The Economy

Moody’s Sees 6.5% Profit Growth in Consumer Durables

Pent-up consumer demand and falling unemployment is expected to increase purchases of home appliances, furniture, and other goods.
Matthew HellerApril 16, 2015
Moody’s Sees 6.5% Profit Growth in Consumer Durables

Moody’s Investors Service has upwardly revised its forecast for operating profit growth in the U.S. consumer durables industry, citing increasing consumer confidence and the accelerating release of pent-up demand from middle-income consumers.

Moody’s says it now expects now expects the sector’s aggregate operating profits to increase 5.5% to 6.5% over the next 12 to 18 months, and revenues to grow by 5% to 5.5%.

“When times get tough, consumers hold off on purchasing appliances, furniture, carpets and other durable goods, making what they have last longer,” Kevin Cassidy, a Moody’s analyst, said in a news release. “But over the next year or so we expect pent-up demand to release more quickly due to improving consumer confidence, relatively low household debt, and falling unemployment.”

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The report notes that the Conference Board’s U.S. consumer confidence index rose to 101.3 in March from 98.8 in February, putting it above 100 for the second time in the past three months and among its highest levels since 2007.

“A gradual U.S. economic expansion and continued strong spending by high-income consumers will also help fuel profit growth,” Moody’s predicts.

In the home-product subsector, according to the rating service, revenues will grow 5% to 7% over the next 12 to 18 months and operating profit will increase 7% to 8%. “While choppy, the U.S. housing market continues to improve, benefiting home product companies,” the report says.

Home products account for about half of the consumer durables industry’s revenue and operating profit, led by Whirlpool, which generates more than 25% of industry sales.

But Moody’s cautions that while lower gas prices will continue to provide some lift to discretionary income, spending trends for mid-tier and low-income consumers remain modest due to economic uncertainty and high food and health care costs.

It also said it would consider changing the outlook for consumer durables to stable “if we expect operating-profit growth to slow to 0% to 5% amid significant stock-market declines, a slowdown in global economic growth, or a material jump in the U.S. unemployment rate.”