10.11.16
Each quarter, Northcoast Research surveys a large sample of paint contractors to get a sense for current business trends while United Mineral & Chemical Corp. (UMC) 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. 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@umccorp.com.
Contractor Sales — Sales Growth Accelerates in 3Q16
The cumulative responses to the question of “How do your sales in July, August and thus far through September of 2016 compare to your sales during the same time period last year”, show that the market appears to have grown solidly from the prior year. Specifically, 78% of contractors experienced a higher level of sales thus far in 3Q16 compared to 3Q15. A mere 12% of contractors described their sales as “Flat”, while 10% experienced a YoY sales decline in the period. These metrics produce a net increase (percent of contacts who experienced higher sales in the period minus the percent of contact who experienced lower) of 68%. Sales for contractors thus far in 3Q16 have grown at an average of 7%.
Price of Paint from Suppliers — 3Q16 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 88%, 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 8% of contractors have received notice of a price increase and expect it to stick for the full amount, while 4% expect the increase they received to stick for “Less than the Full Amount”. While pricing may be implemented in some small regional areas, we continue to believe pricing is not different industry wide than it was in 2015.
Raw Materials Pricing and Supply Update
As we head into the fourth quarter, raw material price changes have quieted down. Of course, all or most of the significant price increase announcements on Tio2 have taken effect. We suspect there could be one more announcement between now and Q1 2017. Oil has had an interesting ride, bottoming out around $26 to a high of around $50/bl. Even with this seemingly wild swing, downstream product price increases have calmed. As I write this, the only impactful announcement on the table is a double digit increase on steel pails for 10-1-16. The biggest cost affecting our industry is the never ending increased burden of regulation. As I travel the country and talk to industry members, comments about “Big Brothers” cost in a gallon of paint can reach in excess as 10% of the formula. Hang on to your boots strap, regulations are not going away.
3-Month Outlook — Outlooks Continue to be Strong
At 71%, the vast majority of contractors believe that business trends are improving/will improve over the coming months. At 24%, the next most common response was neutral, or that business trends will stay about the same. Only 6% 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 relevant factors. Of the positive factors driving their outlooks, many contacts cited increased housing and construction activity and a renewed willingness on the part of consumers to invest in their homes.
Anecdotes from Our Survey:
Several of our contacts noted labor shortages in the period that are holding them back from fully meeting very strong demand in their respective regions. Some described the difficulty as simply the inability to find qualified workers, while one in particular stated there was enough demand to double his staff, but is unable to do so due to said restraint. In addition, many contractors expressed concern over how the upcoming presidential election may negatively impact their business.
Contractor Sales — Sales Growth Accelerates in 3Q16
The cumulative responses to the question of “How do your sales in July, August and thus far through September of 2016 compare to your sales during the same time period last year”, show that the market appears to have grown solidly from the prior year. Specifically, 78% of contractors experienced a higher level of sales thus far in 3Q16 compared to 3Q15. A mere 12% of contractors described their sales as “Flat”, while 10% experienced a YoY sales decline in the period. These metrics produce a net increase (percent of contacts who experienced higher sales in the period minus the percent of contact who experienced lower) of 68%. Sales for contractors thus far in 3Q16 have grown at an average of 7%.
Price of Paint from Suppliers — 3Q16 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 88%, 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 8% of contractors have received notice of a price increase and expect it to stick for the full amount, while 4% expect the increase they received to stick for “Less than the Full Amount”. While pricing may be implemented in some small regional areas, we continue to believe pricing is not different industry wide than it was in 2015.
Raw Materials Pricing and Supply Update
As we head into the fourth quarter, raw material price changes have quieted down. Of course, all or most of the significant price increase announcements on Tio2 have taken effect. We suspect there could be one more announcement between now and Q1 2017. Oil has had an interesting ride, bottoming out around $26 to a high of around $50/bl. Even with this seemingly wild swing, downstream product price increases have calmed. As I write this, the only impactful announcement on the table is a double digit increase on steel pails for 10-1-16. The biggest cost affecting our industry is the never ending increased burden of regulation. As I travel the country and talk to industry members, comments about “Big Brothers” cost in a gallon of paint can reach in excess as 10% of the formula. Hang on to your boots strap, regulations are not going away.
3-Month Outlook — Outlooks Continue to be Strong
At 71%, the vast majority of contractors believe that business trends are improving/will improve over the coming months. At 24%, the next most common response was neutral, or that business trends will stay about the same. Only 6% 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 relevant factors. Of the positive factors driving their outlooks, many contacts cited increased housing and construction activity and a renewed willingness on the part of consumers to invest in their homes.
Anecdotes from Our Survey:
Several of our contacts noted labor shortages in the period that are holding them back from fully meeting very strong demand in their respective regions. Some described the difficulty as simply the inability to find qualified workers, while one in particular stated there was enough demand to double his staff, but is unable to do so due to said restraint. In addition, many contractors expressed concern over how the upcoming presidential election may negatively impact their business.
