04.07.16
Each quarter, Northcoast Research surveys a large sample of paint contractors & retailers throughout the United States to get a sense for current business trends while Specialty Chemical Sales provides insight into coatings raw material trends. Please note that of the three primary architectural paint channels (paint stores, home centers, and independent distributors), the contractor survey results are largely a proxy for the paint store channel and the retailer results are primarily reflective of the independent distributor channel. For inquiries regarding the results of the survey please contact Kevin Hocevar at 216-468-6924 or kevin.hocevar@northcoastresearch.com. For inquiries regarding raw materials please contact Dave Kotowski at 216-577-1982 or dkotowski@specialtychemicalsales.com.
Contractor and Retailer Sales — Sales Improve in 1Q16 vs. 1Q15
The cumulative responses to the question of “How do your sales in January, February and thus far through March of 2016 compare to your sales during the same time period last year”, show that the market appears to have grown from the prior year. Both the majority of contractors and retailers noted positive year-over-year sales volumes in the period. 60% of contractors noted higher sales in 1Q16 compared to 1Q15, while 16% reported a sales decline-implying a net increase among contractors of 44%. On average, contractors have experienced 6% sales growth thus far through 1Q16. For DIY retailers, 71% noted higher sales volumes compared to 14% which noted lower volumes, implying a 57% net increase in the period. On average, DIY retailers are experiencing 2% volume growth thus far through 1Q16.
Price of Paint from Suppliers — 1Q16 Paint Prices Remain Flat
In order to get a gauge for the pricing environment surrounding the paint contractors, we asked a few questions related to said topic. At 83%, most contractors have not received any news of a price increase from their suppliers. This is in-line with our expectations, as we also have not heard of price increases from any manufacturer contacts. Only 15% of contractors have received notice of a price increase and expect it to stick for the full amount, while 1% expect the increase they received to stick for “Less than the Full Amount” and 1% of contacts have received a price increase but do not expect it to stick. Similarly, 92% of our DIY retailer contacts noted they have not received news of a price increase. While pricing may be implemented in some small regional areas, we do not believe pricing is different industry wide than it was in 2015.
Raw Materials — What can we expect in 2016 regarding raw material prices?
First, a quick look at today. Tio2 is the lowest we have seen in many years. Resins are at the lower end of the spectrum. Hydrocarbon solvents and oil related products have declined dramatically as crude has fallen like a rock. Paint companies have benefited from these lower raw material costs for the last few years. So, when will this turn around? There are signs things are transitioning. Chinese producers of Tio2 have implemented a $40 per MT increase in January, February and March. This represents approximately a $0.08lbs increase for Q1. All Tio2 producers are crying the unprofitable blues. This is not good for the long haul. Oil has risen from a low of around $29 to the mid $30’s per barrel. Still extremely low, but the approximately $6 increase represents a 20% jump. There are no sure bets, but the winds of moderate increases are in the air.
3-Month Outlook — Outlooks Solid as We Head into 2016
At 75%, the vast majority of contractors believe that business trends are improving/will improve over the coming months. It goes without saying that this is encouraging as we head into the spring season. At 22%, the next most common response was neutral, or that business trends will stay about the same. We do not view a “Neutral” response as necessarily a bad thing, as the survey average sales growth in the quarter as mentioned above is 6% which represents solid growth. Only 2% of contractors have a negative outlook and expect business trends to decline. In asking this question, we attempt to gauge actual expectations for the coming months based on how business has been trending as of late and based on leading indicators such as contractor backlogs, bidding activity, and any other factors that drive outlooks. DIY retailers expressed similar optimism regarding the near term as 71% described their outlook as “Positive”, 21% as “Neutral” and 7% as “Negative”. The strong majority of both contractor and retailer contacts have a positive outlook which is an encouraging sign for the industry in 2016.
Contractor and Retailer Sales — Sales Improve in 1Q16 vs. 1Q15
The cumulative responses to the question of “How do your sales in January, February and thus far through March of 2016 compare to your sales during the same time period last year”, show that the market appears to have grown from the prior year. Both the majority of contractors and retailers noted positive year-over-year sales volumes in the period. 60% of contractors noted higher sales in 1Q16 compared to 1Q15, while 16% reported a sales decline-implying a net increase among contractors of 44%. On average, contractors have experienced 6% sales growth thus far through 1Q16. For DIY retailers, 71% noted higher sales volumes compared to 14% which noted lower volumes, implying a 57% net increase in the period. On average, DIY retailers are experiencing 2% volume growth thus far through 1Q16.
Price of Paint from Suppliers — 1Q16 Paint Prices Remain Flat
In order to get a gauge for the pricing environment surrounding the paint contractors, we asked a few questions related to said topic. At 83%, most contractors have not received any news of a price increase from their suppliers. This is in-line with our expectations, as we also have not heard of price increases from any manufacturer contacts. Only 15% of contractors have received notice of a price increase and expect it to stick for the full amount, while 1% expect the increase they received to stick for “Less than the Full Amount” and 1% of contacts have received a price increase but do not expect it to stick. Similarly, 92% of our DIY retailer contacts noted they have not received news of a price increase. While pricing may be implemented in some small regional areas, we do not believe pricing is different industry wide than it was in 2015.
Raw Materials — What can we expect in 2016 regarding raw material prices?
First, a quick look at today. Tio2 is the lowest we have seen in many years. Resins are at the lower end of the spectrum. Hydrocarbon solvents and oil related products have declined dramatically as crude has fallen like a rock. Paint companies have benefited from these lower raw material costs for the last few years. So, when will this turn around? There are signs things are transitioning. Chinese producers of Tio2 have implemented a $40 per MT increase in January, February and March. This represents approximately a $0.08lbs increase for Q1. All Tio2 producers are crying the unprofitable blues. This is not good for the long haul. Oil has risen from a low of around $29 to the mid $30’s per barrel. Still extremely low, but the approximately $6 increase represents a 20% jump. There are no sure bets, but the winds of moderate increases are in the air.
3-Month Outlook — Outlooks Solid as We Head into 2016
At 75%, the vast majority of contractors believe that business trends are improving/will improve over the coming months. It goes without saying that this is encouraging as we head into the spring season. At 22%, the next most common response was neutral, or that business trends will stay about the same. We do not view a “Neutral” response as necessarily a bad thing, as the survey average sales growth in the quarter as mentioned above is 6% which represents solid growth. Only 2% of contractors have a negative outlook and expect business trends to decline. In asking this question, we attempt to gauge actual expectations for the coming months based on how business has been trending as of late and based on leading indicators such as contractor backlogs, bidding activity, and any other factors that drive outlooks. DIY retailers expressed similar optimism regarding the near term as 71% described their outlook as “Positive”, 21% as “Neutral” and 7% as “Negative”. The strong majority of both contractor and retailer contacts have a positive outlook which is an encouraging sign for the industry in 2016.
