Product and Service
Companies included in floor covering sector in furnishing industry are primarily floor covering manufacturers including carpet, rugs, ceramic, tile, laminate, wood, stone, and vinyl for commercial and residential use.
Demand for Product and Service
As our sales volume indicates, the demand for hard surface floor covering products has been strong in the past several years but the growth presents trend of slowing down probably as a result of slowing down construction activities recently.
The Sector
Sector’s current, trend, causes behind trend, and future
Current and Trend
- The strong growth in demand for flooring covering products in US market in the past several years seems to come mainly from hard surface products. The declining demand for soft surface products dragged down the whole sales and was the major reason of significant decrease in sales of some of major companies in 2016 and 2018.
- The data from the typical company indicates that growth in demand in global market seems to have been faster than in domestic market.
- Companies in this sector are experiencing increased pressure on its price due to increased raw materials costs in 2017 but generally the cost of raw materials decreased compared with several years ago and drove up the margins of companies in this sector.
- Trend of consolidation has continued as a result of intensive competition among US manufacturers.
Causes behind the trend
Economy situation/consumers spending, particularly represented by activities in residential and commercial construction and remodeling markets, is the major factor influencing demand for floor covering products. The facts that the sales volume of traditional floor covering products slowed down but sales of more expensive hard surface products went up seems to be consistent with current economy recovery – companies making more profits but compensation of employee growing lagged.
Industry Future
In a long period of time in future, the trend of declining growth in demand for products of those major domestic companies may continue.
International impacts will also continue. However, US manufacturers have opportunities to adjust their production to meet demand of those consumers.
Numbers
General Financial Performance of Companies In the Sector
It seems that demand in US market for soft surface flooring covering products has been weak in the past several years as indicated by decreasing sale volume of companies that have a focus on this type of products. Demand for hard surface products seem to be strong and has been the major driver of companies’ sales growth but the growth has been seen slowing. We thus have seen a significant decrease since 2016 in sales among soft surface product-focused companies and a bounce back in 2017 as they shift their products to hard surface products. The typical annual growth in sales is about 4%, 3.6%, -1.2% and 6% in2018, 2017, 2016 and 2015.
Companies’ gross margin seem improved in the past several years ( 31% in 2018) as cost of raw materials continued to decrease and price raised. The average SG&A as percentage of sales is about 22% and the operating margin is about 8% in 2018.
The typical stock Price/cash flow ratio: 21 (interest/EBI ratio of 7%).
