US major has hope in local housing

Building adhesives business H.B. Fuller believes the cyclical downturn in the Australian residential construction sector could be bottoming out, raising hopes for the flat housing market.

By InvestSMART · 3 Apr 2013

By InvestSMART ·
3 Apr 2013

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Building adhesives business H.B. Fuller believes the cyclical downturn in the Australian residential construction sector could be bottoming out, raising hopes for the flat housing market.

It comes as many domestic residential and commercial construction manufacturers believe the market will remain subdued for some time, failing to return to levels seen before the global financial crisis.

H.B.Fuller chief executive and president James Owens said last week that Australia was still a weak link in the chain of the global company's operations but there were some signs of a turnaround.

"Our Australia business remains relatively weak, but year-over-year revenue was only slightly negative in the quarter, indicating that the negative trend in this region is bottoming out."

H.B.Fuller is a chemicals group that specialises in formulating high performance industrial adhesives, sealant products, paints and other specialty materials used in construction. Its products are used in homes from the floor to the ceiling, as well as for furniture, roofs, window frames and bathroom fittings.

Last month, US paints group Valspar said its Australian business, built around its popular Wattyl brand, had a 15 per cent decline in volumes for the first quarter due to weakness in the Australian housing market.

Big construction companies have turned the screws on costs in the face of a prolonged slump in housing. Boral, Australia's largest construction materials company, recently announced it would outsource 40 technology jobs. In January, Boral boss Mike Kane unveiled plans to retrench as many as 1000 employees to cut costs.

Boral posted a $25.3 million loss for the first half because of the weak market conditions and some restructuring costs. Stockland, Australia's biggest residential property developer, posted a $147 million loss for the first half, a worse than expected result.

But in March, RBA deputy governor Philip Lowe gave an upbeat speech about Australia's economic outlook, indicating the central bank was hoping for a smooth transition away from mining to non-mining investment-led growth and housing construction activity.

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Frequently Asked Questions about this Article…

Is the Australian residential housing market showing signs of bottoming out?

According to H.B. Fuller’s CEO James Owens, Australia remains a weak link for the global company but year‑over‑year revenue was only slightly negative in the quarter, which he said indicates the negative trend may be bottoming out. The article also notes that many domestic construction manufacturers still expect the market to remain subdued and not return to pre‑GFC levels.

What did H.B. Fuller say about its Australia business and outlook for housing-related demand?

H.B. Fuller said its Australia business remains relatively weak, but revenue decline versus the prior year was only slight in the latest quarter, suggesting the regional downturn may be stabilising. The company makes adhesives, sealants, paints and specialty materials used across home construction and fittings.

How badly was Valspar’s Australian (Wattyl) business affected by the housing slowdown?

Valspar reported a 15% decline in volumes in its Australian business, built around the Wattyl brand, for the first quarter — a drop the company attributed to weakness in the Australian housing market.

Why are construction materials companies like Boral cutting costs and jobs?

The article says a prolonged slump in housing has forced big construction companies to tighten costs. Boral has announced the outsourcing of 40 technology jobs and plans to retrench as many as 1,000 employees as part of wider cost‑cutting and restructuring measures in response to weak market conditions.

What recent losses have major construction and property companies reported?

Boral posted a $25.3 million loss for the first half, partly due to weak market conditions and restructuring costs. Stockland, Australia’s largest residential property developer, posted a $147 million loss for the first half, a result described as worse than expected.

What kinds of products do building‑materials groups like H.B. Fuller supply to the housing market?

H.B. Fuller specialises in formulating high‑performance industrial adhesives, sealants, paints and other specialty materials used in construction. Its products are used throughout homes — from floors to ceilings — and in furniture, roofs, window frames and bathroom fittings.

What did RBA deputy governor Philip Lowe say about the outlook for housing construction and the wider economy?

In March, RBA deputy governor Philip Lowe delivered an upbeat speech on Australia’s economic outlook, saying the central bank hopes for a smooth transition away from mining toward non‑mining investment‑led growth and increased housing construction activity.

What should everyday investors watch for in the housing and building‑materials sector based on this article?

The article suggests investors should watch company revenue trends and volume data (for example, Valspar’s 15% volume decline), executive commentary on regional performance (such as H.B. Fuller’s remarks on Australia), announced cost‑cuts or restructures (Boral’s job moves and losses), and central bank signals about broader economic transitions that could affect housing construction.