January earnings dip for Lumber Depot
The third-quarter earnings of Lumber Depot Limited have ebbed in line with the slowdown in the construction sector.
However, recent lumber commodity prices have dipped by three-quarters when compared with year-earlier levels, which might benefit the company’s outlook.
“Over the course of this financial year, our customer base reacted to uncertain economic conditions, including high interest rates, challenges with the availability of certain key hardware items, and at the beginning of the year, a spike in commodity prices,” said Chairman Jeffrey Hall in the January quarter financial report.
Lumber prices on the international market are down by about 75 per cent in the past year, from US$1,400 to under US$340 per thousand feet mark, according to data from Nasdaq and Trading Economics.
Lumber Depot operates a hardware store in Papine that for two decades has served the surrounding communities in St Andrew, as well as scale building contractors.
The company said, however, that the softening of the construction market in Jamaica affected its sales.
“These conditions are now evident in the slowdown of the construction sector generally across Jamaica. For Lumber Depot, the prevailing economic circumstances have led to some softening in sales, down 1.0 per cent relative to the prior year, and some compression in gross margins,” Hall said.
Lumber Depot generated profits of $106.7 million over nine months ending January on revenues of $1.15 billion. Earnings were down 25 per cent year-on-year, while revenue was flat in the period.
The business, despite the challenges, still generated a good return on investment at 18 per cent.
“Importantly, the business is highly cash generative and earned cash from operations of over $110 million, and now retains cash and investments in excess of $275 million,” Lumber Depot said in its earnings report.
For 2023, the company plans to manage cash and inventory levels with a view to paying dividends.
The company also plans to further develop its facility in Papine through what it called continuous investments in the space, upgrading its operating systems, and investing in staff.
Between October and December, the real value-added for the construction industry decreased by 4.7 per cent, according to data from the Planning Institute of Jamaica. The planning agency’s estimate included contraction in housing starts by 8.4 per cent, a 5.0 per cent decline in the value of NHT-supported mortgages, and a 24.3 per cent fall in the volume of mortgages disbursed by state-owned housing developer and mortgage lender National Housing Trust.