Wolseley Reports 10th Set of Record First Half Results
Its North American division reported a 40.1% sales increase, reflecting organic growth of 19.2%, acquisitions and the beneficial impact of currency translation. Trading profit, which the company defines as operating profit before the amortization of acquired intangibles, increased by 39.1% after North American central costs.
In its U.S. Plumbing and Heating division, Ferguson (Newport News, VA) generated strong organic growth from its focus on selected markets, from new branch openings and driving further commercial advantage from its distribution center network. Sales for the U.S. plumbing and heating operations rose by 37.8% to $4.53 billion, with trading profit up by 29.5%. Organic revenue growth was 27%.
Gross margin fell slightly due to the absence of commodity price benefits in the first half compared to the prior year, partly offset by the continuing benefits from the distribution center network, a focus on organic growth and operational leverage.
Volumes through the distribution center network grew by 44% in the first half compared to the same period last year; more than 50% of branch sales now go through the distribution center network. Further investment in distribution centers continues. In the first half, an additional 200,000 sq. ft. of capacity was added through the expansion of the McGregor, TX distribution center. Further expansion of the distribution network is planned in the current financial year. The board has approved new distribution centers in Florida and northern California.
Of the markets in which Ferguson operates, housing-related activity remained strong with the more positive economic environment benefiting the repairs, maintenance and improvement (RMI) sector, which is becoming an increasingly important element of overall construction spend in the United States, the company reported. To benefit from this opportunity, Ferguson is rolling out both the XpressNet branch format and also continuing to expand its showrooms. It is placing greater emphasis on opening new specialist branches for heating, ventilation, and air-conditioning and waterworks, which should lead to further growth opportunities. The commercial and industrial sectors continue to show signs of improvement.
More than 2,500 people joined the business. The company started its rollout of the new warehouse management system to large branches, which is expected to improve customer service and inventory management. Ferguson's branches increased by 156 during the first half to 1,097 locations.
Market conditions in North America are expected to remain favorable and Wolseley projects its North American operations will make good progress in the second half. This is against the background of an improving industrial and commercial market, a growing RMI market and a strong housing market, although the number of starts may show a small decline. Wolseley said it would continue with business improvement initiatives relating to information technology, supply chain, sourcing and procurement and the acquisition pipeline will remain strong as it continues to pursue opportunities for product and geographic diversity.