By January, suppliers, such as Masco Corp., will feel the full brunt of housing's 2006 second-half sales slowdown. Masco began experiencing “significant softening” of its orders in September after coming close to meeting its sales expectations in August.
In the wake of those signals, and based on forecasts that home sales will be down at least 20 percent in the last quarter of this year, the Michigan-based manufacturer and supplier of housing goods and services lowered its earnings estimates in late September to $2.25 to $2.30 per common share (versus earlier guidance of $2.40 to $2.50). “Every percent change in housing starts impacts [Masco's] earnings per share by 2.5 cents,” CEO Richard Manoogian, told analysts Sept. 20. “We are going to be going through a very difficult time.”
However, with demand for housing slowing, prices for some raw materials are likely to fall some. Also it should help with the insulation shortage. Masco, which derives about 60 percent of its installed services business from insulation sales, has been on allocation for the product, having to turn customers away. If insulation becomes more plentiful, Masco should be able to supply more new builders, the company says, leading to more positive earnings for the last half of '07.
Masco also has reduced its unrecovered costs of $350 million by $250 million through price increases during the first half of this year. But it still has another $100 million of costs to offset, Manoogian says.
“I would say the trend going forward looks more opportunistic and positive than we have seen in the last two years on the cost side,” Manoogian says. Though “clearly we are going to have a headwind of housing starts being negative in the first half” of 2007.