TRG | The Bottom Line – 8/13

With Q2’21 earnings season wrapped up, TRG made our way to “carpet country” in GA to meet with a variety of flooring industry-related contacts, in addition to housing-related industry contacts in Atlanta. When stepping back and looking at the forest for the trees, we see a few distinct themes by mid-20201. A private company contact noted to TRG recently that all recent internal meetings aren’t revolving around customers/demand, but rather on labor and materials to meet increased demand. This sums up Q2’21 results and the FY’21 outlook. Sales are growing, demand is higher. The challenge of meeting demand, however, has been hampered by a slow-moving, higher cost supply chain and labor market. Companies have put through price increases in Q2 and Q3 and are still price/cost negative in the near-term. For 2H’21, we expect revenues to be supported by strong volumes and price increases. That said, we see a portion of sales to be delayed into 2022. We expect costs in 2H’21 to be pressured by inflation, labor, and temporarily reduced costs in 2020 to be flowing back in the business. We believe margin pressure to be most pronounced in Q3, broadly.