Wolseley Feels Impact of Housing Slowdown

UK-based Wolseley plc, global distributor of plumbing and heating products to professional contractors and supplier of building materials, reported it continues to be affected by the slowdown in housing and lower lumber prices in the U.S.

For the first five months to Dec. 31, 2006, Wolseley sales increased 15%, with 3% organic growth. Profit was slightly lower. In constant currency, revenue and trading profit would be about 5% higher. Results for the first six months will be reported in mid-March.

Wolseley says the housing slowdown effect was offset by good organic growth in the U.S. plumbing and heating business (Ferguson), an improved performance in continental Europe and contributions from acquisitions.

In the U.S., new housing starts have fallen more sharply than originally expected, Wolseley, said, but the repairs and remodeling market and the commercial and industrial sectors continue to hold up. Aggregate local currency revenue from the group's U.S. businesses was around 10% higher and profit was down by around 8%.

Overall, in North America, revenue in the five months to Dec. 31, 2006, in sterling, including acquisitions, increased by around 2%. Profit was down by around 15%, after charging one off costs relating to headcount reductions and branch closures.

Ferguson produced good growth, albeit at a slower rate, with revenue in local currency for the five months up by more than 15%. Organic growth was nearly 10%. Profit was up by around 10% on the equivalent period in the prior year. Lower profit growth reflects the lower level of commodity price inflation, the initial effect of acquisitions and the effects of the weakening new residential markets which has necessitated headcount reductions of around 500 people in softer markets.

At Stock Building Supply, local currency revenue and profit have also been impacted by the continued slowdown in the new residential market resulting in increased price competition and also by the significantly lower lumber and structural panel prices.

Lumber and structural panel prices, which when combined account for around 45% of Stock's revenues, have fallen by 22% and 35%, respectively. Including the impact of acquisitions, local currency revenue for the first five months of the current financial year was slightly down.

Organic sales volumes were down by around 9% compared to the 22% decline in average housing starts. Profit was down by around 45%, after charging one off costs of around $11 million relating to 22 branch closures and headcount reductions of around 3,500.

In Canada, business from the exploration industries in Western Canada has slowed as a result of warmer weather, lower gas prices and higher inventory levels. Against this background, Wolseley Canada achieved modest revenue and trading profit growth compared to the equivalent period in the prior year.

In Europe, revenue in sterling, including acquisitions, increased by around 40% in the five months to December 31, 2006, and profit was up by around 25%. Excluding recently acquired DT Group, European revenues and profit were up by more than 15% and around 5%, respectively.

Outlook
In the U.S., Wolseley says the housing market is expected to continue to remain soft for the next several months, but with significant regional variations. As the year progresses, the relative performance of Stock should improve as housing starts and lumber/panel price comparators become more favorable and the benefits of the cost reduction program are realized. The RMI and commercial and industrial markets are expected to continue to hold up. Ferguson should increase its market share and achieve good levels of organic revenue growth, albeit at a more modest

In the UK, the gradual improvement in the RMI and housing markets is expected to be maintained, although it is too early to assess whether recent interest rate increases may have an adverse impact on consumer and housing related expenditure. Growth in the French RMI market is likely to remain modest, although sales trends are expected to continue to improve. The outlook for the markets in which DT Group operates remain positive. The Central European operations are expected to continue to progress well.

Related Links:
Ferguson Buys $148M Plumbing Distributor
Ferguson Sales Up More than 20% in 1Q; Housing Market Hits Stock

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