Episode Transcript
[00:00:03] Speaker A: Welcome to AINA Insights, where prominent leaders and influencers shaping the industrial and industrial technology sector discuss topics that are critical for executives, boards and investors. INA Insights is brought to you by INA AI, a firm focused on working with industrial companies to make them unrivaled segment of ONE leaders. To learn more about INA AI, please visit our website at www.ina.AI.
[00:00:40] Speaker B: Welcome to Titanium Sector Pulse, a podcast where we delve into key trends and opportunities across various subsegments of the broader industrial sector. Today, our focus is on building product and we have with us John Geary, former Chief marketing officer at Nation's Roof, one of the largest roofing contractors in the U.S. john is a seasoned sales and marketing leader with over 40 years in the roofing industry. His career also includes leadership roles at Firestone Building Products, Bradker Supply and Owens Corning. He has also served on industry boards like the Nation's Roofing Contractors association and is a sought after speaker at events like the International Roofing Expo. John, a very warm welcome. We are excited to hear your thoughts on the building products industry and strategies for navigating a fragmented market.
[00:01:37] Speaker C: Dinesh, thank you for having me on the podcast.
[00:01:41] Speaker B: Absolutely. John, thank you for joining. So maybe John, let's start with the overall building products industry.
As we all know, it's a vast and highly fragmented industry with several product verticals and thousands of privately owned companies. In your mind, how does this structure, industry structure really impact competition, innovation and the consolidation trends?
[00:02:06] Speaker C: The roofing industry has been really good to me and I'm very thankful to be a part of it. There is lots of growth in our industry and when you take a look at what's gone on in the last few years, there's been rapid inflation since 2020 and it's really sort of a classic Econ 101. High demand, low supply, prices go up.
And so for the early 20s, you know what, we've had a very much of a seller's market, but now we're in a buyer's market because it's leveled off. The supply has come back up to meet the demand. The demand's not quite as strong and now it's a little bit of a buyer's market and that's, you know, that's putting some pressure on the industry to tighten up on pricing to be more efficient in what's going on, but it's a strong market for the roofing contractor market. And I think you're going to continue to see investments at the manufacturing, the distributor and the contractor levels of the business.
[00:03:11] Speaker B: Yeah, yeah, no, that's, that's fair. I think that there was a Covid boom and there was a lot of, lot of, lot of demand and that is, that has leveled off. Not speaking of that. Right. In the last couple of years, with the higher interest rates and, and the rising input cost, as you indicated, there has been a little bit slowdown remodeling, which has created challenges. How has the roofing segment navigated these economic pressures? Like what? Strategies by different players have worked well and they have been able to navigate it well during these tough economic times.
[00:03:46] Speaker C: I think companies had to get smarter and they had to figure out what's going on where I would say you would see significant amount of watching overhead. Right. So roofing contractors, they're not bringing inventory into their warehouse anymore and everything goes right to the job site. The focus is on just touch the product once. So that just in time strategy to get the products from the distributor, the manufacturer to the site on the roof, put it in place and get it going. A second thing is, with the shortage of labor in our industry, contractors have had to get smarter. Do you bring people on and keep them on and go through the fluctuations in demand or do you subcontract? And the pretty clear answer, the trend is to go more to subcontracting. It reduces the stress on the contractor to have full time labor on hand, whereas they can get it as they need it. And some of that labor is very capable and understand what's going on. And I think the third thing is probably a better use of technology to be able to administer what's going on within their organization and communicate to their customers much more effectively.
[00:05:05] Speaker B: Just to pull out a little bit more. On the thread of technology which you talked about, what type of technology innovations or digital innovations are you seeing in the industry which is helping move the ball forward?
[00:05:17] Speaker C: I think one of the fastest accelerating parts of our business is the technology side. There are apps that are available that will allow the contractor to manage all of their business. And so they're sort of CRMs or contact relationship management apps that take it from the sales process to getting the work to then arranging the work, assigning the crews, and then being able to follow up on the accounting side to get them paid and closed out. So that's providing some efficiencies and reducing the amount of people from the administrative side of the company. And I think that's a major one. But also we're seeing technology in terms of being able to estimate roofs to be able to go up and get aerial views and get very accurate estimates on that and photographs of the buildings.
[00:06:10] Speaker B: Yeah, I'm sure that technology will help with people not getting hurt to get over there. And you can digitally, if you can measure the roof, it could be very helpful.
[00:06:21] Speaker C: Oh, Dinesh, you're on it. Safety is a major thing, whether it's residential or commercial. Roofing is one of the most dangerous trades that there is. And so anything we can do to increase the level of safety for the people on the roof or the people around the roof, for the people working on the roof, that's a really good thing for our industry.
[00:06:42] Speaker B: Yeah, for sure, for sure. How does, continuing on the thread of innovation, how does like advanced materials or sustainability factor into all this? Are you seeing that trend over the last several years around move towards sustainable materials?
[00:07:00] Speaker C: I think not just the last couple of years, but it's been on a longer term notice. I mean, if you'll look at the codes and the insurance industry of what's going on, they want to take a look at what's happening with their building. So in building codes, energy is a major issue. So sustainability, energy efficiency. And that's why we've seen over the last several decades the minimum R value increase pretty, pretty dramatically. And now you're seeing double layer of insulation on commercial roofing products. You're seeing in residential, you're seeing foam being used as an insulator. I think those are advancements that we're making that are. They're good for the homeowner, they're good for the company, they're good for our natural use of natural resources. So there's a lot of good things that are going on here.
[00:07:49] Speaker B: Yeah, yeah. So I can definitely attest to that. I remember when I bought my first house, it was a different type of insulation. And then over in my More. The house that you're living in right now is definitely a very different insulation.
[00:08:01] Speaker C: So.
And with the cost of energy going up, everybody wants to, you know, have a more thermally efficient home. And so we're seeing a lot of focus on that. So energy efficiency, resiliency, with the high winds that we're, that we're seeing with the hurricanes and the frequency of hurricanes and the direct goals, the high winds coming across the plain states. So resiliency or the ability to withstand high winds is becoming a big part of our industry as well. Making it more complex, but making it better for those that are in those facilities.
[00:08:39] Speaker B: Yeah, for sure, for sure. And then, you know, speaking of industry structure, so many companies, privately owned companies, and across the different parts of the value chain. What about, do you see or anticipate consolidation trends right in, in the, in the sector? What, what are your thoughts on that and how, how, how has that manifested itself previously and how do you see that moving forward?
[00:09:06] Speaker C: Well, consolidation is a fact.
We're seeing tremendous amount of investment in the building products industry at all levels. At the manufacturing levels, you're seeing companies like Olson, they acquire Firestone Building Products and they've acquired Malarkey Shingles and they've acquired some foam companies and acquired. I don't think they're going to stop at that. I think they're going to continue to grow and expand the width of their products and the depth of their products as well. You're seeing companies like Kingspan make investments in the commercial roofing industry and Sika that are, they're making them on an international basis. So I think you're going to continue to see that on the manufacturing side. On the distribution side, we've seen really small mom and pop. When I got into this business, distribution was really a very localized business. It's not anymore. There's three major players that are doing an outstanding job. ABC Supply, Beacon Building Products and SRS Distribution. They are, they are. Well, not just big companies, they're larger than the manufacturers now. So it's, it's a little bit of the, of a change in roles for them. And now we're also seeing at the contractor level because there are many really professionally run roofing contractors that are investment potential. And so I think you're going to see more large companies. Right now there's two companies, over a billion dollars in sales in roofing, roofing contractors. And that would be certainly Tecta and Sentimark, different strategies. But the ability to grow on a regional or national basis and duplicate the process, that's a very attainable thing.
[00:10:55] Speaker B: Yeah, definitely. And I think these big companies, as you say, they're gaining scale. So does that mean on the contractor space you still find smaller contractors, mom and pop contractors? Do you see that, that getting squeezed out with the, with the now? What does it mean for the smaller guy out there?
[00:11:17] Speaker C: Paul, that's a great question and I really wish I knew the answer to it. But I can tell you this is what I see. These are the observations that I have. First of all, with that investment money, those companies are going to get larger. They're going to look for ways to be able to add geography because roofing, it's a very local business business. We make house calls. Right? You have to go to them. So you have to be there to be able to do the work, you have to get the people and you have to be able to make it efficient. But the barrier to entry in the industry as a roofing contractor is relatively low, especially on the residential side. So what I think you're going to see is there's going to be more larger companies on one side and the middle sized companies, as they look for exit strategies and growth strategies, they're going to get more incorporated into that, but that's also going to create opportunities on the, on the smaller side of the foreman of all those subcontractors that are doing work out there when they understand really the financial side of the business and frankly the language side, because so many of them are, are primarily Spanish speaking when they master the, the, the, the language characteristics that we need because most of our business is done in English. When they've got that and they've got their crews, well, guess what? They can create themselves as the primary roofing contractor, not the subcontractor. So I'm going to see, I think you're going to see growth on both sides and then probably it's going to be a little bit tougher on the companies in that mid range market, if you will.
[00:12:52] Speaker B: Yeah, no, I think you're, that, that makes ton of sense because roofing is such an important part of the house or in the commercial buildings that you cannot take chance with it. So the contractor you hire, you need to trust them. So I can see a place where a smaller local contractor, once they master all the things you talked about, can generate trust and gain some business. And the larger companies, of course, with their brand and scale, will have that trust of the consumer as well. So that makes a ton of sense. That is two ends of the spectrum growing and the middle getting squeezed out.
[00:13:28] Speaker C: I think it's happening right now and I think you're going to see more of that. And I, I don't know if it's good or bad the way that it's going to go, but it is the way that I think it's, it's going to happen.
[00:13:38] Speaker B: Yeah, absolutely. Absolutely. Shiva, I want to talk a little bit about the, you know, the value chain of, of the, of the roofing side. So you have manufacturers, you have distributors, and then you have contractors. Right. As you think about these three, call it parts, in your mind, what differentiates a winner from, you know, not winner kind of. What, what differentiates one, one manufacturer from the other, one contractor from the other? Like, what does it take to win in that Particular subsegment?
[00:14:14] Speaker C: Well, I. I think at the manufacturing level, I think reliability is so important. But reliability and innovation, now you've got something. And there are some companies that are doing a fantastic job of being able to develop new products and be really a resource to the contractors by lowering labor rates and providing more sustainable products. And I think that's going to be a key to their success as they go in the future. I think ease of doing business is really important because you know what contractors, they're juggling a lot of balls and to not have to worry about where the materials are going to come from or when the materials are going to come and how that's going to happen. So if it's the distributor that can take that burden and be able to get the products out to the job site and maybe even put them on the roof for the contractor, that ease of doing business is going to be a critical factor to success for them. And on the contractor side, I think there's a couple of things. I think we've already talked about technology and using apps and being able to help communicate effectively with not only your crews and the people within your organization, but your customers as well. If you can connect all that and have one platform for that, that's going to be a big win. But I think the other area for contractors is going to be in the service sector. I mean, most people, their roof is out of sight, out of mind. They don't want to think about it. But you are absolutely right when you said it's a really important part of the building. You need to keep that roof dry so that the structure stays down, that the insulation works, and that they can keep operating or living in that home or building or whatever it is. And so I think what we've seen is roofs that are really maintained well will last much longer. I mean, there's a. There's a ton of studies out on that. And I think the roofing contractors can help building owners extend the life of their roofs, reduce their capital investment by using some operating budgets to be able to help those roofs last longer. And I think that's a natural thing, but people don't want to spend the money like that. It's. It's pretty amazing.
[00:16:32] Speaker B: Yeah, for sure. So you talk about reliability for a manufacturer, ease of doing business with the distributor and technology and servicing for the contractor. Now, it makes a ton of sense. Let's say, as a contractor, do you end up dealing or doing business in the same college manufacturer, distributor, or you kind of change according to once the relationship is established and you have had a good experience. Is it very hard to displace that relationship for, for, let's say someone new trying to try to gain market share?
[00:17:07] Speaker C: No.
It's interesting. Most contractors have multiple manufacturers that they work with because they don't want to be dependent on one particular manufacturer. But they do have preferred ones. Whether it's because they like the specs or they like the materials, or they like the way they do business or even, and this shouldn't be surprising, they have strong relationships, they like the people that they're dealing with and they're comfortable with them and they're able to deliver that. So those are all important things. But lowest installed cost drives so many decisions in our industry, residential or commercial. And so with the contractor, they're going to look at whatever they can do to have the lowest installed cost and then they'll look at what the value is to the customer, to the building owner or the homeowner and help them make a decision that says this is the way you should go. And then often because most, you know, most building owners, most homeowners, they're only going to buy one, maybe two roofs in their lifetime, they're going to lean on the contractor to say, well, which, which product, which brand, which manufacturer do you think we should choose? And that contractor has a lot of say in which way they're going to go with that decision.
[00:18:28] Speaker B: Yeah, definitely, because they are in front of the customer. So they can definitely influence.
[00:18:33] Speaker C: Oh, right. And that's the way the system is set up and that's the way we want. And that's a good thing. And if they develop the rapport with that customer, they're going to lean on that reference. So whether it's windows or doors or the roof or whatever, because the contractors are the expert and they're the ones in the living room or at the kitchen table where that decision is being made, or they're in the boardroom and showing that, that that facility manager or the owner of the company, this is, this is what's going to be best for you. Many times they'll go with that. That preference.
[00:19:08] Speaker B: Yeah, yeah, absolutely. So, John, this has been great. I shift the discussion maybe to future. Right. Outlook. So if we talk for that for a few minutes. Right. So you talked a little bit about the pent up residential demand. Right. Given the last couple of years of stagnation. But now there's a pent up demand there. And then there's infrastructure stimulus spending, which is also from federal legislation. Right. Based on that what opportunities do you foresee for the companies in the building products industry in general?
[00:19:43] Speaker C: I'm very bullish on it. I think that the potential for growth right now is really strong because as I mentioned, we had some boom years where prices went up. We've had a little bit of tightness in the economy. But I think that looking at with the Trump administration coming in, with the labor issues that are out there and how we can manage that, I think those are all really helpful. I think we're really well poised because inventory levels are up. I don't see huge pricing fluctuations. I think that's helpful.
And you know what, people like predictability. They like to know where their products are at and who they're dealing with and what's going to happen with that. And that way they can manage that asset, whether it's their roof or whatever it is, over a longer period of time. And I think that's going to be a big win for the roofing contractor, the distributor, the manufacturer. And frankly also something we haven't, also we haven't talked about is consultants. The consulting business has grown dramatically in our industry because building owners, and they don't want to make a mistake and they're willing to pay a little bit more to have somebody come in and say, well, you do this all the time, help us figure out what's going on. And I think that's good for everybody. Better roofs, longer lasting roofs, better value. We all win with that.
[00:21:08] Speaker B: Yeah, for sure. So your prediction, if I put you on a spot, right, Your prediction for the roofing business, 5% growth, 10% growth. How do you see over the next few years annual growth for the roofing business? What would you put that at?
[00:21:21] Speaker C: Well, traditionally 2 to 3% annual growth for roofing in terms of volume and price is probably pretty typical. I would expect that we're going to be slightly above that in 2025, but I think 26 and 27, as some of the underpinnings of our economy, as interest rates come down, as the demand for housing. The demand for housing right now is so pent up. I mean, with interest rates, with people still living in their homes, with rent rates as high as they are, there's going to be a huge demand for housing. And housing drives our economy. And so when, when there's more of that available and people start making the moves, that's going to be really strong for our trade. And I would expect closer to 5 or, or 5% growth or better in probably 26 and 27 and maybe even better after that, but I'm not that good at calling those numbers.
[00:22:18] Speaker B: Well, that's great. Well, there you have it. 5% growth from John Geary about the roofing sector.
We're going to leave it at that. And the 5% sounds pretty great.
That's a multiples of the GDP growth. So that's a great place to be then. Well, thank you, John. Thank you for taking the time.
[00:22:36] Speaker C: Thank you so much. Dinesh. Nice to see you.
[00:22:39] Speaker B: Yeah, good to see you as well.
[00:22:45] Speaker A: Thanks for listening to INA Insights. Please visit INA AI for more podcasts, publications and events on development shaping the industrial and industrial technology sector.
