When the housing bubble burst some years ago, the impact on
window and door maker PGT was both severe and prolonged.
Annual sales dropped from a peak of $372 million in 2006 to
just $167 million in 2011. Earnings had reached 94 cents in 2006.
But Florida-based PGT lost money from 2008 to 2011.
Like a confused bird slamming into one of its own picture
) was stunned but only seemingly lifeless.
In recent months, the firm has posted improving results. And
it is now poised to benefit in several ways from its status as
the leading maker and seller of impact-resistant windows and
doors in Florida.
The Florida market that makes up more than 85% of PGT's
business has awakened. Housing starts in the Sunshine State, as
well as sales and prices of existing homes, have all been rising.
This has encouraged PGT CFO Jeff Jackson, who believes the
Florida housing rebound is for real.
"PGT expects the Florida new-home construction market to grow
at a compound annual rate of 40% over the next three years,"
Jackson told IBD.
PGT specializes in aluminum and vinyl-framed impact-resistant
windows. Analysts estimate it has more than 50% of the Florida
market for such windows. And with hurricanes a recurring threat,
building codes have been tightened to protect against both wind
and the dangerous debris it sends flying. Florida code
enforcement has made it the place to be for PGT. "The codes are
much more stringent and much more enforced," said Jackson.
As a result, reports Dougherty analyst Jeremy Hamblin,
impact-resistant doors and windows account for 30% of the Florida
market. "Eventually, it will be 50% or more," said Hamblin.
And analysts believe that PGT has the ability to grow share in
a growing market. "They have a very strong competitive
advantage," said Hamblin. PGT is vertically integrated, producing
its own impact-resistant glass through a process of lamination.
This integration gives PGT "a significant cost advantage,"
according to Hamblin. And since it is less dependent on outside
suppliers, PGT can more swiftly fill orders.
"Their lead times are much shorter. They can turn around
orders more quickly. They don't have to go to a third party,"
PGT has been in the black the last five quarters. In its
second quarter, PGT delivered its "strongest quarterly sales
growth since 2006," CEO Rodney Hershberger told analysts in
August. The company reports third-quarter results Wednesday. "I
do expect a good report," said Hamblin.
Jackson would not discuss full-quarter results just before
reporting but he did say that both July and August were strong
PGT bulls note that new-home sales in Florida, though
rebounding, are still well below historic averages. The long-term
average for Florida housing starts is roughly 100,000 per year,
explains Hamblin. After topping a bubbly 200,000 in 2005, new
starts shriveled all the way down 26,000 in 2009. Now on the
rebound they reached roughly 42,000 last year. That's still less
than half the historic average. "We think it's going to continue
to grow at 20% a year," he added.
But Sean Snaith, director of the Institute for Economic
Competitiveness at the University of Central Florida, has his
doubts. Much of the Florida buying thus far, he says, has come
from private equity investors looking for return on investment
bargains. Cash sales, he notes recently, represented 42% of
new-home sales. "Forty-two percent is still pretty high for cash
sales," he noted.
"My concern is that the transition from financial buyers to
traditional financed consumer purchasers will not be seamless,"
Financial buyers may find the market less appealing as prices
rise and prospective returns shrink. Snaith wonders whether there
are enough employed consumers who can get the credit required to
step in and sustain the housing revival.
As important as new-home construction is for PGT's business,
it still accounts for just 30% of sales. The other 70% comes from
customers who buy new windows and doors in the process of
repairing or remodeling older homes.
Even if new-home construction continues to boom as Jackson
expects, growth in this much larger part of PGT's business will
be relatively subdued. Typically, says Jackson, repair and
remodel on a national basis tends to grow 5% to 6% a year. He
expects the Florida refurbishing market to grow a bit better than
that over the next three or four years.
Prices Up, Spending Up
Remodeling activity tends to rise with home prices, notes
Jackson. "When home values go up, people spend money. That's what
we're seeing," he noted. Lower unemployment and rising stock
prices, both of which Florida has enjoyed of late, have also
And there is another wild card loose in the deck. Actually, it
may soon be floating somewhere off tropical waters. A major
hurricane hasn't made landfall in Florida since 2005. That streak
must eventually end. And when hurricanes hit, lots of homeowners
get impact-resistant religion fast.
Stunned and left for dead several years ago -- as recently as
December 2011 shares closed below a dollar -- PGT now seems like
a good bet to continue unimpeded flight for a while.