Plywood, The Home Depot, Inc. (HD), Lowe’s Companies, Inc. (LOW): Foundation of the Building Boom

The Retailers

When building supplies are hot, home-improvement retailers see the benefits directly and quickly. Not surprisingly, then, The Home Depot, Inc. (NYSE:HD) and Lowe’s Companies, Inc. (NYSE:LOW) both out-performed the broader market over the past year. Executives at each company attributed much of their gains to moving increasing amounts of plywood and OSB out the door as the slack sales they saw during the recession gave way to pent-up demand and some emergency reconstruction activity.

The Home Depot, Inc. (NYSE:HD), which operates more than 2,200 stores, reported strong fourth-quarter 2012 sales and pegged them largely to the housing recovery and sales related to repairs in areas impacted by Hurricane Sandy. Lowe’s, with more than 1,700 stores, also reported excellent fourth-quarter sales. Its overall year-over-year increase of 1.4%, however, wasn’t as impressive as The Home Depot, Inc. (NYSE:HD)’s 4.6% gain.

Another player that has seen stronger sales with the expansion in construction and renovation activity is Lumber Liquidators Holdings Inc (NYSE:LL), a specialty retailer of hardwood flooring with 288 stores. In late February the company reported better-than-expected fourth-quarter 2012 results, with overall sales up nearly 21% year-over-year and same store sales up more than 13%. It projected continued strong sales in 2013, and announced it would open 25-35 new stores during the year to build on the positive momentum.

The Bottom Line

Demand for structural panels and other wood products is expected to remain strong as the year rolls on. New home construction continues to gain traction, and spending on repairs and remodels shows no sign of slowing.

On the contrarian side, negative impacts from global economic concerns and the federal budget sequester are possible. And with supply chasing demand for some time to come, there remains some concern that the industry will continue to fall behind and as a result miss out on sales that may never return.

Nonetheless, after the prolonged downturn, the news for these companies is good and likely to stay that way at least in the short- to mid-term.

The article Plywood: Foundation of the Building Boom originally appeared on Fool.com and is written by Howard Rothman.

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