for them at UFP. And we have incentivized existing team members to recruit from their own network of friends and acquaintances.

Now I'd like to turn it over to Mike Cole, who will provide more details on our financial performance.

Michael R. Cole -- Chief Financial Officer

Thanks, Matt, and hello, everyone.

Our consolidated results this quarter are highlighted by unit sales growth of 47%, including 11% organic growth and 36% growth from acquired businesses. Organic growth included $88 million of new product sales growth, which continues to provide a margin lift for us. And operating profits grew by 157%, as acquisitions contributed $15 million in operating profit and $18.5 million in EBITDA for the quarter.

Now, I'll review our income statement and sales by segment. Sales to the Retail segment increased 107%, consisting of a 59% increase in selling prices and a 52% unit increase from acquisitions, offset by a 4% decrease in organic unit sales. Organic growth was impacted favorably by a 27% increase in UFP-Edge and 11% increase in Deckorators and a 6% increase in Outdoor Essentials. New product sales for the Retail segment were also strong, growing by over 32%. Unfortunately, our ProWood business unit reported a 17% decrease in units compared to last year, reflecting a decline in demand as consumers shifted spending as a result of pandemic-related restrictions being lifted and the economy being reopened.

Sales to the Industrial segment increased 172%, consisting of a 99% increase in selling prices, 26% organic unit growth, and a 47% unit increase resulting from acquisitions. Year-over-year organic growth was strong due to the impact of the pandemic-related restrictions last year and strong demand this year, while market share gains from new customer and new product sales contributed $33 million and $27 million, respectively, to sales growth for this quarter.

Finally, our sales to the Construction segment increased 106%, consisting of a 77% increase in selling prices and 29% unit growth, including a 3% contribution from acquisitions. Organic unit growth was driven by our factory-built and site-built housing business units, which achieved 56% and 24% increases, respectively. Our commercial business unit also achieved an 11% unit increase. Again, these organic increases were largely due to the impact of the pandemic-related restrictions last year and a strong demand environment this year.

Moving down the income statement, our second quarter gross profits increased by $216 million or 106%. By segment, Retail increased by $39 million in spite of a $23 million reserve to reduce the value of our treated inventory to net realizable value at quarter end, primarily in our new Sunbelt and Spartanburg business units. Industrial and Construction gross profits increased by $97 million and $73 million, respectively. Recent acquisitions contributed $3 million to Retail, $2 million to Construction, $23 million to Industrial, and $30 million to our overall increase in gross profits. These increases resulted from a variety of factors, including strong unit sales growth and leveraging fixed costs, increased sales of value-added and new products that have higher margins, and more effectively adjusting for increases in lumber and other costs and our selling prices. Lumber prices that continue to fall and normalize will continue to impact our gross profits of commodity-based products sold on a variable price, primarily our treated lumber products that were not purchased through a vendor managed inventory program. We anticipate that this will be more than offset by the benefit we experienced on the value-added products sold on a fixed price, primarily in our Industrial and Construction segments.

Continuing to move down the income statement, our SG&A expenses increased by almost $71 million, consisting of $15 million from recently acquired businesses, a $33 million increase in bonus expense, and a $9 million increase in sales incentives. The remaining $14 million increase is primarily related to higher compensation and benefit costs and travel cost which have started to normalize.

Finally, our operating profits increased by $145 million, which was comprised of a $16 million increase in Retail, a $64 million increase in Industrial, a $48 million increase in Construction, and an $8 million increase in international. Again, acquisitions contributed $15 million to our operating profits, primarily in our Industrial segment.

Moving on to our cash flow statement. Our cash flows used in operations for the year was $116 million and consisted of net earnings and non-cash expenses totaling $328 million compared to $148 million last year, and a $444 million increase in net working capital since the end of December of 2020 compared to $300,000 increase in the prior year, reflecting strong market demand and record high lumber prices this year. Our people continue to do a great job managing our working capital efficiently as evidenced by our cash cycle, which remains on pace with last year.

Our investing activities include capital expenditures totaling $79 million, including expansionary and efficiency capex of $42 million. We're now planning for total capital expenditures for the year of $140 million, which includes projects to expand our capacity to produce our mineral-based and wood-plastic composite decking products, our UFP-Edge siding pattern and trim products, expand our machine-built pallet capacity and take advantage of automation opportunities. And $433 million was spent on acquisitions so far for the year, including the recent additions of Spartanburg Forest Products, Walnut Hollow and Endurable Building Products this quarter.

Lastly, our financing activities include another $9 million of dividends paid this quarter at a rate of $0.15 a share, a 20% increase in the rate over last year. And net borrowings under our revolving credit facility totaling $260 million to finance the increase in our net working capital.

With respect to our balance sheet, at the end of June, our total debt, net of cash was $562 million and our total liquidity was $288 million.

Looking forward to Q3 and Q4, we expect our seasonal working capital investment of $444 million to be converted to cash as lumber prices and demand normalized, leaving our liquidity and balance sheet in strong shape as the year progresses.

That's all I have in the financials, Matt.

Matthew J. Missad -- Chief Executive Officer

Thank you, Mike. Now I'd like to open it up for any questions you may have.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question will come from Stanley Elliott with Stifel. Please go ahead.

Stanley Elliott -- Stifel -- Analyst

Hey, guys. Thank you all for taking the question, and congratulations on another great quarter, very nicely done. Can you talk on the Deckorators business? It sounded like that there was somewhat inventory constrained. Curious to kind of get your view -- a little bit of a step down from Q1, but still very good numbers in terms of the units. But just curious kind of what you're seeing in the marketplace there.

Matthew J. Missad -- Chief Executive Officer

Yeah. We are still seeing very, very strong demand. And, again, I think we were kind of lapping year-over-year where we had capacity issue. A year ago, we were full up, as I mentioned, on the mineral-based through the end of the year and on wood-plastic composite in November. So, we're still feeling really good about the demand there. Obviously, I mentioned a couple of cost challenges that I think will be rationalized out, and so we should be able to get ahead of those certainly by the end of the third quarter. So, again very, very optimistic about where we are there.

Stanley Elliott -- Stifel -- Analyst

And when we think about kind of the working capital unwinding in the back part of the year, it's going to be very nice boost. With so many growth opportunities, it sounds like that we could still see a fair amount of M&A activity on the horizon?

Matthew J. Missad -- Chief Executive Officer

Yeah, I think that's one of our forefront ideas. That's what we're trying to get accomplished here. And, again, we want to make sure valuations are right and continue with our conservative approach to how we value and acquire companies. But, yeah, definitely, the pipeline is full. There's a lot of opportunities out there, and we just want to make sure we choose the right ones and the market for valuations is right.

Stanley Elliott -- Stifel -- Analyst

Perfect. And then last from me. Any comments on the visibility that you're hearing from your construction customers as it relates to state projects moving forward, other infrastructure projects moving forward?

Matthew J. Missad -- Chief Executive Officer

We have not gotten a whole lot more insight into the kind of infrastructure type projects. And maybe it's because I probably turned a little bit of a deaf here to some of that until it becomes a reality. There's been talk about it for several years. And as soon as something hits [Phonetic], I think then it will become much more real. But our concrete forming group is probably going to be the one that would be most impacted there in a positive way. So, we're hopeful that we end up with something that's reasonable and rational and that we can participate in it.

Stanley Elliott -- Stifel -- Analyst

Perfect, guys. Thank you very much. Appreciate the time, and best of luck.

Matthew J. Missad -- Chief Executive Officer

Thank you.

Operator

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

Kurt Yinger -- D. A. Davidson -- Analyst

Yeah. Good afternoon, Matt, Mike and Dick.

Matthew J. Missad -- Chief Executive Officer

Hi, Kurt.

Michael R. Cole -- Chief Financial Officer

Hey, Kurt.

Kurt Yinger -- D. A. Davidson -- Analyst

Hey, just a couple of questions here. I mean, first, you touched on customers and site-built looking, to you perhaps, at capacity. I think in the past that's been an area where you've been kind of cautious growing the footprint given the cyclicality. Has that changed at all? And do you feel like in this type of environment, the adoption of component solutions can be more significant than it has been in the past?

Matthew J. Missad -- Chief Executive Officer

Yeah. Kurt, I still think there is opportunities for us to convert. There's maybe not as many people that are doing total stick framing, but our floor cassette [Indecipherable] roof trusses, wall panels, selling more components is definitely where we want to go, and I think that's the capacity they are looking for as labor is tight, particularly skilled labor in the field. So, we're still going to be cautious about it. But if we have good insight into both the customer's plan and our own ability to service it, there'll be areas that we will continue to expand. Again, we're trying to keep it within our basic geography that we're in today. We want to still stay away from the old -- the so called boom and bust markets. But where we are today, I think, a very steady stable type markets.

Kurt Yinger -- D. A. Davidson -- Analyst

Got it. Okay. That's helpful. And then, obviously, it was a great 2020, but your commentary this afternoon seems to be more cautious than we've heard previously in terms of the repair and remodel and DIY side. Just curious how recently you've maybe seen some deterioration there? And are you concerned at all that this is more than just a tough comp situation and that the market could really start to slow down quite a bit?

Matthew J. Missad -- Chief Executive Officer

Yeah. I think, I tried to outline the differences there. The professional builder or contractor, they're is still extremely busy. And -- so that indicates the demand is solid. I do think DIY, we can discuss whether they pulled forward from sales in 2020 from future years or if it was because people are locked down at home and they just did more projects. So, I think it will normalize. What I'm trying to convey mostly is that we just had a blowout quarter, and I'm trying to moderate people's expectations relative to repeating that type of quarter.

Kurt Yinger -- D. A. Davidson -- Analyst

Got it. Okay. That makes sense. And then on the idX in commercial construction businesses, what type of progress have you made there in terms of getting that business back to breakeven? And are you seeing any green shoots in terms of pent-up demand or new quoting activity, anything along those lines?

Matthew J. Missad -- Chief Executive Officer

Yeah. I think there has been a really fundamental shift as we've tried to focus on it. And that team has been working extremely hard trying to get the ship rightsized, I'd say, and in terms of both looking at and analyzing their customer base, their margin profiles for those customers, and what I would call, the imbalance where the customer had historically held most of the leverage and us taking the position that -- we need to be able to make money, as I mentioned in my remarks. We need to be able to make money in order to stay in business, so we've changed our pricing methodology and we probably have lost a few customers along the way, but that's the right thing to do. So, they are running at a profitable rate here for the last couple of months and we anticipate that will continue. So, it's a big turnaround. We're still not there yet, but they are on the right path, and I really thank them for all the effort that they've put forth.

Kurt Yinger -- D. A. Davidson -- Analyst

Okay. All right. That's encouraging. And then just last one from me, kind of higher level. I mean over -- with the performance over the last year and some of the benefits from the rise in the lumber market, I think there's been a lot of concern here that has -- that's rolled over, you will give a lot of it back. But I think Mike said that with the trend you're seeing in lumber, you expect the benefits from the fixed price products to kind of outweigh the headwinds you might see on the variable side. Could you just maybe walk through some of the other puts and takes there as we think about the back half of the year and into 2022? I mean, is the comp issue associated with lumber, in your view, a much smaller issue than it seems to be to people you talk to, or at least, in terms of maybe what the stock might suggest?

Matthew J. Missad -- Chief Executive Officer

Yeah. I think the way that I would encourage folks to look at, at least our company, is we try to focus on unit sales. Sales dollars is going to -- is not going to be a good comparable, because in the lumber market, pricing impacts so much of that. But if we look at unit sales, and more particularly gross profit dollars on a per unit basis and overall, that's kind of where I would focus the attention and we feel good about that. As you mentioned, the fixed price -- and Mike talked about fixed price items in Industrial and Construction, and they actually had a headwind a year ago as prices were rising, so they'll have, hopefully, a little bit more of a tailwind this year with the lower price levels. So -- and the question is, how does that balance off against the challenges that Retail will face from the declining market in that area. So, we feel good overall. As I mentioned, I think we feel very comfortable with our original forecast for the year. But I think as we look at the different stress points and the different margins within the segments, that's what we would expect to see.

Kurt Yinger -- D. A. Davidson -- Analyst

Okay. All right. Well, I appreciate all the color, and good luck here in Q3, guys.

Matthew J. Missad -- Chief Executive Officer

Thank you.

Michael R. Cole -- Chief Financial Officer

Thanks, Kurt.

Operator

Thank you. Our next question will come from Jay McCanless with Wedbush Securities. Please go ahead

Jay McCanless -- Wedbush Securities -- Analyst

Hey, good afternoon. Great quarter, guys.

Matthew J. Missad -- Chief Executive Officer

Thanks, Jay.

Jay McCanless -- Wedbush Securities -- Analyst

I guess, the first question on ProWood, have you ever communicated or try to find out from the field what the split for the sales on that or for do-it-yourself versus contractors installing those decks?

Matthew J. Missad -- Chief Executive Officer

Yeah. It's really, really difficult to do. I think in prior years, I'd say, 10 years ago, actually, Jay, was probably a little easier to do, because the big box retailers were primarily DIY. And right now, all the big box retailers have been pushing more to the pro customer, so it's kind of blurred that line. We can kind of tell who our independent retail customers are, that generally serve the professionals and the contractors, but we haven't been able to really nor have we necessarily try to get out the detail level at the big box.

Jay McCanless -- Wedbush Securities -- Analyst

Okay. All right. And then the next question I had, just maybe give me a little more of you're supporting, I guess, ideas that lumber prices are going to be able to stabilize at these levels? Is the transportation issues candidly [Phonetic] getting better? Or you're seeing a little bit better delivery of wood in the South? Just maybe -- because we hear so much in the media about all these transportation issues and supply chain issues. Just what are you seeing that makes you feel like lumber prices can stabilize here because with the puts and takes of the acquisitions in there getting -- at least getting close on the lumber price would certainly help.

Matthew J. Missad -- Chief Executive Officer

Yeah, that's an excellent question, and I'm not sure I got a great answer for you on that. What I would say is that transportation issues are still there. They've moderated quite a bit. I think the international transportation issues are still a bigger problem, bigger challenge. But I would say the production side on the mill side has improved. The demand takeaway hasn't been as great as originally forecast, particularly at Retail. And I think that's created a little breathing room in the marketplace. I think a lot of retailers had considerable amounts of inventory in their supply chain, and that the takeaway being not as great has really opened up a lot of product availability. Again, certain items are still tight, but I'd say overall, there is a good supply right now.

Jay McCanless -- Wedbush Securities -- Analyst

Okay. And then just digging down on that retailers, I mean, do you feel like the retailers are overstocked right now or is the sell-through sufficient to keep you guys maybe not up in terms of units year-over-year, but at least flat to slightly negative?

Matthew J. Missad -- Chief Executive Officer

Yeah. I would say, it is tough to paint them all with a broad brush. I think, they all had from strategies in terms of what their purchasing strategy was. So some wanted to commit early and make sure they have supply, given last year when they ran out of supply. So I would say that, overall, I think your last statement is accurate, though, in terms of how we would look at unit sales takeaway.

Jay McCanless -- Wedbush Securities -- Analyst

Okay. All right. That sounds great. Thanks, guys.

Matthew J. Missad -- Chief Executive Officer

Thank you.

Operator

Thank you. And our next question will come from Ketan Mamtora with BMO Capital Markets. Please go ahead.

Ketan Mamtora -- BMO Capital Markets -- Analyst

Hi, can you hear me?

Matthew J. Missad -- Chief Executive Officer

Yes, Ketan.

Ketan Mamtora -- BMO Capital Markets -- Analyst

Hey.

Matthew J. Missad -- Chief Executive Officer

We thought you did a mic drop.

Ketan Mamtora -- BMO Capital Markets -- Analyst

Sorry about that. Matt and Mike, congrats on a very strong quarter.

Matthew J. Missad -- Chief Executive Officer

Thank you.

Ketan Mamtora -- BMO Capital Markets -- Analyst

First question, maybe to start off on the Industrial side, very strong performance there, especially on the gross profit side. Two part question. Maybe talk a little bit around, from a unit sales standpoint, where you are seeing areas of strength and products where you are seeing increased traction? I know kind of one of the focus areas has been kind of growing on the mixed material side. So, with some of the acquisitions you've done, maybe talk about kind of where you are seeing the most traction? And then, obviously, great performance on the gross profit side. Talk a little bit about kind of where you've been able to make the most progress?

Matthew J. Missad -- Chief Executive Officer

Well, there's a lot to unpack in those questions there, Ketan, so I'll try to hit the high points. So, on the Industrial side, the Industrial teams have been doing just an outstanding job. What they've been focused on is providing more value-added customer-oriented solutions. And as you will recall, historically, we started out selling sticks and panels to people who made their own crates and packaging materials. And that's been a constant goal of ours as to continue to convert those types of customers to customers who will buy our complete value-added program. And I think they've done an outstanding job of that. They've also utilized their own pricing analytics and tools to make sure that, again, as we mentioned before with some of the commercial things, let's make sure that we're properly getting paid for the value that we provide. And I think they've done really, really nice work in that area as well. So, I think on Industrial, that is part of their strategic plan and they've just had really, really good execution.

Overall, I think, again, it's a tale of the different markets. And so if you look at Construction and Industrial, you've seen improvement and enhancement there and a lot of its efficiency in terms of getting utilization and operating leverage pickups too, but lumber market certainly helps there. Retail is the one that we've already talked enough about that one. So, they were hitting it out of the park last year, and we don't expect that to happen this year, but we still expect it to be strong.

Ketan Mamtora -- BMO Capital Markets -- Analyst

Got it. And then, sticking with Industrial, obviously, on the pricing side, it was a big help, almost 100% year-over-year increase. As we look into the back half of the year, and I know that you all don't provide specific guidance, but I'm just trying to understand what is the right way to think about it, especially given how sharply prices -- lumber prices have fallen over the last eight weeks? Can you just help us -- kind of help us frame what is the right way to think about it?

Matthew J. Missad -- Chief Executive Officer

Yeah, I think, Mike and I have talked a lot about that. I'll kind of turn it over to Mike. I think there some examples and metrics that you can probably look to that will help guide you there. Mike, can you?

Michael R. Cole -- Chief Financial Officer

Yeah. There is a natural lag in the pricing for -- on the Industrial side on the fixed price side. For -- one reason is because you got to sell through that inventory that you bought in order to be able to supply the customer. So, there is just kind of a natural lag that occurs that helps us, and we would expect that -- as a result of that lag, that's really going to help us offset in the Construction and the Industrial side with what's going to occur on the Retail side with more variable priced product.

I think the other thing that's happening though is there is a lot of pricing rationalization, I think, that's occurred throughout the Company, just making sure now as we're able to add more value and provide more solutions for our customers, we're making sure we're getting paid for it in our prices. And so there is all those activities that are going on, which I think sets up for Industrial and Construction in particular a nice healthy operating margin environment in the back half of the year.

Ketan Mamtora -- BMO Capital Markets -- Analyst

Understood. And then shifting to the Retail side, I'm just curious, we've -- there is -- it seems like on the treated lumber side, there is some easing in demand. We've seen a sharp drop in lumber prices as well. I'm just curious, are you seeing any signs of having any ripple effects on the composite decking side? From what I heard in your prepared remarks, Matt, it seemed like that demand is still pretty strong. But I'm curious if you are starting to see signs for at least in sort of Q4 and into next year of having any impact on composite decking demand?

Matthew J. Missad -- Chief Executive Officer

Yeah. Maybe I could kind of frame it in a slightly different way, Ketan. So, as I look at the composite products that we provide, more and more of those are do-it-for-me projects as opposed to do-it-yourself projects. They're spending a lot more money on them and they want to make sure it's done right. So what we're seeing with the composite is consistent with that. And what we're seeing on the DIY side for the ProWood decking, for example, that's much more of a do-it-yourself type project. People feel comfortable doing that. And it's kind of consistent with the overall theme that says, hey, maybe people are taking a pause and they're going on vacation and they're doing other things now that they are able to do it. So, I don't see anything that says the composite demand is going to fall off, again absent some other kind of change in the economy that isn't obvious today. So...

Ketan Mamtora -- BMO Capital Markets -- Analyst

Got it. That's very helpful. I'll turn it over. Good luck in the back half of the year.

Matthew J. Missad -- Chief Executive Officer

Thank you, Ketan.

Operator

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

Matthew J. Missad -- Chief Executive Officer

Thank you. As we look ahead, we expect that unlike Mr. Bezos with 11 minutes of heavens, which ended when he landed on the earth, the UFP team will continue its incredible focus, adjust to the economic changes that inevitably will come our way, and to perform our plans. Our business model helps chart the course, but our talented and experienced teammates are the ones responsible for our ultimate success. Whether it's crazy lumber market, unpredictable government or an Ohtani curveball, I'm confident that we will win.

Thank you for your investment, and have a great day.

Operator

[Operator Closing Remarks]

Duration: 51 minutes

Call participants:

Dick Gauthier -- Vice President, Business Outreach

Matthew J. Missad -- Chief Executive Officer

Michael R. Cole -- Chief Financial Officer

Stanley Elliott -- Stifel -- Analyst

Kurt Yinger -- D. A. Davidson -- Analyst

Jay McCanless -- Wedbush Securities -- Analyst

Ketan Mamtora -- BMO Capital Markets -- Analyst

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