Wolseley Profit Drops 25% in First 5 Months

Global building products and plumbing/HVAC distributor Wolseley plc reported a 25% drop in profit for the five months ended Dec. 31, 2007. Full half-year results will be announced in March. Revenue was up 2%.
 
The UK-based company was hit hardest in North America, where profit was down 40% and revenue down 10% (5% in constant currency). Year-to-date, 3,000 people have been laid off at Stock Building Supply and Ferguson in the U.S. due to tough conditions in the U.S. Wolseley has implemented a general headcount freeze" for both continents on which it operates.
 
The company blamed the "worsening U.S. housing market, low consumer confidence arising from global credit restrictions and the weakness of the U.S. dollar."
 
The distributor says "market conditions are likely to worsen."
 
"We have acted decisively and rapidly in response to the challenging market conditions to take cost out of the Group and will continue to do so," said Group Chief Executive Chip Hornsby.  "We remain committed to our strategy and are confident that with our size, scale, financial strength and operating efficiencies, we will emerge from this slowdown as a stronger Group with an excellent platform for future growth."
 
In Europe, revenue was up 17% and profit up 1%. The company saw strong performance in the UK, Nordic region, Switzerland and the Netherlands. Lower profits were seen in France, Austria and Italy.
   
Ferguson continues to benefit from a growing commercial and industrial sector, though seeing an impact from the weak new residential market and a slowing repairs, maintenance and improvement (RMI) market. At Ferguson, revenue was up 3% due to acquisitions, and organic growth was down 3%. Profit was also down 3%. Headcount at Ferguson has been reduced by 1,500 since August 2007.
  
At Stock, revenue is down by just over 25%, reflecting a 26% decline in organic sales, including the effect of previous branch closures (4%) and price fluctuations in lumber and panels. Acquisitions contributed around 2% to revenue growth.
 
Wolseley reported that the Canadian residential market continued to hold up well and has not been significantly impacted by the U.S. housing market. Wolseley Canada had local currency revenue growth of more than 3%, although profit was 15% lower, due to branch closure costs.
 
Wolseley reported it had the following outlook:
"In the U.S., the housing market is likely to deteriorate further until the current high levels of unsold inventory have declined and the full effects of problems in the sub-prime market have been assimilated. These conditions, together with reduced availability of credit, are expected to put further pressure on the RMI market.
 
"The commercial and industrial market is expected to show modest growth for the majority of the current financial year given the longer lead times of many large projects within this sector. The group expects to continue to drive competitive advantage and increased market share from the distribution centre network, customer focus and to exploit opportunities arising from the impact that weakening markets will have on competitor positions.
 
"There are signs of further weakening in some European markets as a result of lower consumer confidence, credit pressures and the increased cost of credit. The majority of the group's activity in Europe is driven by the RMI and commercial and industrial segments which are expected to be more robust, although the rate of growth in RMI activity is likely to slow."