Will Logging Industry Curtail Housing Market

Raleigh, NC, — Logging companies that are privately held instead of publicly traded have experienced healthy sales increases amid encouraging signs in the U.S. housing market, but their profit margins are weakening, according to preliminary estimates by Sageworks.

“The health of that industry is really important, especially as we see the housing market recover,” said Suz-Anne Kinney, communications manager for consulting firm Forest2Market, Inc. of Charlotte, N.C. She said there’s significant worry among industry leaders that the U.S. logging industry will not have a sufficient number of loggers to produce enough lumber to sustain the construction of 1.1 million to 1.3 million houses a year.

Sageworks analyst Tim McPeak said the preliminary estimates show sales among privately held logging companies (NAICS code 1133) increased nearly 13 percent over the last 12 months. That’s a solid increase after the rebound they experienced in 2010 and 2011, which followed a nearly 14 percent drop in 2009, he added.

“Sales have started to grow fairly decently,” McPeak said. “At the same time, net profit margin has never been high, but it has really gotten thin in the last 12 months.”

After rebounding in 2010, average net profit margins for the private logging companies in Sageworks’ database have been falling. Net margin was about 1.6 percent in 2011 and dropped to 0.28 percent, or near the break-even point, during the last 12 months, according to preliminary estimates.

McPeak said it’s unclear what’s driving margins lower for the logging companies. But Kinney said timber prices since 2006 have been relatively flat while the cost of logging equipment has gotten “exponentially more expensive” and fuel costs have jumped. Many loggers have received price adjustments related to fuel costs, but overhead costs such as insurance (workers’ compensation, unemployment, etc.) have also risen. And smaller companies with one or two crews may be finding it hard to achieve economies of scale, given fluctuating demand, she said.

“The basic collapse of the housing market about four years ago was devastating” to the logging industry, said Neil A. Ward, vice president of public affairs for the Forest Resources Association, a trade group representing loggers, wood dealers and forest-products companies.

Indeed, the number of private-industry logging companies has plunged to 9,248 in the first quarter of 2012 from 12,444 in 2003, according to the latest data from the Census Bureau’s establishment survey.

About the Data
Sageworks possesses a proprietary database of privately held company financial statements aggregated by industry. Each day, approximately 1,000 of these financial statements are collected by Sageworks from accounting firms, banks, and credit unions through a cooperative data model with Sageworks’ clients. The data is segmented and can be queried by 1,200 industry codes, 70 financial metrics, company size, and geographic location. 

About Sageworks, Inc.
Raleigh, NC-based Sageworks, Inc. is a financial information company. Sageworks’ data and applications are used by thousands of accounting firms and banks across North America. The company has been named to the Inc. 500 list of the fastest growing privately held companies in the US and to the Deloitte Technology Fast 500.

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