The stock was hit hard toward the end of 2018 as demand in the home construction and remodeling markets softened and caused revenue to grow at a slower pace.
However, as sometimes happens with stocks, the sell-off seemed to overshoot how bad things really were for the company. The stock entered the year selling at a cheap forward price-to-earnings ratio of around 11 times earnings estimates for 2019. The company reported first-quarter earnings results that were not as bad as feared, which has supported a resurgence in the share price in the first six months of the year.
The company incurred a $90 million spike in costs in 2018 as a result of inflation and tariffs. While demand for plumbing and door products continued to be solid, the cabinets business didn't perform as well, and management took steps to improve the segment's cost structure to offset the increase in operating costs.
The year started out slowly, as expected, but demand improved throughout the first half. All segments, including plumbing, cabinet, and doors and security, reported sales growth. Additionally, the plan to improve the cabinet segment's cost structure was on schedule, with the operating margin improving by 3.5 percentage points.
While management expects demand to remain soft through the second quarter, CEO Chris Klein sees demand steadily improving throughout the year:
We continue to expect the second-quarter market to be soft. However, the pace is beginning to pick up here in April, and we expect to see demand improve month over month. Orders are trending positively, and the fundamentals that drive housing and R&R demand are improving.
The company's outlook calls for full-year sales growth of 6% to 7.5%, and for earnings per share to be up between 5.7% to 12.9% over 2018. The stock is not as cheap as it was at the start of the year, currently trading for a forward P/E of 15.4.
Investors will be looking for further improvements in market demand in the coming quarters.