Building Product Manufacturers' Sales Hinge On

Philadelphia, PA, July 7--U.S. building products suppliers' second quarter results may rest in part on the extent to which they cater to homebuilders or to household do-it-yourselfers. Consumers have been cautious discretionary spenders in the soft economy, but the market for new single family housing has remained hot, so a supplier's mix of end markets can affect quarterly results, according to Lawrence Horan, director of research at Parker/Hunter Inc. Flooring maker Mohawk Industries Inc. has forecast second quarter earnings of $1.05 to $1.15 a share, compared with $1.10 in the same period in 2002. "I think they're going to sneak into the low end of the range," said analyst Keith Hughes of SunTrust Robinson Humphrey. Wall Street sees the company reporting second quarter earnings of $1.08 a share. Carpet demand, hit by foul weather and war uncertainties in the first quarter, was better than Hughes had expected in April, when, industry data show, volume and revenue rose slightly. Hughes expects similar results for May. Carpet comprises about 75% of Mohawk's business, he said. Hughes doesn't own Mohawk; his firm performed investment-banking for the company within the past year. Consumer discretionary expenditures on replacement items for the home are "going to be the real test of whether we see a recovery" in the building products sector, Hughes said. While replacement products for kitchen and bath have done well, others, like flooring, have faltered, he said. Sherwin-Williams Co.'s professional paint business has been very strong, while its do-it-yourself market has been weak, Parker/Hunter's Horan said. A cool, wet spring may have hurt results, "but a very strong new home sales and existing home sales market is a positive," he said. "The turnover of homes, whether they're new or existing, does create paint sales," but discretionary spending to change the color scheme of a room is weak, Horan said. The paint maker also has a commercial and industrial coatings business that has been sluggish, he said. Wall Street estimates Sherwin-Williams earned 75 cents a share in the quarter, compared with 70 cents a share in the year-earlier period, and generated revenue of $1.47 billion, compared with $1.45 billion last year. The company in April cited the soft economy in lowering its full-year sales-growth estimate to 2% to 3.5%.