The 2020 Mid-Year Economic Update_long

Building Materials Bright Spot in Distribution

Strength in construction industry bodes well as earnings reports pour in.

As 2015 comes to a close, building materials and construction continues to outperform other sectors. In addition to recent positive news such as increased construction spending, distributors in this category also saw the highest revenue growth (2.8 percent) in the third quarter, according to the most recent MDM-Baird Distribution Survey.

And while the fourth quarter is projected to be flat at just 2.5 percent, survey respondents expect building materials and construction to outperform other categories in 2016 with 3.8 percent revenue growth.

Building materials distributors had a relatively solid third quarter. Stock Building Supply, Huttig Building Products Inc. and L&W Supply – the distribution business of USG – all saw 3Q sales increase while companies in other sectors, especially those with exposure to oil & gas, are reeling.

Though sales were flat on a pro forma basis, things are looking up for Builders FirstSource Inc., Dallas, TX, which is poised to take over the MDM Market Leaders Top 10 Building Materials & Construction list next year.

The company is reaping the benefits of its acquisition of ProBuild, the second-largest building materials distributor by revenue in 2015 (Builders FirstSource was No. 7). Unadjusted sales tripled in 3Q, and even on a pro forma basis, profit nearly doubled to $34.7 million, prompting the company to forecast a rosy outlook for its own fortunes and the construction markets.

"We expect to be further assisted by the continued recovery in the housing market along with the strengthening of lumber and lumber sheet goods pricing," said Builders FirstSource CEO Floyd Sherman.

Keep an eye on continuing consolidation as the year wraps up, and also on BlueLinx Corp., Beacon Roofing Supply and HD Supply, all of which will release 3Q earnings later this month.

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