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Higher retails for finished goods, new cost saving initiatives and moderating raw material pricing should help boost majap makers' margins in 2006 after continued declines this year.
That's the outlook from Standard & Poor's Equity Research in its semi- 3annual survey on the household durables industry. The report, Household Durables Industry Survey, predicts that profit margins will improve next year as the white-goods industry begins to reap benefits from volume growth, better capacity utilization and leaner cost structures.
However, majap manufacturers' profits are likely to decline further this year from the low in 2004, S&P said, as a result of significant raw material cost pressures, particularly in steel, as well as high energy costs, observed S&P's analyst Amy Glynn.
On the plus side, demand for white goods continues to rise steadily in step with the strong housing market, and that trend is likely to continue. “In an otherwise difficult operating environment” — marked by high costs, consolidation and increasing foreign competition — “the continued buoyancy of the housing market bodes well for appliance manufacturers,” Glynn said. “With Americans buying bigger homes than ever, including increasing numbers of second residences and investment properties, demand for durable goods is being boosted as homeowners are obliged to fill them with appliances and furniture.”
S&P also believes that acquiring Maytag would benefit Whirlpool over the longer term due to greater brand equity and a stronger competitive position following some near-term integration issues.
The complete report can be purchased for $595 by calling (800) 221-5277 or visiting http://sandp.ecnext.com.