Analyst: Home Construction Nearing a Comeback

The home construction market is about to enter a comeback that will see a near-doubling of starts over the next 20 months, leading in turn to a spur in lumber dealers' need to stock up on softwood.

Paul Jannke, a senior vice president for wood products and timber at RISI, an information provider and forecaster for the forest products industry, recently told members of the Northeastern Lumber Manufacturers Association (NELMA) that dealers' lumber inventories, when measured against the consumption rate for wood, are shrinking from about a two-month supply in 2008 to roughly a two-week supply by mid-2009.

At the same time, he said, housing starts are likely to go from about 590,000 this year to 1.09 million in 2010. That's an optimistic number compared with other economists, but Jannke maintained his forecast was more likely to err on the high side than the low. "I think you're going to see a quick bounceback," he told NELMA members meeting in Boston on April 2.

Jannke estimated the United States will consume about 37 billion board feet of softwood lumber in 2009 and 43.5 billion board feet of lumber in 2010. Capacity will decline this year about 6% to 7%, he added. Jannke also believes wholesale prices will remain weak, but won't go much lower.

Stock Looks To Raise $1.5 Billion

The owners of Wolseley Plc, the British-based parent of Stock Building Supply, approved April 1 a proposal to raise 1.05 billion British pounds ($1.5 billion) through the sale of new shares. The move will help the company avoid defaulting on loans that have been strained in large part due to Stock's enormous losses in recent years.

Wolseley revealed on March 6 that it is seeking a joint-venture partner in Stock, and that if it doesn't find such an investor by Aug. 1, it will exit the company. Stock provides 10% of Wolseley's worldwide revenue.

In the first half of its current fiscal year, ending Jan. 31, Stock's revenue fell 25.5% to $1.34 billion, leading the company to record an operating loss of $129 million. It also closed 83 branches and slashed headcount by 4,330 in this time period. Stock now has only about half the employees it had 18 months ago.

Pulte Acquiring Centex, Creating America's No. 1 Builder

Pulte is acquiring fellow public builder Centex in a $3.1 billion, stock-for-stock agreement with $1.8 billion in net debt. If approved by shareholders, the deal would create the country's largest home builder, with 39,000 combined closings in 2008 and pro forma revenue of more than $11 billion.

The deal requires stockholder and SEC approval. In an all-stock transaction, Pulte would pay $1.3 billion in stock to purchase Centex, which at the equivalent of $10.50 per Centex share is a 38% premium over what Centex's stock was trading for. The merger is expected to close by the third quarter of this year.

This move is expected to save the combined company $350 million annually, mostly in overhead ($250 million) but also in debt relief ($100 million). It will also create a public builder with the "strongest liquidity among its peer group," according to a joint press release issued by Pulte and Centex, with more than $3.4 billion in cash as of March 31, 2009.

Together, Pulte and Centex generated $11.4 billion in revenue and closed more than 39,000 homes in 2008. That is nearly double the volume and 60% more closings than what its now-nearest rival, D.R. Horton, produced last year.

Wolf Returns To Run Wolf Organization

The Wolf Organization announced that Tom Wolf, who had served as the company's president from 1985 until 2006, will return to guide the company. Wolf will assume the titles of chair of the board and CEO of The Wolf Organization, succeeding George Hodges as chair and Ron Blevins as CEO.

Wolf, who until November 2008 served as Pennsylvania's secretary of revenue, was exploring a run for governor, but ultimately decided to return to The Wolf Organization. Other changes include:

  • Ron Blevins will become vice chair of the board and treasurer. He will be responsible for all administrative functions.
  • Dave Confer will become vice chair of the board, secretary, and general counsel. Confer will manage the company's fixed assets and oversee its legal and human resources functions.
  • Craig Danielson will become president. In this role, he will be responsible for the company's financial success.

Rozolis Becomes COO at ABC Supply

ABC Supply Co., the nation's fourth-biggest construction supply company, has shuffled its management team and shifted some executive responsibilities. Keith Rozolis was promoted to executive vice president and COO. Previously, he was senior vice president of strategic marketing and planning. Rozolis will lead ABC Supply's branch and manufacturing operations and affiliated and divisional companies, as well as continue to oversee the marketing and merchandising groups. The COO post has been open since Feb. 15, 2008, when president and COO David Luck moved up to the CEO post following the death of company founder Ken Hendricks on Dec. 21, 2007.

Remodeling To Fall 12.3% in 2009, Research Center Predicts

This year, nationwide spending on high-end home improvements will shrink about one-eighth from 2008 spending to total $110.2 billion, according to a forecast by Harvard's Joint Center for Housing Studies.

That update to its Leading Indicator of Remodeling Activity (LIRA) is based on a rolling compilation of four-quarter averages; the latest number represents all four quarters of 2009. Compared with the previous LIRA, which was based on actual results and estimates of future performance between October 2008 and September 2009, the latest LIRA falls slightly more–12.3% versus 12.1%–even though expected expenditures in the period grew slightly, to $110.2 billion from $109.5 billion.

"The weak housing market and the national economic recession continue to take their toll on remodeling," said Nicolas P. Retsinas, the center's director. "It looks increasing unlikely that this industry will recover until consumers have more confidence in the housing market."

While down recently, spending on major homeowner improvements has risen steadily over the past decade, from $75 billion in 1999 to a peak of $144.9 billion in 2006 before falling to $139.1 billion in 2007 and sliding again to $125.7 billion last year.

Yard News

ORCO Construction Supply of Livermore, Calif., has reached an agreement to sell its assets to ACSP, an entity controlled by Greg Grosch, cofounder of White Cap Construction Supply. ORCO also filed on April 8 for protection from creditors under Chapter 11 of the federal bankruptcy laws. It will seek a sale under the bankruptcy code's Section 363, which allows for the sale of assets free of liens and other claims. ...Building Materials Holding Corp. said its lenders have agreed to extend through June 1 a waiver that lets America's fifth-biggest LBM operation continue to borrow up to $20 million. The money "should provide us with sufficient liquidity to continue to meet our ongoing business obligations to customers, suppliers, and employees," chairman and CEO Robert E. Mellor said. ... New England Building Materials has opened in Rye, N.H. It's a unit of New Hampshire's LaValley Building Supply. ... The Mastic Beach, N.Y., facility that used to be called Smitty's Home Center has been renamed as the latest location for Speonk Lumber. Smitty's and Speonk have had the same principal owners for more than 20 years, Speonk said in a recent newsletter.

Steal This Idea

Frager's Hardware of Washington, D.C., may be your typical neighborhood home base, but its customers definitely get around. The display case of this Capitol Hill institution is loaded with photos of customers wearing Frager's T-shirts at places around the world, including Peru, India, and even North Korea. Customers buy most of the T-shirts, but manager Nick Kaplanis makes a point of giving them away to parents of students who attend Gallaudet University and other local colleges.

Spread the Word!

Send your company's news, announcements, and events to Andy Carlo, via e-mail acarlo@hanley or fax 202.785.1974.