Housing chill strikes home / ripple effect
Cabinetmakers, pool suppliers and toolmakers warn as demand falters
It's not just homeowners and homebuilders that have a lot to lose if tremors roiling the real estate market turn into a full-scale quake.
Manufacturers of everything from drywall to the kitchen sink are also vulnerable to stagnant or declining sales as fewer houses change hands.
"Do a mental walk around your house and look at appliances and fixtures," to see what companies are exposed to the housing market, said Sam Stovall, chief investment strategist for Standard & Poor's.
Firms such as kitchen cabinet maker Masco Corp. and tool-maker Illinois Tool Works Inc. have already warned about an earnings pinch from slowing U.S. home sales. .........
Home prices and sales have been slipping. The NAHB expects remodeling activity to continue to expand but at a slower rate.
The Dow Jones Building Materials and Fixtures Index has fallen over 18% since an April high, as has the Dow Jones U.S. Forestry Index .
For many companies, the five-year housing boom was a sales bonanza. Not only did more homebuyers jump into the market, they also indulged an appetite for more living space than ever before. That meant more demand for windows, paneling and central air conditioning.
Last year, the average new U.S. home was about 2,434 square feet, compared to 1,500 square feet in the 1970s, says NAHB staff vice president of research Gopal Ahluwalia.
Some 40% of new homes had ceilings at least 9 feet high. In the 1980s, less than 15% could make that claim, says Ahluwalia.
Those with a more diverse customer base will likely perform far better. Consider American Standard Co.It sells air conditioners, as well as kitchen faucets, toilets and bathtubs. But 70% of its air conditioner unit sales are to commercial customers and 64% of its bath and kitchen sales take place outside the U.S. All told, only about 25% of its sales have strong ties to U.S. households. (too bad that commercial real estate is close to a bubble and lets hope that they are not selling to uk, australia, ireland, spain etc.....)
Meanwhile, shares in homebuilders have been rallying in the past few weeks on the idea that a housing downturn has already been factored into their share price.
Some investors think it's time to look for value among buildings material companies whose shares got dragged down in the broad housing-related sell-off.
Buying housing-related stocks on the idea that shares have been overly discounted "is a good idea if you're nimble enough," said S&P's Stovall.
But there's no guarantee that the housing market has hit bottom yet.
"If we find that it's just the tip of the iceberg, this counter-trend rally could lose steam and these stocks could get hammered again," he said.
The lumber makers
Federal Way, Wash.-based Weyerhaeuser Co. is the world's biggest producer of softwood lumber. It also makes the most engineered lumber, which includes made-for-housing construction products like roof joists and beams. And it owns several homebuilders. (bad combination)
Once it spins off its paper business -- a deal it expects will close in the first quarter of 2007 -- about 45% of its revenues will come from wood products. Already, the slowing housing market has prompted it to wind down some production. On Monday night, the company said it was shutting output at two Canadian mills that make plywood and lumber for residential construction, to "balance our production to our orders."
Louisiana-Pacific Corp. is another big supplier of lumber and wood products for the housing industry.
At Rohm & Haas , North American paint sales accounts for about one-tenth of the company's roughly $8 billion in annual revenue. All that whitewash could wipe out some profits, says Citigroup analyst P.J. Juvekar, who expects Rohm & Haas earnings to fall next year. Juvekar says changes in home sales have tracked closely with the number of gallons of architectural paint sold over the past 25 years, as well as Rohm & Haas' stock price. Rohm & Haas, for its part, maintains that its sales to the paint market have more to do with remodeling activity than housing sales.
Window, cabinet and air-conditioning manufacturers
Masco, which sells kitchen cabinets and bathroom fixtures under the brands Mill's Pride, KraftMaid and Peerless Faucets, lowered its 2006 earnings forecast last month after new orders weakened in September. "Like many in the housing industry, we have been surprised by the severity and rapidity of the current housing decline," Masco Chief Executive Richard Manoogian said. See full story.
Emerson , which makes air conditioning equipment and parts, says growth in its appliance components business is "based on consumer spending and housing and also a business that's probably one of the most challenging," right now.
The pool and bath suppliers
Last week, Pentair Inc. cut its sales and earnings forecast for the third and fourth quarters, saying a slowing housing market was cutting into demand for its pool equipment. http://immobilienblasen.blogspot.com/2006/09/lows-pentair-ethan-allen.html
Wallboard and insulation makers
Eagle Materials Inc. last week cut its earnings outlook after a drop in new home construction cut into its gypsum wallboard and paper businesses.
U.S. Gypsum Corp. is the largest supplier of wallboard, which it sells under the brand-name SheetRock. About 60% of its revenue last year came from new home construction and remodeling,
A drop in home starts would directly eat into demand for its flagship product. A 10% decline in home starts translates into about a 4% decline in wallboard demand from current levels. But some of that reduced appetite from homebuilders could be handled by shutting factories and reducing supply, says the company. (fewer jobs.....)
Owens Corning , in the final stage of bankruptcy reorganization, produces more insulation than any other firm, plus sells roofing tiles and other building materials. About one-third of its sales are tied to new home construction.
Some 12% of sales at Ingersoll-Rand , which makes Bobcat construction equipment used to dig ditches and lay sod, may have exposure to residential housing and "will clearly be under pressure as both new and existing home sales continue to decline," says Deutsche Bank.
The company, which also makes Schlage locks, doorknobs and similar hardware, says it doesn't break out its market exposure.
The tool companies
Illinois Tool Works Inc. , which makes welding and concrete fastening tools for the construction industry, citing a weakened market for new homes when forecast earnings that fell short of analysts' expectations last month.
Black & Decker Corp. , which makes Price Pfister faucets and DeWalt tools, hasn't updated its outlook for the third quarter. But back in the second quarter, it reported a 6% drop in hardware and home improvement sales. Shares have fallen 8% this year.
What's filling up the garage
Toro Co. ( in late August cut its outlook for full-year sales growth to 3% to 5% from 8%, complaining that a weakening housing market has kept consumers from buying as many new lawn mowers or snow blowers.