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Many investors are closing the door on JELD-WEN (JELD) today after the company missed 1Q22 EPS and revenue expectations as inflationary pressures and the war in Ukraine dented its results. The window and door manufacturer is also contending with material/supply shortages and sharply rising interest rates that threaten to derail momentum in the U.S. housing market. Despite these headwinds, JELD remains confident in its ability to achieve its FY22 financial targets due to a strong backlog of orders and its efforts to mitigate rising costs. When the company reported Q4 results on February 22, it guided for FY22 revenue growth of 7-10% and adjusted EBITDA of $520-$565 mln.

JELD's optimistic outlook echoes the sentiments of leading homebuilders such as D.R. Horton (DHI) and KB Homes (KBH). Each company had disappointing news to share recently, with DHI providing downside Q3 revenue guidance on April 26, and KBH missing Q1 EPS and revenue estimates on March 23 as home deliveries were virtually flat yr/yr. However, management teams for both companies cited supply chain issues as the primary issue, while reiterating their belief that the housing market will remain strong throughout the year. Once certain products become more available, DHI and KBH expect their results to improve.

Investors can be forgiven if they're feeling a little more skittish about the housing market given that mortgage rates have shot above 5.25%, while cost of living expenses also rocket higher. Relatedly, one concerning data point for JELD is that volume/mix decreased by 2% in Q1 due to slower backlog conversion. In fact, JELD's 7% revenue increase was entirely driven by price increases (+12%). Although the volume dip is mostly tied to softness in the Australasia and European markets, rather than a slowing U.S. housing market, it shows that having a robust backlog doesn't necessarily translate into top-line growth if market conditions weaken. 

Beyond the volume/mix decline, JELD's report included a few other key items.

• Adjusted EBITDA margin decreased by 210 bps yr/yr to 6.9% as price increases failed to keep pace with raw material, labor, and freight inflation. Russia's invasion of Ukraine and the subsequent sanctions on some Russian exports amplified existing inflationary pressures on energy and raw materials. 
  • In addition to pricing actions, JELD is combating rising input costs through rationalization and modernization programs and improving technology at its facilities to enhance throughput. As an example, the company deployed new sensors and software at its first smart factory and it has plans to roll this platform out at two additional plants in Q2.
• New product launches and recent project wins represent potential growth drivers that could generate stronger growth later this year. For instance, JELD is now producing its new Auraline composite windows and door patio doors in North America, which are energy-efficient and sustainably-sourced products with a high level of recycled content. The company also recently secured seven new projects in FY22 with one of the largest multi-family builders in the U.S.
• Rising COVID-19 cases in JELD's Australasia market (Australia, Indonesia, Malaysia) negatively impacted product deliveries, causing revenue for this market to increase by a modest 1%. 

JELD followed in the footsteps of homebuilders DHI and KBH, issuing a disappointing quarterly report while remaining upbeat about 2H22. Supply chain issues and inflation are the twin culprits that continue to wreak havoc on housing-related companies. JELD anticipates that a strong housing and repair/remodeling market will drive stronger results in 2H22, but it's clear that risks of a slowing housing market are on the rise.