Prepared remarks
Good day, and welcome to the UFP Industries second quarter 2026 earnings conference call and webcast. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Stanley Elliott, Director of Investor Relations. Please go ahead.
Good morning, everyone. Thank you for joining us to discuss UFP Industries Second Quarter 2026 results. Joining me on our call today are William Schwartz, our President and Chief Executive Officer; and Michael Cole, our Chief Financial Officer. Following our prepared remarks, we will open the call for questions. Before I turn the call over, let me remind you that yesterday'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 expectations. These risks and uncertainties include, but are not limited to, the factors identified in the release, in our most recent annual report on Form 10-K and in our other filings with the Securities and Exchange Commission. Today's presentation will also include certain non-GAAP measures. For a reconciliation of these non-GAAP measures to the corresponding GAAP measures, please refer to our earnings press release at our website, ufpi.com. I will now turn the call over to Will.
Good morning, everyone. Thank you for joining today's call to discuss our financial results for the second quarter of 2026. On recent calls, we've discussed signs of stabilization across much of our portfolio. That trend continued in the second quarter and is best demonstrated in our net sales increasing 2.6% from year ago results driven by a 1% increase in organic volume and a 2% contribution from recently completed acquisitions. Mike will provide the detailed financial bridge in a moment. Our positive organic growth at the consolidated level is an important milestone, particularly in a market environment that remains challenging and difficult to forecast. To put this in perspective, this is our first quarter of positive year-over-year organic growth since the third quarter of 2022. This performance is especially encouraging because it comes at a time when many of our end markets remain flat at best and continue to feel pressured. It reflects the strength of our pipeline of innovative products, the benefits of our diversified portfolio and the disciplined execution of our teams across the company. UFP has always been committed to disciplined growth. Since becoming CEO, one of my priorities has been to ensure we continue to outgrow our respective end markets while repositioning the business towards our long-term margin and return objectives. We remain committed to these targets and are focused on achieving them by focusing on these priorities, investing in our highest margin core businesses, including disciplined strategic M&A, building brand awareness, introducing new and innovative products while enhancing our value-added product mix, and driving operational excellence across the enterprise. I am pleased with the progress we've made against these priorities during the quarter, and I'd like to highlight a few of them now. We invested $122 million to acquire MoistureShield, Berry Pallets and John Rock. We discussed MoistureShield and Berry Pallets on our last call, and we are equally pleased to add John Rock to our industry-leading PalletOne operations. Strategically, these acquisitions fill important geographic gaps, enhance our service capabilities and add needed capacity to support our long-term growth plans. Our M&A team remains very active, and our pipeline continues to be robust. We remain in an enviable position with ample financial flexibility given our conservative capital structure. We are pleased with the success of our recent new product introductions. We continue to believe that innovation will be a growth engine for the company and saw meaningful growth sequentially and from year ago levels, driven by contributions across all three of our segments, and we will continue to focus on innovation. We also continue to execute our cost management strategies and drive productivity improvements across the enterprise. At the same time, we are rightsizing and optimizing capacity while investing in automation, technology and machine learning to improve operations in real time and create greater value over time. A new and immediate area of focus for our team is managing transportation costs. While we have been largely able to offset high diesel costs through fuel surcharges and selective pricing, tighter market capacity resulting from regulatory changes and stronger enforcement rapidly drove a sharp increase in transportation costs with rates during the quarter increasing approximately 30%, excluding fuel. To put the magnitude of this increase in perspective, the increase in spot rates in the quarter was more rapid and severe than we experienced during COVID. More recently, these rates have stabilized, but at elevated levels that we expect to persist for the foreseeable future. In response, we are adjusting our pricing where appropriate and continuing to pursue operational efficiencies to mitigate the impact. Now turning to our segments. In our Retail segment, ProWood sales rebounded as we expected and came in well ahead of the overall repair and remodel market as we lap storm-related demand and intentionally exited certain lower-margin commodity sales. Deckorators continues to perform well, supported by strong customer demand for our branded decking products and recent investments in capacity. In April, we began shipping Surestone decking products from our new greenfield location in Buffalo, and we are seeing throughput improvement at our Selma plant. Both contributed to sales growth in the quarter. Demand for our decking products continues to exceed our current production capacity. We ended the quarter with a $30 million backlog, which we expect to reduce through the year as plant capacity optimization efforts are completed. We remain encouraged by demand from both customers and consumers. Our $30 million advertising program continues to increase customer awareness and consideration. Sample orders, website traffic and other metrics have more than doubled since the start of the program. Importantly, we believe we remain on track to deliver $100 million of decking sales growth in 2026, excluding the MoistureShield acquisition announced earlier this year. The integration of the former MoistureShield facility into Deckorators is progressing well with several key operational and training milestones completed. As discussed in prior quarters, TrueFrame, our new Joist product offered by ProWood remains another attractive growth opportunity. Customer response has been strong, reflecting the value and time savings we provide to contractors. These results are supported by continued enhancements to the ProWood dealer online platform, which makes browsing, ordering and tracking a more seamless experience. Finally, customer feedback on Arris, our new trim product featuring Surestone technology has been very positive and was launched in mid-July. Our Packaging segment continues to outperform markets despite macro uncertainties, higher input costs and freight pressure. We are gaining traction and winning with scalable strategic customers across the industrial economy. Our national footprint, leading design and engineering capabilities, along with our strategy to grow alongside key national customers is showing up in Structural Packaging's results. We continue to see strong quoting activity and are encouraged by recent contract wins. Much like prior quarters, the market and pricing environment remain competitive for our pallet business. But even here, we are seeing pockets of stabilization. In our Protective Packaging business, the two recent greenfield operations in Indiana and Nevada are increasing production levels, positioning us for market share gains and improved profitability in 2027. Closing with our Construction segment. The macro environment in our Construction segment has remained consistent for the past several quarters. New residential construction remained soft and accounted for all of the profit pressure in the quarter. At the same time, we believe that each quarter, we are moving closer to finding a bottom in the business as year-over-year comparisons become easier in the back half of the year and the increase in our year-over-year backlog provides some cautious optimism. We are continuing to invest in automation and other initiatives to improve our cost position and throughput. One example of these initiatives is the Frame Forward Systems solution selling approach in our site-built business and launched in February at the International Builders' Show. It allows us to go to market with a systems-based offering that helps our customers save both time and money on the job site. We are seeing steady growth in new product sales, particularly in our light gauge metal offering. Similarly, in our factory-built business, we are gaining traction with our strategy to deliver more value-added content. Across both site-built and factory-built, we are raising the bar for off-site manufacturing and helping customers address labor and efficiency challenges on the job site. We also believe provisions in the recently passed 21st Century ROAD to Housing Act and broader efforts to improve housing lines up well with our strategy, though it will take time for any benefits to show up in our results. Our concrete forming business continues to expand its product and service offering to meet customer needs wherever concrete is poured. Our goal is to capture more of our customer spending by offering solutions that help them address labor challenges on the job site. Finally, our commercial business continues to deliver strong results as we gain market share, expand the end markets we serve and benefit from prior restructuring actions that improve productivity. Overall, I am pleased with how our balanced portfolio has performed in a difficult environment. While conditions remain dynamic, we are well positioned to create shareholder value as demand normalizes. And even with the headwinds we have faced, our margins remain 100 basis points higher than in 2019. As we move through the final six months of the year, we continue to remain focused on operational efficiency, disciplined growth and targeting higher returns on invested capital as we continue to focus on our key priorities that will help us make progress towards our long-term goals. The last 12 months have brought their share of surprises, and I'm proud of the team for responding with resilience, discipline and continuing to focus on what we can control. While the environment remains challenging, I believe the bright spots I have highlighted today are the direct result of executing against our disciplined strategy, and I want to sincerely thank our talented UFP teams for their hard work and commitment. I will now turn over the call to our Chief Financial Officer, Mike Cole, and then I look forward to answering your questions.
Thank you, Will. Building on Will's comments, the quarter showed improving top line stability, while freight pressure weighed heavily on profitability. Net sales for the second quarter were $1.88 billion, ahead of plan and up 3% from $1.84 billion last year. Performance was mixed across our business units. Strong growth in Deckorators, Structural and Protective Packaging and concrete forming and commercial was supported by share gains and stable market conditions. That growth was partially offset by volume declines in PalletOne and businesses tied to new residential housing. Overall volume increased 3%, including a 2% contribution from acquisitions and 1% organic unit growth. Pricing was flat overall as competitive pressure in Site-Built and PalletOne was offset by higher lumber prices passed through to customers. Adjusted EBITDA was $154 million, down $20 million from last year and margin declined to 8.2% from 9.5%. The decline was driven entirely by flatbed transportation costs, which rose sharply during the quarter as carrier capacity tightened. Sequentially, spot rates began increasing in April and reached a peak in June, resulting in an average increase for the quarter of over 30%, excluding fuel. This caused our year-over-year transportation costs, net of fuel surcharges to increase $27 million or 1.6% of net sales. Excluding transportation, higher profits in ProWood, Deckorators, Edge, Structural Packaging, Concrete Forming and commercial more than offset declines in Site-Built and PalletOne, demonstrating the value of our balanced business model. Turning now to our segments. Retail sales were $819 million, up 4% from last year, reflecting a 3% increase in pricing and a 2% contribution from acquisitions, partially offset by a 1% organic unit decline. By business unit, ProWood units declined 1% and Edge declined 17% as we continued restructuring that business. These declines were substantially offset by 9% unit growth in Deckorators. ProWood volumes improved sequentially as we lapped storm-related demand and the intentional loss of lower-margin commodity sales discussed last quarter. We believe the business continues to perform better than the broader market. Deckorators continue to grow well above market, led by strong customer interest in our branded decking products. Decking sales increased 59%, including 37% growth in our mineral-based Surestone products and 85% growth in wood plastic composite. The MoistureShield acquisition contributed 51% to our wood plastic composite growth and 23% to overall composite decking growth. We also benefited from improved throughput at our Selma and Buffalo plants this quarter. Even with this increase, demand exceeded production capacity and our Surestone backlog was a strong $30 million at quarter end. Sales of railing products declined 17% as a result of the loss of a distributor at our Ultra Aluminum location. Given strong demand, share gains and continued progress optimizing capacity, we continue to target $100 million of combined decking and railing growth in 2026. Year-to-date, growth in these products is approximately $20 million. Retail adjusted EBITDA was flat versus last year. Favorable lumber price trends, mix, productivity improvements and the Edge restructuring offset higher transportation costs. Looking ahead, our priorities remain clear: improve ProWood profitability by expanding its distribution of Deckorators products, achieve throughput and cost-out targets, primarily in composite decking and continue launching new value-added products such as Arris trim made with Surestone technology and the ProWood TrueFrame Joist. Packaging sales increased 7% to $458 million, driven by 4% organic unit growth and a 4% contribution from acquisitions, partially offset by a 1% pricing decline. Demand remained consistent with recent quarters and pricing remained competitive. Importantly, we continue to gain share with key customers across all three business units. Structural Packaging volumes grew 8% on new customer wins. PalletOne volumes increased 9%, supported by recent acquisitions and Protective Packaging volumes grew 15% as new greenfield locations continue progressing towards sales targets. Packaging adjusted EBITDA declined $11 million to $28 million, primarily due to higher transportation costs. Excluding transportation, higher material costs and pricing pressure in PalletOne and unabsorbed overhead in protective packaging greenfield operations were substantially offset by improved profitability in Structural Packaging. Construction sales declined 4% to $523 million, reflecting a 3% decline in selling prices and a 2% organic unit decline, partially offset by a 1% contribution from acquisitions. By business unit, Site-Built reported a 3% organic unit decline as market conditions for new housing remain challenged. Demand was soft, pricing was competitive, and input costs remained elevated. However, our multifamily customer trends improved, contributing to a higher year-over-year backlog at quarter end. Factory-built units declined 5%, primarily due to the planned exit of certain lower-margin commodity sales. Positively, our product mix improved and our volume trends compared favorably with industry production, which declined approximately 8%. Commercial and Concrete forming continued to experience positive demand trends and generate share gains with volume growth of 11% and 6%, respectively. Construction adjusted EBITDA declined $9 million to $36 million, driven by market and pricing pressure in site-built and higher freight costs. These headwinds were partially offset by growth and operating leverage in commercial and concrete forming. Factory-built results were flat as lower volume was offset by a more favorable product mix. As we manage through this cycle, we remain focused on balancing cost discipline with long-term growth. We are aligning the business with current demand while continuing to invest in market share gains, product innovation, brand awareness and technology-driven efficiency. We are pleased with our progress this quarter, including a 33% increase in new product sales. New products represented 8.4% of sales compared with 6.5% last year as we saw improvement in each segment. We remain on track to achieve or exceed the remaining $25 million of our $60 million cost-out initiative, supported by capacity consolidations completed last year. This remains an area of ongoing focus. And SG&A remains on plan for the year as we focus on maintaining the savings achieved last year. Turning to capital structure and resources. We continue to operate from a position of financial strength. At the end of June, we had nearly $600 million in cash. We also experienced a $170 million seasonal increase in working capital, which we expect to convert to cash by early Q4. We ended the quarter with no borrowings outstanding under our revolver, bringing our total liquidity to approximately $1.9 billion. Our balanced business model continues to generate meaningful and consistent free cash flow. Historically, we've converted approximately 70% to 80% of adjusted EBITDA into free cash flow. As we've discussed on prior calls, our top capital allocation priority is to drive organic and inorganic growth that supports higher margins and stronger returns over time. Our focus areas are expanding geographically in core higher-margin businesses where we have a sustainable competitive advantage, expanding capacity for new and value-added products and driving operational improvements through automation, consolidation and productivity initiatives. We will remain disciplined on valuations and focus on returns as we evaluate opportunities. We also intend to return capital to shareholders by growing dividends in line with our long-term expected free cash flow growth and repurchasing shares to offset dilution from stock-based compensation. We evaluate additional repurchases opportunistically when we believe our shares are trading below intrinsic value. Recently, we've allocated more free cash flow to share repurchases while preserving balance sheet strength to fund growth investments. With this framework in mind, our Board approved a quarterly dividend of $0.36 per share payable in September. This represents a 3% increase from the dividend paid a year ago. In April, our Board approved a new $300 million share repurchase authorization. It remains effective through April 2027. Year-to-date, we have repurchased shares for $142 million at an average price of $84.95, representing roughly 3% of our current market capitalization. We expect to invest approximately $175 million to $200 million in capital projects in 2026, including approximately $75 million in maintenance capital expenditures. This is $125 million below our original plan as we shifted toward acquisitions to add capacity rather than greenfield investments and paused certain projects until market conditions improve. I'll close with a few comments on our outlook. Our full year outlook is unchanged. That said, we now expect demand for the remainder of the year to be toward the lower end of our prior guidance, which called for flat to slightly down unit expectations in each segment based on our sales mix. We also expect input costs, particularly energy and transportation, to remain elevated. Freight costs have recently stabilized but at levels well above last year. This pressure is not unique to UFP. It reflects broad industry capacity reductions resulting from regulatory changes affecting the transportation market. Overall, we expect stabilization in certain businesses and continued market share gains across the portfolio to help offset headwinds in markets tied to new residential construction and pallet production. With that, we'll open it up for questions.
Questions and answers
And our first question will come from the line of Kurt Yinger with D.A. Davidson.
Just starting off on Deckorators, kind of a two-parter here. First, on Surestone, how should we think about the ability to catch up on that $30 million backlog? Is that something you expect to be fully through by year-end? And then secondly, on the traditional wood plastic composite side, it seems like from an organic perspective that business is really quite strong. I'm just curious how much of that is either shelf space gains that may go back to some of the momentum on the Surestone side, additional distributors. Can you just talk through what's driving the wood plastic composite strength?
Yes. So let's start with Surestone. We talked about that backlog, just to give you perspective. I think it's important as we talked about the $100 million that we expect to realize in the year. And we're right on track with where we expected those capacities to be. Any time you introduce new capital expenditures, you're putting new equipment in play, opening a greenfield as we talked about in Buffalo, you know that there's a timetable to getting to fully optimize. So we'll see that in the back half of the year, and we still expect that number to come to fruition. As you talk about wood plastic, yes, it's a real bright spot as well. And a lot of that is shelf space gains. I think the other piece you look at is if you look at the marketplace, it continues to consolidate, and we're the clear number three at this point. So we're gaining space, we're gaining share and really, really happy about the positioning. And I'll tell you, the brand development is really paying dividends for us.
And in terms of the gains on the wood plastic composite side, is that really broad-based knocking off a dealer here, a dealer there? Or is it one major contribution on the retail side? How would you characterize that?
Combination of all. It's big box shelf space as well as independents. And so we really like our position. I'm really proud of the work that our ProWood team is doing on the internal distribution piece. It's a lot of hard work. Developing that brand was critical for us. And again, I can't state it enough: the team, the marketing team, the work being done there is really helping us drive that business forward.
Mike, I was hoping you could talk a little bit about what you saw sequentially in price and cost within Site-Built. And bigger picture in construction and packaging, these segments that are more fixed-price in nature, has there been a temporary pinch related to the inflation we've seen in lumber? And assuming that levels out in the second half, is that a natural tailwind in terms of a little bit of incremental profitability? Or is the competitive environment still in such a state where it might be tough to reprice some of that business?
Yes. There's still a lot of competitive pressure, Kurt. I would say that I didn't see the pricing sequentially Q1 to Q2 change much. I think it continued to be pressured. But what we do see is costs were elevated throughout the period, and it becomes harder to pass along the cost increases with the market conditions where they're at. And so we expect that to continue for the balance of the year. I would add a little more color: the transportation cost pressure that we see isn't really felt as much in the site-build side. So that is one area where we haven't experienced elevated costs like we have in other areas of the business.
That makes sense. And then just lastly, Structural Packaging stood out as a really nice volume compare. How much of that is a little bit of improvement in the market, easier comps versus success on national account initiatives or anything else along those lines?
Yes. You hit the nail on the head. We started talking about it a couple of years ago, made significant investments and restructured the way we went after that business to take advantage of the national footprint and multinational opportunities. We're winning in that space. The national account piece was up approximately 25% in the quarter, really proving out the model. The structural changes we made back in 2019 going into 2020 have started to pay off. It took a little longer, but now we're starting to realize the gains and the opportunities that come from that. That was the big one.
And just one follow-up on that. The national account business tends to be stickier in terms of qualifications and not a lot of switching in and out of vendors. Is that the right way to think about it in terms of that inflection being sustainable and probably a little more durable than smaller account wins?
Yes. I think that's a very fair way to look at it. It's less transactional and more contractual. It takes a lot longer to get those deals closed. That's part of the investment piece we've worked on for the last two years. Once you get in there, there's a lot more design element, multi-material solutions, more design. There's a lot more to it. So yes, it's difficult to get into and difficult to get out of.
Our next question will come from the line of Ketan Mamtora with BMO Capital Markets.
Maybe starting with the freight and transportation side. Can you talk to how we should think about incremental inflation or cost pressures in the back half of the year related to transportation and freight challenges? And how should we think about the recovery across the key businesses—retail, packaging, construction—where are you seeing the most pressures? And where do you expect the cost recovery to offset these challenges?
Yes. I think the best way to think about it is the second quarter was and will be the most difficult quarter for us in terms of cost increases being realized in transportation. But what happened is structural and it will carry through. We have our own equipment and we contract with carriers, but it's the overflow that you need with the seasonality of the business, especially on the flatbed side, and that being the busiest quarter drove rates up. So in the back half of the year, you'll still see increases, but not at the same level as Q2. Now that we know those cost increases are sticky and structural, we're working with customers to get those passed along.
Maybe attaching numbers to that, we were up 1.6% on transportation costs for the quarter, net of surcharges and pricing adjustments. We were largely able to cover fuel. We're less reliant on the spot market in the back half of the year, particularly outside the busiest season, so I would expect the 1.6% impact to be gradually lower through the course of the year as we're less reliant on the spot market and able to pass along cost increases to customers. By next year, hopefully that's no longer a headwind on margins.
And to add to that, in terms of which business units are most affected, Site-Built is least affected because of specialized equipment. Anything associated with flatbeds is most affected: ProWood, our pallet business, Structural Packaging—those businesses have a lot of flatbed demand in a very constricted market. Think about it that way.
Got it. That's very helpful. Switching gears: composite decking and Deckorators—there's been meaningful announcements recently around changes in distribution partnerships. You do a lot through your own ProWood distribution centers. How are you approaching distribution as you are now the third largest composite decking producer? How are you positioning Deckorators strategically?
A lot of attention around distribution changes. None of that was surprising or concerning to us. We were prepared and fully expected it. That self-distribution piece is an insulation for us and helps drive our ProWood business as well. I'm proud of the teams for setting us up as an internal distributor. We also have very good external distributor partners and are continuing to build on those relationships. It's a mix, and we're comfortable with our position.
Understood. Last one from me: on capital allocation, how is the M&A pipeline at this point? How are you balancing M&A versus share repurchases, and where are you seeing the most opportunity?
I'm very happy with the work the M&A team has done. We're aligned on strategic priorities and focused on growing areas where we believe there's long-term opportunity without overpaying. The pipeline looks good, especially in areas with potential for sustainable growth and added value.
The M&A pipeline is in good shape. From a capital allocation standpoint, we prioritize growth investments first, with M&A above capital investments. We'd rather pursue M&A than large capital investments, but we'll pivot to capital investments if the returns on M&A are not attractive. We're also active with share buybacks. Last year we devoted a much higher percentage of free cash flow to buybacks, buying back a substantial portion of market cap. So far this year we've repurchased about 3% of market cap. We're committed to buybacks when price makes it a compelling return. At the same time, we're preserving the balance sheet for growth. We have about $1.9 billion in liquidity, which we view as primarily targeted for more meaningfully sized M&A.
One moment for our next question, and that will come from the line of Reuben Garner with Benchmark.
Just a follow-up on the distribution question within Deckorators and with your addition of MoistureShield. You went outside of your own network for the first time in the last couple of years, and then you acquired MoistureShield that had some third-party distribution. With these pieces moving, do you see third-party distribution becoming a bigger component of your overall retail strategy? Or were you fully anticipating bringing MoistureShield in-house over time?
MoistureShield conversion will occur under the Deckorators branded umbrella moving forward. I think you'll see a balanced approach between internal distribution and outside distribution. I would expect that to be roughly a 50-50 mix between internal and external distribution.
Okay, great. In the same line of questioning, railings and accessories have been a focus for the industry over the last few years, often trailing decking. You recently acquired the decking assets of MoistureShield. Is there an opportunity to leverage those relationships to sell more railing? Railing has been down the last several quarters from some retail changes. Can you talk about any railing opportunities as part of this?
We like our offerings on the product development and innovation side; our products match up better than most of the marketplace. We have work to do, and we recognize that, but the attachment rate will go up, and you'll see gains in railing. That's an area we'll continue to work on.
Bigger picture question: Mike, the last six years have been hectic. Prior to that, you had fairly consistent gross profit per unit growth. This is one quarter, but with organic unit growth returning, how should we think about gross profit expansion relative to units going forward?
It's been a wild few years from pandemic peaks to the current cycle. Once demand finds its level and normalizes, my expectation is that gross profit per unit will expand and we'll see gross profits and overall EBITDA grow at a greater rate than unit sales. That's our intention. We have strategies that align with that: new product growth, value-added mix improvements, operating improvements. We are striving for that 12.5% EBITDA margin, and we'll need some help from market recovery to get there, but that's our long-term expectation.
Our next question will come from the line of Andrew Carter with Stifel.
First, you said distribution announcements were within your expectations. There's an opportunity to partner with other distributors as some players shift. Do you have all the capacity you need to potentially jump on some opportunities, given that MoistureShield acquisition? Could you address capacity?
Yes. The MoistureShield acquisition was key to satisfying what we believe to be a big opportunity. We have some CapEx going in, but we feel very good about our capacity position, sales and opportunity side.
Second question: ProWood was down 1% in volume. Last quarter you characterized a larger decline as partly channel and partly underlying demand. That's a significant improvement. With pricing higher in a difficult high-ticket remodel market, is this market share gains? Or is it a sign of a bottom or improvement in the repair and remodel market?
I think it's a combination of all. You recognize overall market conditions, but some of it is share gain and attachment from Deckorators being distributed through ProWood. Having the Deckorators brand associated with ProWood is resonating with some pro dealers and giving us opportunities to tag those products together. We're pleased with the results given the macro; it points to the hard work our teams are doing in the field to grow business.
Final question: on the freight and fuel headwinds for 2026, could you give a sense of the gross freight fuel headwinds annualized? How much have you covered, and how much remains variable? This would help thinking about this year and next in this new environment.
If we look year-to-date, in Q2 we had about a $31 million year-over-year increase in transportation costs. I referenced $27 million as the net increase after what we were able to recover through surcharges and pricing adjustments. We feel like fuel was largely covered in Q2. The gross number year-to-date is about a $34 million increase in transportation costs including fuel. It's now a matter of addressing the structural change in cost that occurred in the spot market with customers, which will take some time.
Our next question will come from the line of Jeffrey Stevenson with Loop Capital.
You had a nice sequential improvement in retail margins due to improved ProWood profitability and Deckorators volume growth. How should we think about segment margins in the back half of the year as Deckorators production continues to ramp?
Do you want to speak to that, Mike?
You have to separate transportation from the operating business. Transportation will continue to be a headwind, particularly for ProWood, which is most impacted by the flatbed market. That will gradually improve through the year. With respect to the operating business, I expect improvement. We have the closure of the Bonner facilities and those benefits are occurring in the back half of the year. We have mix improvement related to Surestone and wood plastic composite decking growth and continue to optimize capacity. So we expect higher absolute gross profits from volume improvements and productivity gains as plants reach closer to optimal capacity. Also, lumber prices typically soften after the selling season. Last year they dropped dramatically in Q3 and Q4; we don't expect that level of drop this year, but it could impact Q3 and Q4 to a lesser degree.
Very helpful. A follow-up: on the Site-Built competitive environment, has there been incremental competitiveness with single-family starts softer than anticipated this year? Have you seen any change in your share position? Has this impacted smaller and regional competitors more, given profitability headwinds?
Site-Built continues to be the most challenged business in the portfolio. Single-family has been weak, though multifamily trends have improved and our backlog is higher year-over-year. We have cautious optimism but expect the segment to remain difficult, which clouds the outlook.
Lastly, an update on the MoistureShield integration since the deal closed? Any decisions on the Arkansas manufacturing facility moving forward?
The integration is taking place and investments are being made in that facility. With what we're doing at that location and adding that business, we've created additional capacity to satisfy demand in the marketplace. We're happy with it. You'll see that business roll under the Deckorators brand in the future. No other decisions have been made on the Arkansas facility at this time.
And we do have a follow-up question from Kurt Yinger with D.A. Davidson.
Just wanted to talk a little bit about Deckorators' gross margins. Could you maybe back up and talk about how those have trended over the last couple of quarters? And then as we think ahead with Buffalo ramping, should margins naturally improve with volume, or will those two factors offset each other?
If we go from Q1 to Q2, Buffalo was operating in Q2 but wasn't shipping significantly in Q1; as a greenfield it was a drag in Q1. In Q2 it's still not at full optimal capacity, so it still has room for improvement. The expectation from the first half to the back half of the year is that we would see volume-related improvements. We expect higher gross profits in absolute dollars due to volume and productivity improvements as those plants reach closer to optimal capacity. Our outlook is for better margins within Deckorators in the back half of the year.
On capital spending: 2026 spending is lower with some acquisitions and some growth plans put on hold. If you remain acquisitive, should we expect 2027 capex to be at a similar level to 2026, or is it dependent on market recovery and deferred projects?
It certainly depends on the market. Part of the reduction is a response to where the market is today. We're comfortable pivoting between M&A and greenfield. Our preference is M&A if opportunities at the right price appear, because greenfields add capacity to the marketplace and are tougher. We'll go to greenfield where it makes strategic sense.
I'm showing no further questions in the queue at this time. I will now turn the call back over to Mr. Will Schwartz for any closing remarks.
Thank you all for joining us today. We continue to navigate a difficult market environment and tackle new challenges, including transportation cost pressure. At the same time, I'm grateful for the competitive spirit and resilience of our team and the strength of our diversified business model, strong free cash flow and conservative balance sheet. Together, these strengths allow us to invest thoughtfully and in a disciplined manner throughout the business cycle to improve our competitive position, which will become even more evident as our end markets normalize. Thank you, and have a great day.
This concludes today's program. Thank you all for participating. You may now disconnect.