Updated: May 11, 2022
While only a handful of LBM operations have to report how they're doing every quarter, they are big enough to provide lots of leading indicators for dealers as they make plans for this summer and fall. Here are five of those signposts.
Housing May Coast for a Bit, But It Won't Hit the Brakes
Builders FirstSource President and CEO David Flitman said the company's contacts with thousands of customers nationwide leaves it confident that the home building industry “remains strong, under built, and resilient.”
"I believe the homebuilding industry will continue to grow this year and that we will outperform our peers as our platform delivers for our customers and our shareholders," Flitman said May 10 during BFS' first-quarter earnings call. Despite persistent supply chain challenges and rising interest rates, we are not expecting a significant downturn in housing because we are far healthier and more prepared industry than the last time we saw a significant downturn."
It's similar on the repair and remodel side, Beacon's Julian Francis told stock analysts on May 5 that he expects total sales to rise at least 20% this year, on top of the 12% growth in 2021. "A typical residential roof lasts about 20 years, and if you look back 20 years in terms of new construction, you see a historic surge in building," the specialty dealer's President and CEO noted. Those years just before the Great Recession could be paying a dividend today.
“Looking to the second half of 2022, we will be lapping 40% growth and approximately $60 million of dealer and distributor inventory replenishment," AZEK's CEO, Jesse Singh said May 11, referring to the company's outlook for April through September. “Even with this comparable, we expect to deliver double-digit revenue growth in the second half of fiscal 2022.”
The Timing Advantage Won't Recur in Future Earnings Reports
One reason why lumber-heavy companies did so well in the first quarter is that lumber prices didn't peak in 2021 until April and May, while this year they were markedly up year-over-year in January through March. As a result, Q1 prices on the Random Lengths composite index were 27% higher than in 2021, and Southern Yellow pine prices were up 23%. If builders get spooked by a perceived lessening in customer demand, that could lead them to slow purchases enough to make Q1 lumber's most expensive three-month period of the year. And that, in turn, means there will be less breezy tailwinds boosting lumber-heavy companies' revenues and profits in Q2, Q3, and Q4.
It's a similar story with roofing, both Beacon and Owens Corning predicted single-digit percentage reductions in Q2 volumes, not because demand is waning but because last year's second quarter saw historically high demand. Brian Chambers, Owens Corning's Chairman and CEO, also noted that storm damage typically generates about 30% of annual demand, and storm-related demand this year "is tracking well below average, so that could create some demand challenges as we get into the back half of the year."
Lots of Kinks Remain in the Supply Chain
Commentaries indicated that some supply chain pressures might ease going into 2022's second half, but nobody predicted dramatic improvements. "We really see the supply environment continuing to be tight for the balance of the year," said Dwight Gibson, President and CEO of BlueLinx. "A lot of our supplies that we stay connected to are investing to increase capacity. But there is a lag between when those investments happen, when you actually see more products available in the market. So we think the balance of the year will be more of the same."
"I would expect things like engineered wood products to be constrained in supplied for a long time to come," Flitman said. "Exterior doors are still tight. Siding and trim are difficult. Some of that--some of those products are even still on allocation. So it really is a mixed bag. And when we say we're incrementally better than we were a year ago, I mean exactly that. Some are better, some are no better. And there's some that are no better, unfortunately, we think, are going to be in tight supply for quite some time to come.
We're Not Done With Price Rises Yet
Commentaries indicated that some supply chain pressures might ease going into 2022's second half, but nobody predicted dramatic improvements. That suggests the pricing "discipline" cited by companies like Cornerstone Building Brands as a reason for Q1 gains is likely to continue for months to come. For instance, Masonite reaffirmed its February guidance that called for average unit price increases to generate most of its expected full-year sales growth of 6% to 10%
Goodbye to Quarterly Reports
Cornerstone Building Brands and Huttig both announced sales to private companies. As a result, their performance won't be made public from now on. That will make it ever harder to get a sense of where LBM construction, manufacturing, and supply are headed.