TRG | The Bottom Line – 11/8
The broader theme from resi building products in Q3’24 – “I can’t hear you, please TURN UP THE VOLUME!”
The year continues to disappoint, to put in simply. And to clarify our language – disappointing is the word. It’s not Wile E. Coyote falling off a cliff – not precipitous declines. Instead, it’s steady bumping along the bottom. Channel checks continue to point to a sluggish backdrop and that is what companies have reported. It seems that everyone constantly feels like we’re on the precipice of a return to growth and that it’s just right around the corner. But even when rates are announced to go lower, mortgage rates remain stubbornly high. The election timeframe could be partly to blame (elections are all about blaming somebody, right?) and the disruption from hurricanes are likely to be a modest issue in Q4. But true underlying demand still seems to be slightly below the prior year (2023), which was slightly below the prior year (2022). And as TRG has said in many notes, resi R&R is in a recession.
Volumes continue to be lower than last year. There are multifaceted factors weighing them down – lower overall demand, big-ticket more pressured, smaller footprint homes, builders catering the offering for buyers with affordability challenges, and consumers trading down. A new factor that we’ve heard from channel checks in Q3 and then from a few public companies was intensified import competition in a handful of product categories. Imports have been around for many decades, and this type of low-demand affordability-challenged environment is conducive to imports.
Ultimately, most building product companies have reduced their 2024 outlook and some are pushing out their “return to growth” timeframe to 2H’25. We still believe that building products’ volume is a beach ball held under water, and that ultimately lower rates will be what pushes it above the surface. But, that moment is not here yet.
Ironically, one of the most discretionary R&R projects, composite decking continues to have solid sell-through. As real evidence, here is a picture of the deck recently built at the home of one of TRG’s very own. As a direct channel check, if you’re curious, his contractor said his backlog of work is a solid 7-8 weeks.