Makers of Building Supplies See Gains in Demand

A mild winter and a rejuvenated U.S. construction industry are fueling a growth spurt for makers of household paint, drywall sheeting and other building supplies.

Paint maker Sherwin-Williams Co. on Thursday raised its full-year profit guidance and other companies described favorable conditions after contractors in the Northeast and Midwest were able to start outdoor work earlier than usual.

"They are very bullish about the paint season," Sherwin-Williams Chief Executive John Morikis said on an investor call after reporting forecast-beating first quarter profits.

The Cleveland-based paint manufacturer reported an 11% increase in first-quarter revenue from its network of paint stores, which mainly serve professional painters, and a 44% improvement in profit from the stores. The company is in the process of acquiring rival Valspar Corp. for more than $9 billion.

The Commerce Department said U.S. housing starts in March were up 14.2% from a year earlier, although they fell 8.8% from February to their lowest rate since October.

Paint maker PPG Industries Inc., which derives about 15% of its annual sales from paint for buildings in the U.S. and Canada, also described improving conditions.

"Certainly, this is going to be a better start to paint season than last year," CEO Michael McGarry told analysts.

Meanwhile, at USG Corp., the maker of Sheetrock gypsum drywall and grid ceiling tiles, CEO James Metcalf described the first quarter as "the best quarter we've had in almost a decade." Net income rose by nearly threefold to $67 million and sales increased 7% to $970 million on the strength of 20% increase in wallboard volume.

Chicago-based USG wrestled for years with excess production capacity and low market prices when housing construction failed to rebound after the 2008 recession. In addition to cutting expenses and shutting plants, the company doubled down on product development, introducing lighter-weight sheets of drywall that are easier for installers to carry. The sheets fetched higher prices for USG, even as low housing volumes kept a lid on USG's sales.

"The market isn't as strong as it was nine years ago. We just figured out how to get better results on lower demand," said Mr. Metcalf in an interview.

Illinois Tool Works Inc. managed to boost the first-quarter operating margin from its construction products business to 21% from 17% last year, despite logging just a 1% increase in sales. The Glenview, Ill., company supplies screws, fasteners, nail guns and other items to big box home improvement retailers and industrial supply distributors.

CEO Scott Santi though cautioned against interpreting the first-quarter results as the start of a sustained upturn in the construction business. The warm weather may have moved up the start of some planned work that would have just started later otherwise.

"There's really no way to factor weather in," he told analysts this week. "We certainly exited the quarter in pretty good shape. We're not seeing anything slow down."

Write to Bob Tita at [e-mail]

(END) Dow Jones Newswires

April 21, 2016 18:35 ET (22:35 GMT)

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