Universal Forest Products, Inc. | Early 2000s and Beyond
Early 2000s and Beyond
The rockier economic times of the new century provided a test for Universal's multimarket strategy. During 2000, for instance, the manufactured housing market went into a serious slump, and lumber prices dropped to an eight-year low. Nevertheless, Universal was able to compensate to a degree by increasing its DIY sales, particularly to key customer The Home Depot, and by shifting production capacity into packaging products, the sales of which grew 5 percent. Universal was in this manner able to achieve the same profit margin as in 1999, while both revenues and net income fell only slightly. There was also one major acquisition in 2000, the $29.4 million purchase of Gang-Nail Components, Inc., a producer of engineered roof trusses for site-built housing headquartered in Fontana, California—marking Universal's entrance into the southern California market.
Another development in the early 2000s saw Universal move into the installation side of the business. During early 2001 the company acquired D&R Framing Contractors, which was based in Englewood, Colorado, and provided framing services to Colorado home builders. In other 2001 acquisitions, Universal bought: the Sunbelt Wood Components Division of the bankrupt Kevco, Inc., thereby gaining its largest competitor in the manufactured housing industry and four plants in North Carolina, Alabama, Georgia, and Arizona; two facilities of Superior Truss in Syracuse, Indiana, and Minneota, Minnesota, serving the site-built construction market; and another player in the site-built sector, P&R Truss Company, Inc., operator of four plants in New York.
By 2002 revenues at Universal Forest Products had reached $1.64 billion—an impressive figure though far short of the goal of $2 billion set five years earlier. The company blamed this failure on the troubled economic times. During 2002 Universal moved into the site-built truss market in northern California by buying certain assets of Modesta-based TopLine Building Products. It also opened a new plant in southwest Michigan where roof trusses, wall panels, and floor systems began to be assembled. This plant replaced two existing plants in nearby Indiana. Surprisingly, this was the firm's first production facility in its home state; Universal had been founded in Grand Rapids and had remained headquartered there ever since because its top managers hailed from the area and had no desire to relocate. Secchia remained one of these managers until the end of 2002 when, having reached the company's mandatory retirement age of 65, he retired from active employment, though he stayed on the board as "nonemployee chairman." In advance of his retirement, Secchia sold back to Universal two million shares of company stock held by Secchia and his family, at $18 per share, a transaction completed late in 2001.
Also in 2002 the company bought the assets of Inno-Tech Plastics, Inc., thereby entering the wood alternative market. The deal enabled Universal to begin selling decking and molding products made from extruded thermoplastic polystyrene resin. Such plastic alternatives to wood were becoming increasingly popular, despite their higher price tags, because of the decreased need for maintenance and because such products were less susceptible to warping than wood. Also fueling the demand were the concerns of a growing number of consumers regarding CCA-treated lumber. Although Universal and other producers of such lumber insisted that the wood was safe, environmental groups contended that the CCA preservative, which contains arsenic, could leach from wood as it ages and pose a cancer threat to people coming into contact with it. Lawsuits began to be filed on behalf of homeowners contending that CCA-treated lumber was an inherently defective product, and Universal, as the nation's leading producer of CCA lumber, was front and center in these suits. Despite their protests about the product's safety, Universal and other CCA lumber producers reached an agreement with the U.S. Environmental Protection Agency in February 2002 wherein they voluntarily agreed to stop producing the product. Universal began converting its 24 wood preservation plants to a new preservative, ammoniacal copper quat (ACQ), that does not contain either arsenic or chromium, another potentially hazardous chemical used in CCA. Each plant's conversion cost between $50,000 and $100,000, and by late 2003 most of the overhauls had been completed.
By late 2003, Universal Forest Products was on its way to another record year, boosted by a strong construction market. Over the previous ten years, the company's revenues had been increasing by an average of nearly 14 percent per year, and its consistent profitability during this period proved the worthiness of its strategy of targeting four different markets. Through its organic and acquisition-driven growth, Universal had developed into a national supplier and had been a key consolidator within what had been a fragmented industry. Also boding well for the future was Universal's seasoned senior management team and the firm's reputation for adapting to changes in the lumber market.