Wolseley’s profits slump 28 percent
Industrial Distribution staff -- Industrial Distribution, 7/16/2008 7:07:00 AM
Two weeks after its stock price hit a seven-year low, profits for Wolseley plc fell 28 percent as housing slumps in the United States and the United Kingdom continued to drag down results.Revenues for the British building materials distributor during the 11 months ending June 30 rose a mere 1 percent.
Wolseley, ranked first on INDUSTRIAL DISTRIBUTION’s 2008 Big 50 list of distributors, said its pre-tax profits for the period plummeted 35 percent, prompting it to cancel the final dividend payment to shareholders for the year.
Wolseley has laid off 6,000 workers since August 1, 2007 and 10,000 in the past 18 months, nearly 10 percent of its total workforce.
“The deterioration in some of our key markets continues and it is likely that conditions will get tougher still. In these unprecedented circumstances, driving cost reduction, enhancing cash flow and closely managing the balance sheet, remain key priorities,” CEO Chip Hornsby said.
In North America, revenues fell 8 percent and trading profits dropped 46 percent, as its American Stock Building Supply and Ferguson Enterprises subsidiaries suffered through the housing downturn.
Revenues for Stock fell 25 percent and the building materials distributorship posted a loss of $204 million during the 11-month period, compared with a $101.4 million profit during the same period in fiscal 2007.
“Local currency revenue and trading profit have been affected by the continuing slowdown in the new residential market, which has also created increased price competition and pressure on gross margin,” Wolseley said in a statement, adding that housing starts in the United States are off by 28 percent compared with last year.
Plumbing supplies distributor Ferguson also suffered from the ailing housing market, with organic revenues off 3 percent compared with the same 11-month period in 2007 and trading profit down 10 percent. Wolseley said the 75 Ferguson branches it planned to shutter in May have been closed, meaning layoffs for 200 workers.
North of the border, Wolseley Canada’s revenues rose slightly, but trading profit fell 19 percent due to the cost of closing 15 branches and laying off 50 workers.
The company cited the global credit crunch for disappointing results in Europe, where revenues rose 13 percent but profits fell 2 percent.
On Wolseley’s home court, where the new housing market is also ailing, profits fell 17 percent in the United Kingdom; in Ireland, the company shuttered 13 branches and laid of 150 employees.
“In view of the current market conditions in the U.K., cost reduction measures and efficiency improvements will continue,” Wolseley said.
As for the acquisitions trail, where Wolseley spent $67 million on five buyouts as recently as March, the company said it has no plans for any more purchases and sold or will sell some of its assets and subsidiaries.
“Capital expenditure plans have been curtailed and total capital expenditure for the year ended July 31, 2008 is now expected to be around [$660 million], down from [$772.2 million] last year,” Wolseley said. “In the 11 months, 21 properties were sold for [$80 million] and further transactions, that will generate profits and cash, are anticipated over coming months.”
Wolseley said it also sold three non-core businesses it gained through acquisitions, for a total of $36 million.
In April, Ferguson ditched the electrical distribution business it acquired as part the 2006 Davidson Electric Wholesale Supply Inc. buyout.
In June, the company sold a high-purity fabrication and distribution business serving the pharmaceutical and food industries it acquired in its 2005 purchase of PVF distributor John H. Frischkorn Jr. Inc.
And in July, Wolseley France sold a metal connector plate and anchor business it acquired as part of the Sofiparts SAS deal last year.
Together, the three operations posted revenues of $14 million and profits of $2 million during the 11-month period, Wolseley said.
The company said its short-term expectations are grim, meaning more cost cutting measures (including branch closures and layoffs) might be in store.
“Many markets in which the Group operates are likely to deteriorate in the short term, although the U.S. commercial and industrial market is likely to remain stable for the next few months. The group will continue to focus on executing the actions necessary to ensure that it remains compliant with its borrowing covenants, without compromising its strategic objectives,” Wolseley said.
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