UK-based Wolseley plc has started a fundamental review”of Stock Building Supply’s impact on its overall results, which continued to suffer due to the struggling housing market in the U.S. The company may sell the unit.
“We must acknowledge that further large-scale reduction of Stock will inevitably eat into the infrastructure of the business,”said Chief Executive Chip Hornsby. “It is also abundantly clear that conditions in the new residential market will continue to get worse before it gets better so riding out the storm is not an option for us.”
Stock posted a trading loss of £123 million (US$227 million) for fiscal year 2008. The magnitude of the of loss masks the strong performances of other members of the group, Hornsby said.
Wolseley has already made significant cuts within the Stock unit over the past year in attempts to lessen the impact of the residential housing market. In the year ended July 31, 2008, Wolseley, a global building materials and plumbing/HVAC distributor, closed 270 branches and reduced headcount by 7,100 across the global group. Of those 270, 36 were at Stock and 123 were from U.S. HVAC and plumbing distributor Ferguson. Of the 7,100 cut, 3,150 were from Stock, and 2,250 from Ferguson.
U.S. residential housing starts fell below 900,000 for the first time in 17 years in August. At the same time, the number of foreclosures continues to rise. Hornsby said he doesn’t expect to see any shift in this trend until at least May of 2009.
The results of the review along with any possible action taken will be presented at the Annual General Meeting in November.
Wolseley also released final financial results for fiscal year 2008 on Monday. In the year, revenue globally was up 2 percent but profit fell 22 percent. Excluding Stock Building Supply results, profits fell 3.2 percent.
In North America, revenues fell 7.3 percent and profit was down 37.4 percent.
In Europe, revenue grew 12.7 percent and profit was down 1.2 percent. The group saw tougher conditions in the UK and Ireland. Additionally, European markets are beginning to show signs of slowdown as a result of the current credit crisis in the U.S. and globally.
Wolseley expects U.S. commercial and industrial markets to remain stable in the next few months, although it expects “a number of markets in which the group operates to deteriorate in the short term.”
“We have continued to take action to reduce costs and drive working capital improvements in response to challenging market conditions,”Hornsby said.
“While these conditions have impacted many of our businesses significantly during the year, our employees have done a good job at responding to the tough markets and we are seeing the benefits of our actions with market outperformance in many areas.”– Jenel Stelton-Holtmeier