In its pre-close trading update for the 11 months ended June 30, Wolseley said that the housing and repairs, maintenance and improvement (RMI) markets in the United States softened further while commercial and industrial markets remained stable. In Europe, there has been a rapid deterioration in market conditions in the United Kingdom, particularly with new housing, and many other European markets continue to soften, the company said.
“The deterioration in some of our key markets continues and it is likely that conditions will get tougher still,” Chip Hornsby, group chief executive of Wolseley, said in a statement. “In these unprecedented circumstances, driving cost reduction, enhancing cash flow and closely managing the balance sheet remain key priorities.”
Trading profit was down by 46% in North America, reflecting the loss reported by Stock and lower profitability in Ferguson and Wolseley Canada, according to Wolseley.
Ferguson continued to gain market share, helped by the continued strength of the commercial and industrial sector. Recent pressure on gross margins has so far been offset by a focus on managing the pricing matrix, an increase in sales via counters and showrooms and higher private label sales, Wolseley said. A restructuring announced in May closed 75 branches and reduced headcount by 200.
At Stock, local currency revenue and trading profit were affected by the continuing slowdown in the new residential market, which has also created increased price competition and pressure on gross margin. Housing starts in the U.S. have fallen 28% for the the 10 months ended May 31, 2008 vs. the same period in 2007. Stock’s local currency revenue was down by 25%, principally reflecting a 22% decline in same-store sales volumes, the effect of previous branch closures (3%) and 3% price deflation in lumber and panels. Acquisitions contributed 3% to revenue. Although Stock reported a trading loss for the 11-month period, it continues to outperform in most of its major markets, Wolseley said.
In the report, Wolseley said it currently owns about 950 properties and continues to assess its property portfolio. In the 11 months ended June 30, 21 properties were sold. Among these were two businesses that Ferguson sold in April and June, respectively: an electrical distribution business acquired as part of Davidson and a high purity fabrication and distribution business that supplies the pharmaceutical and food industries, acquired with Frischkorn.
Distribution consultant Scott Benfield recently observed in his e-newsletter that while Wolseley may weather the economic storm, it will be much changed in the future, and the “dominance of Ferguson-trained leaders and leadership style” is no longer assured. Competitors sense market weakness in Wolseley holdings and are prepared to take share away, he added.
Publications in the United Kingdom quote analysts who also express concern about Wolseley’s financial health.
For more information on Wolseley and its North American businesses, please visitwww.wolseley.com.
Wolseley Projects Conditions Will Get Tougher Still
August 1, 2008