If you're in an industry that depends on an improving economy and a growing construction sector for revenue these days, times are tough. Take Masco (MAS), one of the world’s largest manufacturers of brand name products for the home improvement and home construction markets.
In the first quarter of 2011, sales fell four percent to $1.8 billion. Masco North American sales decreased 7 percent, although international sales did rise by 4 percent.
The company reported a net loss of $46 million, compared to a $7 million loss during the first quarter of 2010. "As anticipated, the trends impacting our business, including depressed new home construction, the deferral of 'big ticket' repair and remodel activity and commodity cost pressures have continued into 2011," says Masco CEO Tim Wadhams.
The future doesn't look so bright, either. "Most economists have reduced their forecasts for 2011, including for housing starts. Given the uncertainty of the timing and strength of the recovery in our markets, we will continue to focus on the things we can control to improve our execution and strengthen our brands," Wadhams told investors.
That means reduce costs and operate as efficiently as possible. Ratings agencies, however, are concerned.
"Although we continue to expect a gradual economic recovery in the U.S. and a modest improvement in housing starts beginning in the second half of 2011, we are more heavily weighing the risks of a 'double dip' recession and a more sluggish rebound in new residential construction into our ratings on Masco," says Standard and Poor's analyst Pamela Rice.
The agency cut the company's ratings outlook to negative from stable in its latest move on Masco. Good business practices are sometimes not enough to offset a bad economy, Rice explained.
"Although our ratings consider the housing cycle and Masco's strong liquidity (a key factor in our analysis), we believe that current global uncertainties and sharply rising oil prices may cause a more challenging near-term outlook for consumer-oriented building products demand," she added.
Still, green shoots are popping up in the sector. Builder confidence in the market for newly built, single-family homes rose two points to 15 on the National Association of Home Builders/Wells Fargo Housing Market Index for July.
"The improvement in builder confidence in July is a positive sign that the outlook perhaps isn't quite as bleak as was feared in June," Bob Nielsen, chairman of the National Association of Home Builders, says in a statement.
"While builders continue to confront serious challenges with regard to competition from foreclosed properties that are priced below replacement cost, inaccurate appraisals of new homes, and a very restrictive lending environment for new home construction, select markets are showing gradual improvement as consumers begin to take advantage of very favorable buying conditions."
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