USG Corporation
The U.S. Housing market is improving at an exceptional rate. The same is evident from the fact that in December 2012 housing starts were up by ~37% y/y and reached 954,000. These starts have reached their highest levels in the last four years. The improvement in the housing sector has simultaneously helped complementary companies such as USG Corporation that manufactures building materials. Better than expected 4Q12 of the company is an outcome of the stabilizing market. USG was able to increase the total revenue for the quarter by ~12% y/y and the net loss was ~$13 million, drastically improved from last year’s ~$100 million for the same period. I am optimistic about the future of the housing market in the U.S. and expect that the auxiliary industries will grow along with it.
For FY13 the total revenue of the company is expected to be ~$3.5 billion with an operating profit of ~$340 million. The estimation is based on three factors. Firstly, because of the improving market and changes in foreclosure regulations the rate of new residential construction will remain at 950,000 units throughout the year. It is to be noted that every 100,000 new starts result in ~200 million square feet of incremental production for the company. Secondly, the new UltraLight premium wallboard that accounted for ~47% of the total wallboard volume will continue to grow in the coming year. And lastly, on average the company’s rivals have already increased their prices by a flat 30% for all of their customers, whereas USG has applied a more conservative approach by adopting rates that vary with different customers. The adoption of this technique leads to an average increase of ~20% in prices that can help USG in acquiring new customers in the future.
Automatic Data Processing
The unemployment rate in the US has been following a decreasing trend and was ~7.8% in the last three months of 2012. This helped Automatic Data Processing increase its revenue, as the major source of the company’s income is processing of payrolls. The company recently declared 2Q13 results, in which the total revenue was up by ~7% y/y. The growth in revenue was mainly driven by employer services and PEO services that increased by ~7% and ~13%, respectively.