Shares in exterior doors, windows, and building products company Jeld-Wen (JELD +7.27%) crashed by 24.3% in May, according to data provided by S&P Global Market Intelligence. The decline came after the company released disappointing first-quarter earnings in early May.
Jeld-Wen's challenging 2024
In response to the difficult first quarter and challenging conditions in the housing market, management lowered its full-year revenue and adjusted earnings before interest, depreciation, and amortization (EBITDA) guidance. Instead of a full-year core revenue decline of flat to 7%, management now expects revenue to decline between 5% and 9%. Furthermore, instead of guidance for full-year adjusted EBITDA in the range of $370 million to $420 million, management now expects adjusted EBITDA in the range of $340 million to $380 million.
NYSE: JELD
Key Data Points
Why Jeld-Wen lowered expectations
The downgrade to expectations comes from weak repair and remodel markets in North America and Europe. According to CFO Julie Albrecht on the earnings call, management lowered volume expectations in the former due to interest rate uncertainty and in the latter due to "ongoing macroeconomic and geopolitical challenges."
Albrecht also outlined a fascinating North American housing market dynamic that investors should consider. While existing home sales remain "sluggish," buyers are "turning to new construction to fill the gap." Albrecht sees this as a positive for its doors business, but says "we are underrepresented with the largest homebuilders in our windows business."
This suggests the new housing market might be an area of strength in the North American housing market. However, it's a different story in Europe as commercial construction and permits are down double-digit percentages, and "almost every region" in Europe is experiencing weakness in residential housing starts.
Image source: Getty Images.
What's next for Jeld-Wen?
It's a challenging trading environment for the company and highlights the potential for near-term bad news in the housing market and stocks with exposure to it. However, a lower interest rate environment would help improve door and window volumes, so investors might be tempted by the dip in the stock price to buy in.
That said, Jeld-Wen's management is quite candid about improving its operational performance. The company is streamlining its options (closing two North American windows facilities), and conducting an ongoing review of how to grow its business in its most attractive areas. This includes improving its offerings to better participate in the new single-family home construction market, which management expects will grow by low single digits in 2024.
Jeld-Wen is an interesting play on a housing recovery, but there are probably better-quality companies to invest in to get exposure to the theme.
