There are plenty of construction-related companies on the stock market these days, but few that concentrate specifically on doors and windows. A notable exception to this, veteran manufacturer JELD-WEN Holding, is about to launch its IPO. Should investors step through the portal and snap up the stock? Let's take a look.
Constructing a market leader
JELD-WEN has plied its trade for decades. Since it's a specialist, it's relied on acquisitions for growth, snapping up six smaller door and window makers since the summer of 2015.
That's bulked up the company quite a bit, and its portfolio is stuffed with a host of door and window brands. In its IPO prospectus, it claims to be one of the largest door and window makers on the planet. In most of the countries and territories it's active in, it holds the No. 1 position in terms of net revenue.
JELD-WEN drew around 60% of its net sales from North America in 2015, while Europe contributed 29%, and Australia and Asia contributed the remainder. Greatly helping domestic sales is the company's presence on the shelves of Home Depot, the monster do-it-yourself retailer that was responsible for around 15% of the company's total gross revenue in calendar 2015.
Outside of Home Depot, you might have seen JELD-WEN's products on Dream Home Giveaway, the annual house sweepstakes TV show airing on Scripps Network Interactive's HGTV -- it supplies its products to the program. The Scripps show is durably popular and serves as a good marketing tool for the company.
JELD-WEN's products are almost exclusively aimed at residential construction. A full 90% of its sales went toward that category in 2015.
In terms of financials, after rising for three years in a row, net revenue saw a downturn in fiscal 2015. It dropped to $3.38 billion from the previous year's $3.51 billion. On the plus side, due in no small part to gains from currency hedging, 2015's bottom line landed in the black (at almost $91 million). This followed deficits that ranged from almost $27 million to $238 million in the preceding four years.
The first nine months of 2016 looked more promising. Fueled by those recent acquisitions, the top line was 8% higher, at $2.69 billion. Stronger demand from a robust U.S. housing market, combined with increased pricing, helped shoot net income 76% higher, to nearly $125 million.
This Fool's take
It's a good time to be involved in the U.S. construction industry, and the sustained good performance of the residential segment plays to JELD-WEN's niche. Meanwhile, the company points out that the fragmented nature of the market across the Atlantic provides a fine opportunity, as it has "the only platform in the industry capable of serving nearly all European countries."
But being a manufacturer means spending a lot to make product, one reason that JELD-WEN's margins are fairly thin when it lands in the black. Indebtedness is fairly high, rising from $624 million billion at the end of 2011 to nearly $1.3 billion at the end of this past September.
Part of this money, of course, is used to help keep those manufacturing facilities humming, but some is also used to pay shareholders. The company is controlled by entities related to private equity firm Onex, which will still hold at least 60% of its stock after the IPO. These parties benefited from $431 million of dividend payments disbursed in 2015.
JELD-WEN occupies an interesting niche, and has done a good job consolidating its position over the years. Its prominent position in Home Depot aisles and on Scripps' HGTV attests to that. It also has good prospects at home and abroad.
Yet that debt level is a bit high for comfort, and the company won't necessarily be the master of its own destiny going forward. Potential investors should keep these factors firmly in mind when considering this new stock.
JELD-WEN's first day of trading is scheduled for this Friday. The shares will be listed on the New York Stock Exchange under the ticker symbol JELD. Twenty-five million shares are set to be sold, almost 22.3 million by the company and the remainder by Onex. The price range has been set at $21 to $23.
The company said it will use the proceeds from its stock sale mainly to repay debt, devoting around $375 million for this. The remainder is to be utilized for working capital and "general corporate purposes," which might include new acquisitions. JELD-WEN does not intend to pay a dividend.
The IPO's underwriting syndicate is led by Citigroup, JPMorgan Chase's J.P. Morgan, Barclays, and Credit Suisse.