Wolseley Profits Hit Hard in First 11 Months

UK-based Wolseley plc, distributor of plumbing and heating products to professional contractors and supplier of building materials, reported overall revenues were up 1% while profits were down 28% for the first 11 months ended June 30, 2008. Wolseley is the parent company of Ferguson and Stock Building Supply in the U.S.
 
The deterioration in some of our key markets continues and it is likely that conditions will get tougher still,"CEO Chip Hornsby said. "In these unprecedented circumstances, driving cost reduction, enhancing cash flow and closely managing the balance sheet remain key priorities."
 
As a result of difficult market conditions, the distributor's board recommended no final dividend payment to stockholders for 2008, a move that will result in a cash savings of around £150 million (US$300 million).
 
Of £50 million (US$100 million) restructuring costs announced in May, £27 million (US$54 million) was incurred in May and June and is included in the 11 months results. Wolseley has reduced headcount by 6,000 since Aug. 1, 2007.
 
Other cost-cutting measures Wolseley plans to implement: divesting non-core businesses obtained as parts of larger acquisitions and reviewing its property portfolio of about 950 properties for sale or disposal. In the 11 months, three non-core businesses and 21 properties were sold.
 
Sales in North America
In North America, overall revenue for the 11 months fell 8% over 2007. Profits were down 46%, reflecting a loss recorded by Stock Building Supply.
 
Stock Building Supply recorded a loss of US$204 million, compared to profit of US$104 million in the comparable period in the prior year. The loss is the result of continuing deterioration of the new residential market. Stock revenues were down 25%.
 
Ferguson continued to gain market share as the commercial and industrial sectors remain strong. Revenue increased marginally due to acquisitions, while organic revenue fell 3%. Profits declined 10% primarily as a result of the restructuring actions announced in May.
 
Wolseley Canada reported marginally higher revenues for the first 11 months. Profits declined 19% as a result of closure costs from restructuring.
 
Europe
In Europe, revenue at Wolseley UK, including Ireland, increased slightly and profit fell 17%, including one-off restructuring costs in Ireland. Cost reduction measures and efficiency improvements will continue, due to deteriorating market conditions in the UK.
 
Revenues for Wolseley France were also up marginally for the first 11 months due to acquisitions. Profit was down 15%. The company has announced plans to close 43 branches and reduce headcount by 400 people.
 
Outlook
Wolseley expects the deterioration of many of its markets to continue in the short term, although the U.S. commercial and industrial market, which accounts for the majority of Ferguson's business, is likely to remain stable for the next few months.
 
Wolseley says it will continue to focus on cost-cutting moves to ensure it remains compliant with its loan covenants.