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Prospects dim for Stock

BY Brae Canlen

Stock Building Supply, the industry’s second largest pro dealer, will either close down or change into a different company sometime during the next four months. These were the bare facts behind a March 6 statement by Wolseley, which announced it is in the process of “identify[ing] a joint venture partner” for its struggling U.S. lumber business.

Earlier that same morning, at 4:00 a.m. EST, executives at the London-based parent company made their intentions clearer in a conference call with analysts and investors.

“We’re determined to exit that business,” said Wolseley CEO Chip Hornsby, citing Stock’s annual losses of $200 million. Even if the housing industry begins to recover, he said, the upswing will be too little, too late. “Enough is enough,” he added.

Wolseley, a building materials distributor with global operations, reported a 60% drop in profits for its last six-month period, which ended Jan. 31, 2009. Stock Building Supply, which generates approximately 10% of the firm’s revenues, shouldered a disproportionate share of the blame. Stock’s losses for the six-month period totaled $129 million.

Putting aside the housing slump, Hornsby pointed to several other factors that figured into Wolseley’s decision. More than 40% of Stock’s revenues come from a single commodity—lumber—and 70% of the company’s business is generated from a single business sector, new residential housing. Aggressive cost-cutting measures, which included reducing Stock’s head count by 5% and closing more than one-third of its locations, have not stemmed the losses.

The Raleigh, N.C.-based dealer does have some profitable businesses, Hornsby said, citing roofing and steel doors. Wolseley put Stock up for sale in 2008 and was close to closing a deal last fall with a single buyer, “[until] the financing fell away because of the credit crisis,” Hornsby said.

This time around, Wolseley is in discussions with “interested third parties,” according to its chief executive. Due diligence begins this month, with the stated goal of completion by the end of April. “The initial offers or, whatever it is, are certainly intriguing, but we’ll see what it involves,” Hornsby said.

M&A advisors say that Stock—which was originally built from a rollup of smaller players—could be broken apart again. “I think that pieces of the whole could be cleaved off based on particular regions of interest,” said Nick Beare, head of the building products group at Stephens Inc.

John Cudzik, the former manager of acquisitions for Ferguson, estimated that Wolseley is losing $1 million a day “for every day that Stock remains open.”

“The joint venture scenario is a way to get Stock off Wolseley’s balance sheet,” Cudzik told Home Channel News. “It would shield them from the stigma of reporting 100% of [Stock’s] losses.”

Cudzik, who left Ferguson in 2008 to work for Matrix Capital Markets as director of the building products and infrastructure group, observed that “the senior management of Wolseley is not from the lumber side of the business. They’re from the plumbing side. They never really bought into the Stock business model.”

Comments made by Wolseley executives on March 6 underscored their commitment to their U.S. plumbing and HVAC division, which experienced an 11.3% revenues decline in the last six-month period. Ferguson continues to perform strongly compared to the overall market, Hornsby said, and the Newport News, Va.-based division is well-positioned to buy up smaller competitors and gain market share as the recession drags on.

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Irwin Ace closes Cedar Springs, S.C., store

BY HBSDEALER Staff

Irwin Ace Hardware is closing its Cedar Springs, S.C., location — one of its two stores in the Spartanburg area — after 20 years in business, according to GoUpstate.com. The company sited the economic downturn as the reason for closing.

Irwin Ace’s other store on the east side of Spartanburg will remain open, the article said.

Irwin began liquidating the Cedar Spring store’s merchandise on March 19. The store is also running a contest whereby customers can earn points to win a number of prize items valued from $30 to $500. The sale is expected to last about eight weeks, and the prizes will be awarded on May 8.

Irwin recently completed a 4,000-square-foot expansion and re-merchandising of its east-side store, which is about three miles from the Cedar Springs location. The store now has an improved hardware selection and layout, an enhanced post office facility and a larger gift department.

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Fertilizer rules fuel discontent

BY HBSDEALER Staff

By Lisa Girard

New laws on the books in New York’s Suffolk County, as well as in other pockets of the United States, say people are no longer allowed to fertilize from late winter to early spring.

The Suffolk County law, which was passed in 2008 and took effect Jan. 1, prohibits residents from using fertilizer on their lawns between Nov. 1 and April 1. Lawmakers say the ground is too cold then to absorb the nitrogen found in fertilizer, which can leach into natural water bodies and stimulate algae growth, threatening the county’s shellfish population.

The ban includes organic fertilizer as well as synthetic products. It is the first such law to pass in New York State. According to Steve Levy, Suffolk County executive, the plan could reduce the amount of nitrogen leached into groundwater and surface waters from residential use by at least 25% — or 60 tons annually. Violators — whether they’re homeowners or professional landscapers — face a penalty of $1,000 per violation. Suffolk County’s commercial landscapers are licensed through the county, so repeat offenders might jeopardize their licenses.

“It’s definitely going to hurt business,” said the owner of one Suffolk County-based lawn care company, who asked that his name not be used. “I usually start fertilizing in mid-March, so I’m going to have to cram six weeks of work into four weeks. If it was two weeks — even one week — earlier, it would be a big help.”

Chris Wible, director of environmental stewardship at Scotts Miracle-Gro of Marysville, Ohio, agrees that one of the biggest problems about the new law is that it makes it almost impossible for professional applicators to serve all their customers. It also takes the decision-making process out of the hands of professionals and, instead, makes lawn care subject to an arbitrary date.

“The difficulty with the date is that the seasons fluctuate year to year,” said Wible, whose company makes both organic and synthetic fertilizers. “One year on April 1, the grass is growing; another year, we have a late winter, and the ground is still frozen.”

Sal Mortilla, owner of Landscaping Unlimited, a Farmingville, N.Y.-based landscape design company, said it’s “just another way for lawmakers to bow to the environmentalists,” adding, “Grass is a nitrogen magnet. It will absorb what’s put down. So I don’t get that part of it.”

Retailers are also worried about the effect this legislation might have on spring lawn and garden sales. Alan Talman, owner of Karp’s Hardware in East Northport, N.Y., called the new law “draconian” and “another example of our County Legislature forgetting who they work for.” He said he will still be able to sell crabgrass killer before April 1, but expects the ban to cut into the sale of crabgrass killer-fertilizer combinations and four-step lawn care programs.

“Anyone anxious to put down some crabgrass killer prior to April 1 will have to use a crabgrass killer that is not a combination fertilizer and herbicide,” he said. “The popular four-step lawn care programs that contain a combination fertilizer and crabgrass killer currently have a very large consumer rebate available, so some consumers might forfeit that.”

However, not all Suffolk County lawn and garden retailers are upset about the new regulations. Anne Trimble, who has been in the business since 1976 and has been co-owner of Trimble’s of Corchaug in Cutchogue, N.Y., since 1991, said it’s wonderful that lawmakers are finally caring about the environment.

“Americans have to get over the idea that their lawns have to be green and weed-free,” said Trimble, whose nursery sells only organic products. “Homeowners as well as landscapers have over-fertilized. Synthetic fertilizers tend to burn your lawn. I think it’s wonderful that Suffolk County is taking the lead on this.”

The Suffolk County health department and the Peconic Estuary Program report that 56% of groundwater-affecting nitrogen from residential areas comes from fertilizers. They estimate that 32% is from on-site sanitary systems like septic tanks and 12% from animal wastes and other sources. However, Pat Voges, head of government affairs for the Nassau Suffolk Landscape Gardeners Association in Brightwaters, believes that a much greater percentage of the pollutants come from sanitary systems and just 5% to 6% come from fertilizer. Still, he says, it’s a start to the cleanup process.

“If it’s going to leach through, we all live on this island and care about it,” Voges said. “They have to start someplace. People who are complaining should wake up and smell the coffee and learn to live with it.”

According to the Neighborhood Network Research Center, a Farmingdale, N.Y.-based environmental group, consumer education is a key to making the whole process work. The law calls for retailers to post signs announcing the new regulations within 10 feet of fertilizer displays, and Suffolk County is developing programs to educate consumers about how and when to apply fertilizer.

“This law does make a requirement for signage and forces public education to begin to take place. People selling the products should play a key role,” said Neal Lewis, executive director of Neighborhood Network. “Once you start talking about the dates, it promotes a deeper discussion about why people are using synthetic products and why they’re over-fertilizing.”

Scotts’ Wible is one of the people developing the in-store signage that will inform consumers of the Suffolk County legislation and tell them what they can do to help the county achieve its goals. “Our close relationship with the consumer and our understanding of how consumers interact with and use our products enables us to provide useful insights that make these efforts affective,” said Wible, whose company has also partnered with the New Jersey Department of Environmental Protection and the Alliance for the Great Lakes to provide outreach materials.

In addition, Suffolk County’s 1,200 licensed landscapers are being required to take an approved turf-management course that teaches the proper use and application of fertilizer and methods to minimize nitrogen leaching. The idea is to promote low-maintenance lawn care and landscaping, modification of fertilizer application rates and greater use of slow-release formulas.

According to Voges, turf grass researchers at Penn State, Cornell, the University of Rhode Island and other research universities are trying to come up with other ways to keep lawns healthy. He said it’s a matter of figuring out alternatives to current accepted processes. “I’m sure this is going to be an economic burden on many people, but 35 years ago, fall fertilization was unheard of. We learned to grow turf with late fall fertilization, and we will learn to grow turf without it,” he said.

The fertilizer issue goes far beyond the shores of Long Island. New York’s Westchester County appears poised to follow in Suffolk County’s footsteps, as the Westchester County Board of Legislators is considering a law banning fertilizer use between Dec. 1 and April 1. (A public hearing was scheduled for March 23, and the board will decide on the issue sometime after that.) There are also rumblings of a similar law being instituted in Ocean County, N.J., which would ban fertilizer use between Nov. 1 and March 15.

William Carey, owner of Master Lawns in Hawthorne, N.Y., has been servicing lawns in Westchester for more than 30 years. He said these regulations would leave too small a window for application and will eliminate the need for several jobs during the December-to-April time period, “something we don’t need in this economy.”

In the case of Westchester County, the issue is that a lot of the local reservoirs that feed New York City’s water supply have higher than acceptable levels of phosphorus, which some have attributed to fertilizer runoff. Carey also questioned New York experts using a study on this issue by the Wisconsin Water Science Center to shape Westchester County policy. “It’s like comparing apple to oranges. It’s a lot colder in Wisconsin than it is here,” he said.

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