Black & Decker, Masco Forecasts Signal Slow Confidence Recovery
Sales projections from Stanley Black & Decker Inc. and Masco Corp., which sell mainly to U.S. consumers, signal households are struggling to recover from last year’s recession and are delaying home improvements.
Masco, a maker of home improvement products, this week said consumer spending on remodeling will be “challenged” in 2010. Toolmaker Stanley on July 21 said it expects stores to restock shelves at a slower pace.
The companies’ projections underscore the limits to sales growth in a market where consumer confidence levels are half those registered in 2007, the unemployment rate is projected to stay close to a 26-year high and a sustained housing rebound has yet to take hold. Consumer spending accounts for about 70 percent of U.S. gross domestic product.
“The combination of a sluggish labor market, much lower levels of wealth and subdued confidence makes it very hard to see a consumer-spending boom in the U.S.,” said Zach Pandl, an economist at Nomura Securities International Inc. in New York. “The overall recovery will be lackluster. Companies reliant on U.S. consumers should be more realistic and expect less sales growth than in past years.”
The Conference Board reported on July 27 that its consumer sentiment index fell to 50.4 in July, down from an average 98 during the expansion that ended in December 2007.
The U.S. accounted for about 80 percent of sales last year at Masco, and Stanley garnered 58 percent of total revenue from the domestic market. The companies’ products are sold at retailers such as Home Depot Inc. and Lowe’s Cos., the two largest U.S. home-improvement chains.
The Consumer Discretionary Select Sector SPDR Fund, whose members include Home Depot and Lowe’s, fell 1.3 percent at 12:29 p.m. today and has lost 6.4 percent since June 15. The SPDR S&P 500 ETF Trust, which tracks the S&P 500 index, is down 1.9 percent during the same period.
Big-Ticket Delays
Masco this week said second-quarter sales to key retailers were unchanged from a year earlier. The Taylor, Michigan-based company also cut its forecast for housing starts in 2010 and said sales since April have slowed from a year ago.
“Expenditures on repair and remodel activity will be challenged in the second half of 2010,” Chief Executive Officer Tim Wadhams said in a statement on July 26. “Big-ticket items will continue to be deferred, in the short-term, until general economic conditions, unemployment, consumer confidence, credit availability and home prices improve.”
Stanley said customer restocking, which lifted second- quarter sales, is not expected to continue in the latter half of the year at the same pace. The New Britain, Connecticut-based company acquired Black & Decker in March this year, combining the two largest U.S. toolmakers.
‘Bumpy’ Rebound
“Our belief that the rebound within the end markets we serve will be slow and perhaps bumpy remains unchanged,” Donald Allan, chief financial officer, said in a statement on July 21.
The New York-based Conference Board’s consumer confidence index fell to a five-month low this month from 54.3 in June. The report also showed the proportion of Americans who expected their incomes to rise over the next six months dropped 10 percent, the lowest since April 2009.
A more frugal approach to consumer spending also is a concern for Sherwin Williams Co., the biggest U.S. paint retailer. The Cleveland-based company last year got about 86 percent of its sales in the U.S.
“We’ve commented about the skittish consumer in this economy that any little bit of bad news tends to see some bit of a pull back and some of this is discretionary spending,” Chairman and Chief Executive Officer Christopher Connor said on a conference call with analysts on July 22. Business related to commercial construction also is facing “headwinds,” he said.
To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net Anthony Feld in New York at afeld2@bloomberg.net
To contact the editor responsible for this story: Christopher Wellisz cwellisz@bloomberg.net
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