Despite a weak start this year amid equity market volatility and global concerns, the construction sector seems to have recovered on the back of strong housing fundamentals. Of the construction companies in the S&P 500, 53.8% have already reported their results. According to our earnings preview report, 57.1% of these companies have surpassed earnings estimates and 42.9% came ahead of revenue expectations. Total earnings of these construction companies increased 14.3% on an 11.3% increase in revenues.
Positives like a healthier economy, improving employment levels, low interest rates, positive consumer confidence and a tight supply situation raise optimism about the sector’s performance in the second half.
In addition to home construction, the home remodeling market has also picked up pace. Improved construction and remodeling activity have increased demand for building products.
On Jul 26, one of the leading building product companies, Masco Corporation (NYSE:MAS) reported second-quarter 2016 results. While its earnings beat estimates, revenues came in line with the same. Its second-quarter performance was backed by significant year-over-year growth in earnings, revenues and margin, as the company capitalized on improving momentum in the repair and remodeling and new home construction industry.
Next up, three other building products companies are scheduled to report their quarterly results on Aug 2. Let us look at how these companies are placed ahead of their releases.
Headwaters Incorporated (NYSE:HW)
Headwaters is set to report third-quarter fiscal 2016 results before market opens.
Last quarter, Headwaters posted a positive surprise of 30.00%. Headwaters has surpassed estimates in each of the past four quarters, resulting in an average positive surprise of 26.47%.
It has an Earnings ESP of -28.21% and a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for the quarter is pegged at 39 cents.
Martin Marietta Materials, Inc. (NYSE:MLM)
Martin Marietta is set to report second-quarter 2016 results before market opens tomorrow.
Last quarter, Martin Marietta posted a robust positive surprise of 122.58%. However, the producer of construction aggregates and other construction materials has delivered negative earnings surprises in three of the last four quarters with an average negative surprise of 19.65%.
Martin Marietta has an Earnings ESP of +1.96% and a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for the quarter is pegged at $2.04.
Martin Marietta did well in the first quarter of 2016, reporting strong revenues and margins. This year, the company anticipates better volume growth in its key end markets — infrastructure and non-residential construction.
A multi-year highway bill (five-year, $305 billion FAST Act) was enacted in Dec 2015, which increases funding certainty for state transportation programs. This combined with state initiatives to finance infrastructure projects is expected to have increased aggregate-intensive infrastructure activity in the second quarter, thereby boosting demand for aggregates. This should support volume growth in Martin Marietta’s Aggregates segment.
In addition, robust pricing gains and synergies from the Texas Industries acquisition should drive growth in the second quarter and beyond. (Read: Martin Marietta: What's in Store this Earnings Season?)
Orion Energy Systems, Inc (NASDAQ:OESX)
Orion Energy Systems is set to report first-quarter 2017 results after market close.
Last quarter, Orion Energy posted a negative earnings surprise of 22.22%. Orion Energy missed estimates in all the past four quarters, resulting in an average negative surprise of 165.14%.
It has an Earnings ESP of -18.18% and a Zacks Rank #4 (Sell). The Zacks Consensus Estimate for the quarter is pegged at a loss of 11 cents.
Conclusion
With the rise in demand for homes, remodeling activities and an improving job market in 2016, building products companies such as the ones discussed above are expected to witness strong demand for their products.
MASCO (MAS): Free Stock Analysis Report
HEADWATERS INC (HW): Free Stock Analysis Report
ORION ENERGY SY (OESX): Free Stock Analysis Report
MARTIN MRT-MATL (MLM): Free Stock Analysis Report
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