Therma-Tru Holds Strong Outlook as Rates Act to Stabilize BuildersFebruary 1st, 2019 by Drew Vass
Officials for Fortune Brands Home and Security (parent company to Therma-Tru Doors) released fourth-quarter results yesterday, including the company’s 2019 annual outlook. Fourth-quarter sales increased 3 percent year-over-year, with full-year sales ending 4 percent higher than 2017. Expectations for 2019 go against the flow of news in recent months regarding slower construction markets, but parallel the latest information from the National Association of Home Builders, indicating that builder confidence is stabilizing.
“In the fourth quarter the market for our products grew at a more moderate pace, and consumers and channel partners adopted a cautious stance heading into year-end,” says Chris Klein, CEO for Fortune Brands.
Despite the current market, however, consumer demand for the company’s products continue on a solid basis, Klein reports, including its doors. Sales among doors and security-related products increased 7 percent in the fourth quarter 2018, driven by “continued, strong double-digit sales growth” of Therma-Tru doors, the company reports. That number, company officials suggest, is offset somewhat by lower sales among security products. Operating margin before charges and gains was at 8.7 percent.
That’s not to say that Fortune Brands’ recent success didn’t come without challenges, Klein says, including recent tariffs on materials like aluminum and steel. Klein says his company took measures to offset a $90 million spike in costs attributed partly to tariffs and the effects of inflation. “In 2019 we will stay aggressive, and manage expenses in-line with a more conservative market outlook,” he adds. “With our solid execution and bias toward action, we are well-positioned to accelerate our financial performance in the new year.”
In the year ahead, Klein says his company has built its plans around a more conservative market, “with a soft first half start and modest growth overall for the year,” but expects sales growth in the range of 6 to 7.5 percent. “In response, we are managing expenses and capital aggressively, and our teams are prepared to take additional actions if the market grows more slowly than we currently expect,” he adds.
Of course, those expectations could also be altered by a swing in the other direction, thanks to lower interest rates. In mid-January, the National Association of Home Builders (NAHB) reported that builder confidence in the market for new, single-family homes rose two points to 58 on the NAHB/Wells Fargo Housing Market Index (HMI). Derived from a monthly survey, the index gauges builder perceptions of current single-family home sales and sales expectations for the six months ahead as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then combined to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.
“The gradual decline in mortgage rates in recent weeks helped to sustain builder sentiment,” says NAHB Chairman Randy Noel, adding that low unemployment, solid job growth and favorable demographics should support housing demand going forward. After peaking at around 5 percent in mid-November, interest rates have since fallen to just below 4.5 percent, which is expected to offset an ending to 2018 that showed signs of retraction.