Wolseley plc, UK-based distributor of plumbing and heating products and building materials, reported it would not sell Stock Building Supply but instead extensively restructure the U.S. building materials distributor.
 
The company will close 86 branches, bringing the number down to 209. It will be leaving 16 markets in six states, while leaving a presence in 27 states. And Stock will reduce headcount by 3,000. About 8,700 employees will remain. Stock has cut about 55% of its work force since 2006, its peak.
 
The 86 branches to be closed represent about 25% of Stock’s revenue and 28% of its headcount. 
 
The decision comes after a six-month review of the business.
 
Chip Hornsby, Group Chief Executive of Wolseley, said: With the ongoing decline in U.S. new residential construction, significant over-capacity in the industry and the consequential negative impact that Stock is having on the Group’s results, it is imperative that we take further action to restructure this business. The measures we are taking will move us back towards profitability, while still keeping a presence in key districts for when the market recovers.”
 
Wolseley said in a statement that selling Stock to a third party “has not proved possible.” In addition to restructuring, it also explored a joint venture with another party and closing the business altogether. Wolseley said “there remains significant potential to create long-term value in the business.”
 
The restructuring of Stock will focus on maintaining a presence in markets where it is a leading player, according to Wolseley, and where it will benefit most from market recovery. For example, Stock will remain in its top states, namely North Carolina, Florida, Texas, California, Utah and South Carolina, but will exit Louisiana, where it does not have a significant presence.
 
The move is expected to reduce the annualized run rate of losses by about $100 million and result in losses of less than $200 million for Stock in the year ended July 31, 2009. These numbers were based on average annual housing starts of 750,000 and lumber prices of $240 per thousand board feet. Exceptional restructuring costs of around $225 million are expected to be incurred before Jan. 31, 2009. This cash impact is expected to be more than offset by cost savings and working capital reductions, in the six months ended Jan. 31, 2009. In addition, there is likely to be a further impairment of more than $100 million in the carrying value of Stock’s goodwill and acquired intangible assets.
 
Stock generates more than 70% of its revenues from new residential construction. Despite cutting headcount by around 40% and closing 70 branches since the market peak in January 2006, Stock reported a trading loss of $246 million in the year ended July 31, 2008, on revenues of $3,471 million.
 
The group announced in September it would conduct a fundamental review of the business.