Specialist
Executive at a Canadian garage doors specialist
Agenda
- Garage door industry trends, including supply shortages and post-pandemic recovery
- Key industry players and differentiating factors
- Pricing dynamics and impact of rising raw materials costs
- US housing market outlook, replacement garage door drivers and PE interest
- Industry M&A, including announced acquisition of CHI Overhead Doors by Nucor (NYSE: NUE) and implications for industry’s competitive balance
Questions
1.
Could you outline the key secular trends, headwinds and tailwinds in the garage door industry?
2.
Could you expand on what is causing the supply shortages? You mentioned 94% material cost increases, steel shortages and price volatility, spring shortages and foam shortages in the background. Which drivers are still around today?
3.
What do lead times look across the key materials? How do they compare to historical trends and the peaks we saw?
4.
Is there any secular demand shift that’s also driving the shortage for garage doors? In previous Forum Interviews [see CHI Overhead Doors – Demand Outlook & Announced Acquisition by Nucor – 2 June 2022], I’ve heard that historically homeowners were likely to replace their garage door perhaps once during the lifetime of ownership, but now we’re seeing replacements twice during ownership. Is that a shift you are seeing?
5.
Is there any other driver for the replacement cycle coming down, aside from the aesthetic reasons you mentioned? Is it purely aesthetic-based or are other drivers such as an increase in extreme weather impacting replacement?
6.
Is there anything else that investors or outsiders to the garage door industry might under-appreciate or misunderstand about the replacement cycle, or anything else that’s important to mention?
7.
How many garage doors go to new construction vs replacement or retrofit, either from a manufacturer or dealer perspective? How much more does margin differ on new construction vs replacement doors?
8.
You said CHI Overhead Doors had a higher EBITDA margin than you would have expected and you mentioned the adjustments. Are there any adjustments that investors should be focus on in terms of that EBITDA margin? You said you were curious how it got so high.
9.
Could you give an overview of the garage door market’s value chain and the relationship between manufacturers and dealers?
10.
Could you outline the major manufacturers? You mentioned there are 6-10 and I think many will be familiar, such as CHI.
11.
You mentioned the dealer market is quite fragmented and you’ve seen some consolidation as of late. Given it’s such a fragmented market, are you seeing consolidation start to pick up at a dealer level?
12.
Could you discuss the pricing power that manufacturers have and have had over the last few years? You mentioned the 90-94% pricing increase and that the industry at a dealer level is fragmented and is now becoming more consolidated. How do you expect manufacturers’ pricing power to be affected by consolidation?
13.
You mentioned the idea of peak EBITDA being behind us, but to play devil’s advocate, what could keep margins, pricing power and everything we’ve seen over the last two years as they are? Are there any signs that things may stay the same?
14.
How might the pricing environment you outlined impact dealers? What differentiates the offerings of respective dealers?
15.
For dealers, could you discuss the revenue mix between product sales and service and then the margin differential between sales and service?
16.
How would you describe dealers’ abilities to pass cost through over the last two years? What are your expectations for pricing power? Would you anticipate resistance from consumers in the coming months or year?
17.
What are your thoughts on Nucor’s announced acquisition of CHI? What might be the strategic angle there, outside of the fact that steel is an input for garage doors?
18.
How do you expect Nucor’s acquisition of CHI, if it does close, to impact the garage door market’s competitive landscape?
19.
Why do you think there’s been a lot more activity, especially from PE players, in an industry which you said is typically very quiet? You outlined the pricing power we’ve seen over the last two years and the resulting elevated margins, which could be a reason.
20.
How else would you suggest that investors and our clients examine the sustainability of the earnings you mentioned? What could indicate how earnings will look over the next few years?
21.
What potential M&A activity do you expect? Could more dealers be consolidated or manufacturers be acquired?
22.
What are some challenges with consolidating or rolling up some of the dealers? You mentioned the labour pool for garage door technicians could be a limiting factor.
23.
Is there anything else about the garage door industry – either about manufacturers, dealers, demand or supply – that we haven’t touched on or that’s important for investors to understand?
24.
What is your 12-18-month outlook for customer behaviour? Could any unique trends emerge as we exit the pandemic? You mentioned a lot that the demand was potentially pulled forward. Which trends might stick around?
25.
How might the garage door market perform in a recession? Could you provide historical context or outline the potential offsets – so if residential comes down, whether commercial will come up? Where will a downturn leave garage door players, dealers and manufacturers?
26.
What would you tell clients and investors who are looking at the garage door market to focus on over the next 12-24 months? What questions would you be asking of management teams?
