1-The canadian operation only produces commodity items,As long as the product has a u/l u/lc or similar certification than any manufacturer can supply these goods.All there potential new customers have an existing supplier or suppliers.The only way to get more sales on commodity items is to LOWER prices.With this operation now selling at cost or below cost every extra dollar of sales will only increase the loss.To spend CASH to expand this operation is just throwing money down a rat hole.Praying for the looney to decline a lot and for housing to have a new boom shortly is not a viable strategy for a wise management.2-Sales to The Home Depot are at a very low margin.If you calculate the decline in margin caused by adding the Hd business you can estimate it at about 14 to 15 percent on sales.If you know how the Hd works from this the company has to pay the cost of transportation a 1/2 percent electronic billing fee and absorb the costs of taking in and storing the material and then the cost of picking and packing and preparing documents for shipping.I etimate the cost to be 10 percent of sales minimum.The real kicker is that hd is known to come back to their suppliers after the first year and ask for a rebate of any where form 5 to 16 percent.This will make this business at best a break even proposition and most likely put it in the red.Get out before all this bad news hits.
Your view is unreasonably negative. (I reiterate that your claim of no dividend in the quarter from the JV is wrong, though you don't acknowledge it). UUU has been successful for many years and a housing recession is not a death knell for the company. The HK Joint Venture is a low cost operation and should be able to sell any excess capacity profitably, whether to Asia or after some turn in the European and U.S. markets. Canada has obviously been a negative, but if their plans don't work out and the currency remains a negative, they will get rid of it, I'm confident. It is not a core operation and it's not like the reason for UUU's past success has turned sour. Conduit is an adjunct bought to diversify the business. There are times when it is quite profitable; other times less so. The goal of expanding into the U.S. was a good one, few expected the Canadian Dollar to rise so much. In retrospect they probably should have hedged some.
My greater concern with the results is the Europe deterioration. I wonder whether the competitive landscape has gotten tougher there, or if new housing market has gotten that bad. If anyone has insight on that I would appreciate it
Well, I live here, and I don't see any signals of any deterioration in the housing market, at least here in the north-western European heartland. I know there are some weak spots, notably Spain and Ireland, but around here, housing isn't particularly weak or strong, for that matter.
That said, like in the US, there is no one housing market, so I don't know what that means, weak housing in Europe. If they gave a little more detail, geographically, that would help, but with this info, I don't know what that means. But you're right, it is worrying - to me as well.
Please explain what your belief of Asian supply is based on. If it's happening "soon", I am surprised that the [ress release didn't mention it as it would obviously be of interest and put a hopeful gloss on the quarter.
How can you be sure that UUU can't compete on price in the Canadian marketplace until supplying the US becomes more attractive?
UUU seems to have built up inventory in June and July in the CAD operations as they were expecting to begin shipments into the US in the 2nd fiscal. Don't you think they can cut their losses by diminishing production if economic conditions are not favorable to them?