Lumber Depot triples profit as world wood price seesaws

HARDWARE STORE, Lumber Depot Limited, made $72 million in net profit for its July 2021 first quarter, more than doubling earnings of a year ago and tripling pre-pandemic era profits, as the company cashed in on a boom in construction and home project sales. It also made big gains from an early move to stock building materials ahead of big price rises earlier this year that has seen the cost of lumber, in particular, jumping sharply then fall significantly in recent months.

The company is said to have negotiated adequate stock levels at reasonable cost for all key hardware items ahead of steep cost escalations during the quarter.

“We anticipated that prices would have increased and planned accordingly through strategic purchases which we were able to negotiate. We had to pass on some of this to our customers but we were able to curtail the impact on them,” Managing Director Noel Dawes said in response to Financial Gleaner queries about the impact of price rises on profits.

The big profit was obtained while maintaining fair selling prices to the market, company chairman Jeffrey Hall maintained in comments accompanying the latest financials.

The company, which is listed on the Junior market of the Jamaica Stock Exchange, JSE, sells a range of construction materials, equipment and carries a large stock of lumber.

Since the pandemic, the local construction sector has witnessed a boom as contractors building in the expectation of future economic growth. In May this year, lumber commodity prices on the world market nearly doubled to US$1,270 per thousand board feet from January prices of US$700, according to data on the US-based Nasdaq Exchange. Lumber commodity prices have, however, trended lower since around August and now hovers at or just below US$610 in September, still much higher than prices of below US$400 which it fetched in August.

The persistence of the COVID19 pandemic and the curfew measures to mitigate the spread of the disease continue to created some uncertainty for the company, its management has acknowledged.

“We also worked hard to maintain commercially reasonable opening hours and staffing levels throughout the COVID19 pandemic. Lumber Depot recognises hat the COVID-19 pandemic presents significant challenges for the Jamaican economy. Curfews, travel restrictions and new workplace rules have presented risks to our supply chain, have strained consumer and business confidence and have resulted in increased volatility in exchange rates,” Chairman Hall said.

For Lumber Deport, first quarter revenues of $420 million represented an increase of 16 per cent over the $362 million it made in the previous year. In 2019, the revenues were $325 million for the quarter with pre-tax profit of $24.1 million.

Lumber Depot now has the balance sheet to allow it to consider a range of strategic investment initiatives, the company stated. The business has over $395 million of equity and some $270 million of cash and equivalents.

“The board and management or Lumber Depot will prioritise projects that allow it to strengthen its overall long-term market position and drive the competitiveness of the core retail business,” according to Hall.