Gibraltar Industries shareholders and executives are still waiting for the recovery.
The Hamburg-based construction products manufacturer was broadsided by the collapse of the housing market during the Great Recession, and the company’s executives worked hard during the downturn to reshape the business.
They closed facilities, streamlined production and a host of other initiatives aimed at lowering the company’s break-even point, so that when Gibraltar’s markets started to rebound, the company would be in a position where it would be more profitable than ever as its revenues started rising again.
And as the calendar turned to 2013, it looked like things were finally starting to fall into place for Gibraltar. Its sales and profits had strengthened for two straight years. Experts predicted the housing market would continue to rebound this year, which seemed to put the company in a position to extend its growth streak to a third year.
Investors shared that feeling of optimism, causing the company’s battered share price to more than double between August 2012 and late April.
Then, the company reported its first-quarter profits, and the bubble of optimism started to lose some of its air.
Gibraltar’s operating profits tumbled by 54 percent, partly because of the upfront cost of a debt refinancing that would save $3 million a year in interest expenses. But there were other warning signs. Sales growth slowed to 2 percent because Gibraltar’s industrial markets were softer than expected and stormy spring weather led to a sluggish start to the construction season.
The bubble went even flatter earlier this month, when Gibraltar said the weakness extended throughout the spring and executives had a sobering message for investors looking for signs of the recovery they’d been expecting.
Maybe next year.
“There was a lot of exuberance relative to expectations for improvement in 2013 coming into the year,” said Brian J. Lipke, Gibraltar’s chairman and chief executive officer, during a conference call.
As that exuberance turned to disappointment, Gibraltar’s investors have started selling. The company’s stock, which peaked at just over $19 a share in late April, has lost about a quarter of its value since then and now trades at around $14. That’s still not bad for a stock that had sunk to less than $4 a share during the depths of the recession, but it’s a sign that some investors are growing tired of waiting for a recovery that just won’t seem to come.
Gibraltar executives still are preaching patience. They say the radical reshaping of Gibraltar’s business since the recession hit nearly six years ago has put the company in a strong position to grow quickly – and profitably – once its housing and construction markets recover. That restructuring, which saw Gibraltar sell off its steel processing business to focus solely on its building products markets, also greatly reduced Gibraltar’s cost structure and eliminated dozens of facilities.
“Although we’re disappointed with the slower-than-expected improvement in end market demand, we feel good about how we’ve positioned the business,” said Henning N. Kornbrekke, Gibraltar’s president and chief operating officer. “The fundamentals are all in place.”
The problem is that the company’s industrial business, which accounts for about 40 percent of Gibraltar’s sales, has weakened, especially in its energy and architectural markets, forcing the company to go along with painful price cuts.
And the long-awaited recovery in the nation’s housing markets continues to move in fits and starts. While the multifamiily housing construction market has been strong, the rebound in residential construction has been up and down, although Kornbrekke still thinks the long-term trend is up.
At the same time, though, demand for the company’s products that are used by homeowners undertaking repair and remodeling products was down during the spring – a drop Kornbrekke blamed on bad weather and a “continued reluctance among home owners to commit to big-ticket remodeling projects.”
So instead of growing by 2 percent to 5 percent, Gibraltar now expects the remodeling market to be flat this year. Instead of an industrial recovery, Gibraltar executives see continued weakness from its existing businesses in that market. The only reason Gibraltar expects its industrial sales to rise by about 2 percent this year is because of a series of acquisitions it made in that business late last year.
That weakness will hurt Gibraltar’s profitability, too. The company slashed its earnings forecast for this year by 30 percent, with adjusted earnings per share, excluding special charges, now expected to be around 59 cents per share, down from its May forecast of around 85 cents.
“Our fundamentals are solidly in place and we’re optimistic about our prospects for top and bottom line growth longer-term,” Lipke said. “Near term, our goal is to capitalize on pockets of opportunity.”
By now, though, Gibraltar’s investors, who have pushed the company’s share price down by about 9 percent this month, were hoping for a little more than hope.