Aluminum extruder Indalex sees building/construction improvement

Aluminum extruder Indalex sees building/construction improvement
US aluminum extruder Indalex has seen a slight improvement in the building and construction sector over the past four to six weeks, but the company is still bearish for the rest of the year, said Timothy Stubbs, president and CEO.

Speaking during a recent conference call, he said: "It's safe to say April appeared to be the bottom of the dip. A priority for us is to gain share and look for ways to drive costs down."

According to Stubbs, so far in the second quarter, demand from the residential building and construction sector, the worst performing sector of the first quarter, is down 11% year on year (versus down 25% in Q1 year on year), transportation is down 8% (versus down 15% in Q1) and is showing positive growth in its main trailer market, trucking is down 20% (versus down 40% in Q1), recreational vehicles are down 30% (versus down 30% in Q1) and automotive is down 3% (versus down 21% in Q1).

In the first quarter, Indalex saw demand from the window sector down 21%, and the hurricane sector down 72%. Indalex is seeing those similar numbers for those sectors in the second quarter. Indalex's volumes in the first quarter were down 14.5%, although the industry was down 16%, meaning the company gained market share.

Stubbs said the biggest driver for the reduced volumes was weaker building and construction demand. "It affects our mix," he said. But on the bright side, mill finished sheet volumes were only down 2%, and Indalex is working on reducing its inventory.

Stubbs said Indalex is overweight in residential building and construction and underweight in commercial construction--the "shining light inthe market." He added that Indalex made very good progress in cost controls, getting its fixed and variable costs down. But increases in freight and energy costs offset improvements made in labor costs.

Going forward, Indalex sees difficulties in its end market persisting, but on the positive side, it is seeing an uptick in bookings, although its order backlogs remain low, "and our second-quarter shipments will reflect that," he said.

Stubbs added that despite signing an agreement with OK Spring Roll to divest its approximate 25% equity holding in Asia Aluminum Group for $153.2 million plus $2 million in special dividends, "our international strategy remains unchanged. We continue to have people out there, and we're growing our efforts there. [Asia] remains a key part of commercial and fulfillment strategy."

According to its quarterly report with the US Securities and Exchange Commission, Indalex's profitability depends in part on the varying economic and other conditions of the end-user markets its serve. "All of the end-user markets we serve, including our two largest markets, the transportation and residential building and construction end-user markets, are subject to volatility and, as a result, our customers' demand for our products may change due to changes in general and regional economic conditions, consumer confidence, weather, the housing market, fuel and energy prices and availability, employment and income growth trends and interest rates, each of which are beyond our control," it said. "No single end-user market drives our overall performance, and individual end-user markets are influenced by conditions in their respective industries."