Costs, Operational Inefficiencies Among Key Headwinds for Door and Window Companies

Manufacturers in the residential fenestration market are facing many of the same challenges of late, according to some of the latest financial releases from industry companies. The most common factor mentioned across virtually all of the reports was an increase in material costs.

Cost Inflation

Ply Gem reported that its windows and doors business faced “increased commodity costs, mainly PVC resin, aluminum and glass.” Ply Gem added that these costs were “partially offset by higher average selling prices from the continued improvement in our new construction business.”

PGT Innovations CEO Jeff Jackson also said his company saw “a return to an inflationary environment in which we experienced margin pressures from rising cost of aluminum, glass, fuel and wages.” He added that PGT offset those pressures with price increases that were announced during the year.

Quanex CEO Bill Griffiths said his company’s fenestration businesses in the U.S. and Europe “faced significant material cost pressure during the [fiscal year first] quarter, mostly in chemicals and mostly as a result of supply constraints of Hurricane Harvey.”

During JELD-WEN’s fourth quarter results presentation, recently departed-CEO Mark Beck highlighted higher freight rates, labor inefficiencies (more in that in a moment), and “accelerating inflationary pressures from our supplier base” as key operational headwinds that impacted margins in North America in the fourth quarter.

Masonite was another industry company that cited the same challenges in the fourth quarter, including materials inflation and operational inefficiencies related to productivity.

Operational Inefficiencies

Multiple companies also pointed to inefficiencies in labor and productivity, and they are putting efforts in motion to neutralize these.

Beck said JELD-WEN recently “increased investment levels in automation projects from which we expect future savings.” He added that the company is re-evaluating volume forecast methods and have also “completed line balancing projects at our window plants which have significantly increased our throughput at the same cost base.”

Masonite noted that it is working to improve plant labor productivity in 2018, as it has reduced its headcount by 7 percent, optimized shift schedules, and is making plant layout changes and equipment investments to improve throughput.

PGTI said it is already feeling the positive impacts of operational improvements it make last year, which were reflected in its most recent financial results when comparing to previous quarters.

Still, most companies are dealing with tightening of labor availability and wage inflation, which will remain a challenge in the foreseeable future. In its latest report, Deceuninck said operational inefficiencies in its U.S. operations were “due to difficulties to recruit qualified people in a tight labor market.”

Despite the hurdles documented above, most companies reported positive sales figures in the last quarter and are optimistic looking forward. It will be interesting to see how these fenestration companies fare in the subsequent quarter in regard to these challenges. We’ll revisit this in the middle part of 2018.

Some direct quotes of CEOs are courtesy of SeekingAlpha.com and are linked accordingly.