For want of new houses, product sales languish

The Baltimore Sun

Black & Decker is having trouble selling lock sets for doors. And this is just the kind of thing that worries investors and economists.

Most lock sets are installed in new homes. And new homes aren't selling, as evidenced by two developments yesterday, a huge second-quarter loss reported by Pulte Homes Inc. and a report by the government that the June decline in new-home sales was the biggest in five months.

Those followed reports earlier in the week that sales in the far larger existing-home market fell to the slowest pace in 4 1/2 years in June and that Countrywide Financial, one of the nation's largest mortgage lenders, sees defaults spreading from subprime to more conventional mortgages.

Put it all together, and you have the sort of ripple effect from the housing slump that sends stock markets skidding, as they did yesterday, with the Standard & Poor's 500 index falling more than 2 percent.

"Locks are one of the thousands of little things that go into the building of a new home," said Stuart Hoffman, chief economist for PNC Financial Services Group in Pittsburgh. "There are fewer doors being built, so fewer new houses to need lock sets."

Black & Decker Corp., the Towson-based manufacturer and marketer of power tools and accessories, hardware and home improvement products, managed flat sales overall for the second quarter despite a double-digit decline in sales of Kwikset, a lock brand often used by high-volume builders. Its profit fell to $118 million from $152.2 million in last year's second quarter, on sales of $1.7 billion in both periods.

One of those builders, Pulte, reported a loss of $507.6 million for the second quarter yesterday, compared with a profit of $243 million in the corresponding period last year. Revenue was 40 percent lower than in last year's period, falling to $2.02 billion from $3.36 billion.

Chief Executive Officer Richard J. Dugas said the homebuilding industry "continues to face an extremely difficult environment that includes record existing- and new-home inventory levels, intense price competition and weak consumer sentiment for housing."

"The fact is, the housing market has everyone spooked," said Bob Goldsborough, vice president of research at Ariel Capital Management in Chicago, Black & Decker's second-largest shareholder. "The results that you see in Black & Decker today are not all that surprising. You're seeing this play out in any area that housing touches. Demand is really, really weak, and it's going to be weak for a while."

Black & Decker's results were about what Wall Street had expected, particularly because the company is being hit by rising costs for raw materials such as plastic and copper in addition to the housing slump.

Black & Decker shares fell $6.88 yesterday to close at $84.93.

"Black & Decker is not alone," said R. Bentley Offutt, a Cockeysville-based securities analyst. "Companies that are related to the homebuilding industry are all having a rough day of it."

The toolmaker could take some comfort: Sales of products typically bought by consumers at home improvement stores held up better than sales in the industrial and construction channel. Sales of Price Pfister faucets, for instance, were more than 10 percent higher than a year ago.

"The remodeling side of the business, while not robust, is holding on better than the new-construction part of our business," said Roger Young, a spokesman for Black & Decker.

Even in the lock set category, Baldwin, Black & Decker's line of high-end locks sold mostly in the United States, sold better despite a difficult market. The company declined to provide details.

"I do think that the highest end of the new-homes market tends to get hit less," Goldsborough said. "What you find is that people who have a lot of money don't worry much about the housing market. If you want to buy the nicest locks, you're going to do it. People like that are immune to the ebbs and flows of the housing market."

Hoffman sees no evidence that the housing slump has hit bottom.

"If anything, the data today shows there's further yet to fall for the housing industry," he said. "I don't think the housing market's decline will probably end before spring of 2008."

june.arney@baltsun.com

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