I continue to keep tabs on the performance of non-residential (commercial) real estate through the eyes of the companies that service this industry. Unlike previous quarters, earnings reports are a bit more mixed about the condition and outlook for non-residential real estate. Current conditions remain poor, but companies are now straining to see some light at the end of the tunnel. The word “bottom” was even used.
Here are snippets from the recent earnings reports of Acuity Brands (AYI) – a $2.1B market cap company providing lighting solutions to non-residential real estate customers; Fastenal (FAST) – a $7.8B market cap company that wholesales and retails fasteners and other industrial products, and Reliance Steel & Aluminum Company (RS) – a $3.1B company that provides value-added metals processing services and distributes a full line of metal products, including galvanized, hot-rolled and cold-finished steel, stainless steel, aluminum, brass, copper, titanium and alloy steel.:
“We achieved unit volume growth while non-residential construction continued to decline.”
“Key economic indicators and independent third-party forecasts, while a bit mixed, suggest activity to be slightly down to flat for our primary market, U.S. non-residential construction, for our fiscal 2011. This more neutral outlook is in contrast to the stiff headwinds our industry faced over the last few years.”
“Our non-residential construction customers have historically represented 20% to 25% of our business. The daily sales of this business contracted approximately 14.7% in the first quarter of 2010 and then grew 0.5% and 6.3% in the second and third quarters of 2010, respectively. In the first, second, third, and fourth quarters of 2009, the contraction was 6.4%, 19.6%, 25.3%, and 24.8%, respectively. For the year, our total sales to our non-residential construction customers contracted 19.4% from 2008 to 2009.”
“On a sequential basis, the sales to our manufacturing customers stabilized in May 2009 and then started to demonstrate patterns that resemble historical norms. This reversed the negative trend which began in October 2008. This stabilization and improvement was partially offset by continued deteriorization in our non-residential construction business which weakened dramatically in the first eight months of 2009, and then began to also demonstrate patterns that resemble historical norms.”
“Going the other way is the non-residential market, that remains our weakest, and the only market we serve that is worse than a year ago. It seems, though, that we have reached bottom but will probably bounce around at this level for awhile.”
“Non-residential construction continues to lag but we feel as though we are at or near the bottom of the cycle.”
“Certainly I think with respect to construction — and by the way, I think probably all of you have seen that the ABI (Architecture Billings Index) index came out yesterday or the day before, and there was another increase, so what, four months in a row now? So that is encouraging. It doesn’t mean the non-res business is going to take off tomorrow, because that is more of a nine- to 12-month indicator, which is kind of in line with our thinking that towards the end of next year or in the early part of 2012, we will start to see some meaningful improvement, but between now and then we don’t expect things to change much. So that’s why we think it is kind of at or near the bottom. So that is encouraging.” (During Q&A)
Be careful out there!
Full disclosure: no positions