Makers of gypsum wallboard have seen a pickup in business in
recent quarters thanks to improving construction markets as well
as a more aggressive pricing strategy among manufacturers.
The momentum should continue into the next couple of years,
analysts estimate, as a rise in both residential and
nonresidential construction continues ratcheting up demand for
wallboard, a key material in just about any building.
The two biggest publicly traded wallboard suppliers --Eagle
) andUSG (
) -- have both seen sales and earnings increase the last couple
of years following a long downturn that began in 2008, when the
housing industry got knocked for a loop by the financial crisis
Continental Building Products (
), which went public in February, has delivered robust revenue
gains in recent quarters.
Analysts reckon the wallboard industry will continue growing,
despite recent data pointing to continued hiccups in the U.S.
housing market's recovery.
Sales of new homes, a key wallboard market, fell 14.5% in
March, the Commerce Department reported Wednesday. It was the
second straight monthly decline and the lowest rate since
A week earlier, the Commerce Department said the rate at which
builders started work on new homes in March increased a healthy
2.8% over February. But applications for permits -- a measure of
future activity, not to mention drywall demand -- slowed
That kind of mixed reading has kept analysts cautious in their
assessment of the housing market's impact on demand for
"Our position is that there will be a shallow recovery in
housing, with bumps along the way," said Kathryn Thompson,
director of research at Thompson Research Group. "There's not
going to be a straight line up for the construction markets or
the wallboard market. There will be some peaks and valleys."
Todd Vencil, analyst at Sterne Agee, said the housing industry
last year saw less than 1 million new starts.
"That's still at a trough," he said. "We are coming out of an
historic monster recession, so we are looking at several years
yet of slow grinding recovery."
The market for commercial construction is similarly mixed.
While there are bright spots -- including rising demand for
industrial facilities and certain types of office properties --
overall market growth has been sluggish.
While progress is back and forth, there's no question that
gypsum wallboard suppliers are in a lot better shape now than a
few years ago. Shipments, revenue and profits are all on the
"The positive changes in volume began in the latter part of
2012, driven by the housing rebound for both single and
multi-family homes," Thompson said. "Now they are getting the
benefit of nonresidential construction as well."
The gypsum industry has also benefited from a change in
pricing strategy spearheaded by Eagle Materials in 2011.
During the fall of that year, the company announced it would
raise prices 35% on Jan. 1, 2012, then not raise them again for
the rest of the year.
The bold move completely flipped the script on how prices had
traditionally been set.
Previously, wallboard suppliers made numerous price
adjustments during the course of a year based on a constellation
of factors, like how busy their plants were and how much
customers were willing to pay for a particular job.
"It was very ad hoc," Vencil said.
Eagle instituted its one-time change for the entire year,
hoping to bring more stability to the process and to transfer
more risk from the suppliers to the distributors.
The change might not have made much difference if other
suppliers didn't follow suit. But they did.
"As it happened, within a couple of months all the other
competitors announced price increases on basically the same
terms," Vencil said. "The other competitors thought it was a good
Prices have been rising steadily ever since.
In 2013, USG's realized selling price for its Sheetrock brand
of wallboard climbed 17% from a year earlier. Eagle's average
gypsum wallboard net sales price rose 19% during its fiscal third
quarter, which ended in December. Continental Building saw a
13.8% increase in the average wallboard mill net price during its
2013 fourth quarter.
Gypsum wallboard, also called drywall or plasterboard, is cut
into panels and used to create walls. It has a paper facing, a
high moisture content and is more fire-resistant than materials
such as plywood and fiberboard.
Wallboard producers sell to large home improvement retailers
such asHome Depot (
) andLowe's (
). They also sell to smaller independent retailers, wholesale
distributors and construction companies.
The big players don't depend on gypsum wallboard for all of
their business. In fiscal year 2013, Eagle Materials got 39% of
its revenue from gypsum wallboard and an equal percentage from
its cement business. The rest came from recycled paperboard and
USGgot about 53% of its 2013 revenue from its gypsum unit. The
rest came from other construction materials as well as ceiling
and tile products. Its biggest customer is Home Depot, which
accounted for about 15% of overall revenue last year.
Continental Building is much more of a pure play, with about
95% of its business coming from wallboard.
One thing they share in common: all wallboard suppliers have
recently been on a roll.
Eagle has run off nine straight quarters of double-digit sales
and EPS growth after reporting lower sales four straight years
from fiscal 2008 through 2011.
Last year USG logged its first annual profit since 2007, while
revenue rose 11%. The company shipped 5.14 billion square feet of
Sheetrock in 2013, up 9% from the previous year.
Continental Building, formerly Lafarge Gypsum, grew its annual
sales 29% last year and 24% in 2012.
Suppliers of gypsum wallboard in the U.S. belong to a pretty
exclusive club. There are only eight of them.
The three biggest are USG, privately held National Gypsum, and
Georgia Pacific, which is owned by Koch Industries. Those three
accounted for an estimated 60% of wallboard sales in the U.S.
last year, according to a regulatory filing from Eagle
Around 20.5 billion square feet of gypsum wallboard was
shipped in the U.S. last year, analyst Vencil says. That is equal
to 735 square miles -- more than enough to cover the combined
areas of Los Angeles and Chicago. It was up from a low of 17.2
billion in 2011, but still well shy of the 36.2 billion shipped
as recently as 2005.
Much of the recent growth has been driven by the repair and
remodeling market, Vencil says. One gypsum supplier he met with
recently said about half of its current business comes from the
repair/remodel market. Another 35% came from non-residential
construction and 15% from new residential construction.
"In a normal market the percentage would be about 40% new
residential," Vencil said. "New residential construction has come
back somewhat, but it still has a long way to go."
Meanwhile, wallboard demand for non-residential construction
will be driven by the industrial sector, Thompson says.
"The energy sector is a very big part of that right now, so
you will see demand for warehouses," she said. "There will be
also be some new office buildings and retail. But it will be more
driven by growth in industrial."
The biggest technological trend in the gypsum wallboard
industry in recent years has been the adoption of synthetic
gypsum, made from byproducts of energy generation or industrial
Although synthetic gypsum has been around for a couple of
decades, production "really picked up in the mid-2000s," Vencil
That's mainly because a lot of synthetic gypsum comes from
flue gas at coal-fired plants, stripped out by emissions
scrubbing equipment. Most of those sources are located in the
eastern half of the country, a region where natural gypsum
minerals are in short supply. For these companies, it is more
cost efficient to make synthetic gypsum than to ship minerals in
from the western U.S.
Continental manufactures only synthetic gypsum drywall. USG
says about 35% of the gypsum used in its plants last year was
synthetic, with production at six of its 19 plants entirely based
on the synthetic material.
Another recent trend has been a rise in demand for lightweight
wallboard. Pioneered a few years ago by USG with its Sheetrock
UltraLight panels, the panels weigh less and are easier to work
with and transport than standard wallboard.
Still, gypsum wallboard is a pretty old product -- dating to
the 19th Century. Producers are always looking for new ways to
improve it, says Stephen Meima, deputy executive director of the
Gypsum Association, an industry trade group.
"Our members are continually innovating on the manufacturing
side and on the product side," he said.
Much of the current innovation focuses on green and
sustainable wallboard products, he says, as well as software
tools that help architects and designers analyze the life cycle
costs of wallboard.