the top product quality and
high contractor standards
that QCP has set for the
HydroStop, United Coatings,
and StreetBond brands in the mar-
ketplace. Both of us look forward to
building upon the excellent relation-
ship that has been forged between you
and QCP. We know that the future will
serve to strengthen our partnership as
we work to create more value for our
customers.”
Results of U.S. Architectural Coatings Industry Research Report Which Compared Business Trends
in 3Q15 vs. 3Q14
Each month, North Coast Research surveys a large sample of
paint retailers throughout the United States to get a sense for current business trends. Please note that of the three primary architectural coatings channels (paint stores, home centers, and retail
distributors), this survey is primarily reflective of the distributor
channel which tends to see volume growth less than the industry;
therefore, we view the results as a directional indicator more so
than absolute industry volumes. For inquiries regarding this report
please contact Kevin Hocevar at 216-468-6924 or kevin.hocevar@
northcoastresearch.com.
Architectural Coatings Sales —
Volumes Up 1.4% in 3Q15 vs. 3Q14
According to industry participants, average volumes increased
1.4% in 3Q15 compared to 3Q14. This represents a slight sequential moderation from our 2Q15 results and compares to volume growth of 2.8% in 2Q15, 1.1% in 1Q15, and 1.6% in 4Q14.
We had anticipated pent up demand from lost painting days
in 1H15 to be made up in 3Q15 causing volumes to accelerate, however this did not happen. With that said, the industry
is still experiencing year-over-year growth. We are encouraged
with the positive trends that have persisted through 3Q15 as
paint volumes continue to grow on a year-over-year basis and
we expect 2015 to be a solid year. Overall, 63% of respondents
witnessed an increase in paint volumes vs. only 17% that saw
volumes decline, averaging out to 1.4% year-over-year volume
growth and a net increase of 46%.
Price of Paint from Suppliers —
3Q15 Paint Prices Remain Positively Skewed
40% of contacts noted paint prices were higher in 3Q15 vs.
3Q14 as our paint price index rose 1.0% compared to average
increases of 0.5%-1.0% over the past year. Our research sug-
gests that a little bit of price is sticking in the industry but only in
the independent dealer channel which is small in size and likely
in the low-single digit range. We currently do not believe the
store or big-box channels are realizing pricing; however, given
the raw material declines, we view the overall price/raws for
coatings manufacturers as favorable. We believe that we picked
up potential price increases in our 4Q14 survey where a mean-
ingful uptick in contacts were notified of a price increase from
manufacturers to take place in 2015. The majority or contacts
believed these attempts would be successful and we believe the
data we have discovered thus far in 2015 suggests that some de-
gree of pricing did in fact stick in the marketplace. Overall, 40%
of respondents witnessed an uptick in pricing vs. only 3% that
saw pricing decline, averaging out to a 1.0% increase in year-
over-year pricing with afnet increase of 37%.
Raw Materials —
Raw Materials Can’t Seem to Find a Bottom
We continue to believe coatings manufacturers are poised to
benefit from favorable price/raws in 2015 due to the drop in titanium dioxide (TiO2) and raw materials derived from crude oil.
Propylene, of which many coatings based raws are derived, has
continued to decline and is averaging about $0.345/lb in 3Q15
which is down ~18% from 2Q15 and ~50% from 3Q14 levels
which averaged $0.681/lb. TiO2 started to drop in 4Q14 and has
seen further declines throughout 2015 and is likely down 15%+
year-over-year. Unfortunately, coatings manufacturers have not
seen the level of raw material benefits we were anticipating
throughout 2015 as most of the major coatings players have indicated the raw material basket is down only low-single digits in
1H15, however this may improve in 2H15 .
3-Month Outlook —
Outlooks Solid as We Enter the Fall Season
Our proprietary Coatings 3-Month Outlook Index reached 0.51
in 3Q15, which is a slight sequential moderation from our 2Q15
survey. Moving backwards, the 0.51 mark in 3Q15 compares to
0.84 in 2Q15 and a reading of 0.57 in 3Q14. The highest possible reading is +2 (indicating all contacts have a “very positive”
outlook) and the lowest possible reading is -2 (indicating all contacts have a “very negative” outlook). We believe this represents
healthy growth as our index tends to temper from 2Q into 3Q as
we enter the fall but is showing normal seasonality and healthy
outlooks.
