Lumber Distributors
Industry Profile Report
Dive Deep into the industry with a 25+ page industry report (pdf format) including the following chapters
Industry Overview Current Conditions, Industry Structure, How Firms Operate, Industry Trends, Credit Underwriting & Risks, and Industry Forecast.
Call Preparation Call Prep Questions, Industry Terms, and Weblinks.
Financial Insights Working Capital, Capital Financing, Business Valuation, and Financial Benchmarks.
Industry Profile Excerpts
Industry Overview
The 4,600 lumber distributors and wholesalers in the US act as middlemen between suppliers, retailers, and builders. Companies purchase stock and custom-ordered materials from sawmills, plywood and engineered wood product manufacturers, importers, and foreign suppliers and resell them to retailers, builders, lumber yards, and manufacturers. Firms may also provide engineering services or product modification such as cutting or planing wood to specified sizes or thicknesses.
Demand Tied to Residential Construction
Demand for lumber is largely tied to residential construction spending, which is cyclical and influenced by economic conditions.
Fluctuating Lumber Costs
The prices that manufacturers charge for wood products can fluctuate significantly and rapidly, driven by variability in underlying commodity costs.
Industry size & Structure
The average lumber distributor employs 24-25 workers and generates $21 million annually.
- The lumber distribution industry consists of about 4,600 firms that employ 113,000 workers and generate about $98 billion annually.
- Plywood, veneer, millwork, and wood panel wholesalers account for 60% of firms and 49% of revenue. Lumber distributors account for 40% of firms and 51% of sales.
- The industry is concentrated at the top and fragmented at the bottom; the top 50 companies account for 50% of industry revenue.
- Only 1.5% of firms earn $100 million or more annually; those firms account for 29% of industry sales.
- Large firms include BMC/Builders First Source, Forest City Trading Group, US LBM. Some of the largest firms, like Rex Lumber, still operate regionally.
Industry Forecast
Lumber Distributors Industry Growth
Recent Developments
Mar 23, 2023 - Lumber Demand Expected to Drop
- North American lumber consumption is expected to decline by about 7% in 2023, but that may not have much of an effect on pricing, according to a lumber analyst with Forest Economic Advisors. Lumber demand is softening as high interest rates and elevated home prices slow the housing market. Remodeling boomed during the pandemic, but home improvement spending is projected to fall as much as 8% from its peak during the health crisis. While lumber demand is forecast to drop, supplies in key producing regions, including British Columbia and the US West Coast, are tight. Meanwhile, sawmills are curtailing production, or even closing mills, while new planned mills are slow to come online. Lumber prices may be held in check by softening demand, tight supplies, and high inventories on the retail level.
- Tight existing home inventories are pushing buyers into the new home market, which helped move home builder confidence higher in March, according to the National Association of Home Builders (NAHB). Home builder sentiment, as measured by the NAHB/Wells Fargo Housing Market Index (HMI), rose two points to 44 in March 2022 2022, although the HMI remained in bearish territory. Any HMI reading over 50 indicates that more builders see conditions as good than poor. While stress in the US financial system pushed mortgage interest rates down, affordability is still a significant roadblock to homeownership for many. The NAHB said a side effect of the increased pressure on regional banks would be a further tightening of acquisition, development, and construction (AD&C) loans for home builders.
- The Dodge Momentum Index (DMI) increased 1.9% in February 2023 to 203.0 (2000=100), up from the revised January reading of 199.3. The Momentum Index is a monthly measure of the first (or initial) report for nonresidential building projects in planning, which has been shown to lead construction spending for nonresidential buildings by a full year. On a monthly basis, the commercial planning component rose by 1.4%, and institutional increased by 2.9%. Commercial planning got a boost from an almost 20% rise in office planning and stronger data center project planning. In the institutional sector, education and healthcare planning saw gains, with research laboratories being a noted bright spot. Dodge’s associate director of forecasting said, “The continued elevation in the DMI should provide hope that construction activity will grow in 2024. Owners and developers tend to put projects into planning until well after economic conditions weaken. During the Great Recession, for example, the DMI did not substantially decline until 2009. Therefore, the anticipated mild economic growth in 2023 could cause the DMI to moderate over the year, but it is unlikely to fall below historical norms.”
- In their recent fourth-quarter reporting, home improvement retail giants Home Depot and Lowe’s warned of weaker results in 2023 as consumers pull back on remodeling and shift more spending to services. Lowe’s CEO said consumers have grown more cautious amid inflation and higher interest rates. Home Depot also expects home improvement demand to moderate as spending shifts to experiences such as dining out and travel. Lowe’s said it estimates its same-store sales to, at best, be flat for 2023 and could drop by as much as 2%. Home Depot plans to invest $1 billion in higher wages for hourly workers, which it expects will contribute to a mid-single-digit drop in the company’s adjusted per-share earnings in 2023.
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