The 2020 Mid-Year Economic Update_long

‘Industrial Recession’ Stunts Wolseley’s Growth

Company's standalone industrial business declines 7.8 percent in 2016.
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Though UK-based Wolseley, parent company of Ferguson Enterprises, saw sales and profit increase in 2016, weak demand in industrial markets provided a significant headwind that hindered growth in North America, according to CFO Dave Keltner.

"The last year has seen an industrial recession in both the U.S. and Canada, and industrial represents 12 percent and 10 percent, respectively, in each country," Keltner said on this week's earnings call with analysts. "Despite this, we have generated good profits from these businesses and continued to generate strong returns. Industrial was also the hardest hit on commodity deflation, with a full-year impact of minus 7 percent."

Wolseley's core U.S. business, Ferguson, saw broadly based growth across all businesses except industrial, Keltner said. The company's waterworks, HVAC and B2C businesses performed strongly, while the "weak industrial market led to a decline of 7.8 percent in our standalone industrial business," he said.

Industrial end markets "knocked over 1 percent off the U.S. revenue growth" in 2016, Keltner said, but the company remains hopeful – as does every industrial distributor – for a turnaround later this year or in early 2017.

"We are starting to see an improvement in industrial, partially due to lapping easier comps and partially due to the markets stabilizing somewhat," Keltner said. "And we would expect to see a better performance this next year, (though) still somewhat weak."

E-commerce was one bright spot for the company, which invested in a new platform for Ferguson's online presence and also "developed a number of new apps and services to help customers do their business with us more conveniently," including "functionality to turn a quotation into an order," said CEO John Martin.

E-commerce now accounts for 20 percent of the company's sales, which Martin said is continuing to grow faster than the other channels. "This year, we are going to step up our brand building with the further $11 million investments," he said. "And that’s really to make sure that our customers recognize our online presence at ferguson.com, build.com and our other online brand, and can access them directly."

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