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Outlook
Wolseley reports that in the U.S., it expects the housing market will 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 pressure on the RMI market and its recovery will depend on consumer sentiment and the overall health of the U.S. economy.
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The commercial and industrial market is expected to show growth at lower rates for the majority of the year given the longer lead times of many large projects within this sector.
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In Europe, there are signs of weakening in some housing markets, but the majority of the company’s activity in Europe is driven by the RMI and commercial and industrial segments. In general, these are structurally more sound, Wolseley says, and should offer opportunities for growth for the year as a whole. The RMI market in the UK is likely to soften in the short term as a result of weakening consumer sentiment.UK-based Wolseley plc will be laying off 1,300 more workers in the U.S. in its second quarter; the global building materials and plumbing distributor reduced headcount by 1,700 in the three months ended Oct. 31, 2007.
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In total to date, layoffs represent a third of Stock Building Supply workforce and 10% of the Ferguson work force.
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Globally, the company is also working to reduce indirect costs, is realigning its management structure and reestablishing priorities in the businesses for the current year.” The roles of Chief Business Development Officer and Chief Operations Officer are being eliminated.&nbsp ;
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North American revenue was down 10% (3% in constant currency), and profit was down 30% (25% in constant currency).
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Overall Group revenue was up 5% (8% in constant currency), including acquisitions, compared with the same period last year. Profit was down 12% (9% in constant currency). Wolseley completed 10 bolt-on acquisitions between Aug. 1, 2007 and Nov. 28, 2007, for an aggregate consideration of & pound; 170 million.
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In Europe, revenue was up 25%, and profit up 15%. Good performance in the UK and Nordic regions was offset by France and Central and Eastern Europe.
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Chip Hornsby, Wolseley CEO, said: “The Group continues to take swift and decisive action in the more challenging business conditions. Although sales trends and the outlook are uncertain, we remain committed to our strategy. While keeping a tight control on costs, we will continue to invest to create competitive advantage. We remain confident that with our size, scale and financial strength, we will emerge from this slowdown as a stronger competitor with an excellent platform for future growth.”
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Overview
For the three months ended Oct. 31, 2007, the Group’s results continued were hit by the slowing U.S .housing market, low consumer confidence following uncertainty relating to liquidity in global financial markets and the weakness of the dollar. While the global liquidity squeeze has had some impact on European consumer confidence, the effect has been principally in the U.S.
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Wolseley reports that sales trends over this period in both North America and Europe have been difficult to interpret and have not been consistent from month to month. Against this background, the group has taken further action to adjust its cost base and has continued to focus on exploiting opportunities for profitable organic growth, value-enhancing acquisitions and strong cash flow generation.
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North America
Ferguson’s commercial and industrial sector sales accounted for over 60% of its revenue.&nbsp ; However, Ferguson was affected by the weakening new residential market and a slowing RMI market. Revenue in local currency for the three months ended Oct. 31, 2007, was up 5% due to acquisitions, with organic revenue growth being slightly negative. Organic growth was marginally negative in August and October, but positive in September.
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Local currency profit for the quarter was marginally higher due to acquisitions. The trading margin was slightly lower, reflecting increasing price competition and lower revenue growth.
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At Stock, revenue is down by 25%, reflecting a 22% decline in organic sales volumes, including the effect of previous branch closures and price fluctuations in lumber and panels that reduced revenue by around 1%. Stock is now cumulatively reporting a trading loss for the three month period following losses in September and October.
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The Canadian residential market continues to hold up and has not been significantly impacted by the factors affecting the U.S. housing market, Wolseley reported. Wolseley Canada achieved modest local currency revenue growth, although profit was lower, following C$3.5 million (& pound; 1.6 million) of branch closure costs.
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