Plumbing and heating products supplier Wolseley plc (WOS.L) on Wednesday said pre-tax profit from continuing operations before items for the first quarter declined 45% from the year-ago period and group revenue dropped 13% from last year. Citing challenging market conditions, the company said gross margin was down and the pricing pressure might continue.
In a trading update for the quarter ended October 31, the company said it expects market conditions to remain challenging, particularly in the Industrial and Commercial segment.
While announcing fiscal 2009 results recently, Wolseley said that in the short term, market conditions would remain challenging due to tight credit conditions, high levels of foreclosures and rising unemployment rates. The company said today that market trends and trading performance for the quarter remain in line with management expectations set out in September. Overall, the like-for-like sales trends in the first quarter were more favorable than the fourth quarter of the prior year, the plumbers' merchant noted.
Profit from continuing operations before tax, exceptional items and amortisation and impairment of acquired intangibles for the quarter dropped 45% from last year to GBP 76 million. The decline was 50% in constant currency.
Group revenue in the three months ended October 31, was GBP 3.395 billion, down 13% from the corresponding period in the prior year. Trading profit was down by 41% to GBP104 million, reflecting lower profitability in the Ferguson business due to the further decline in the Commercial and Industrial market. On a constant currency basis, revenue declined by 20% and trading profit was 46% lower than the corresponding period in the prior year. Underlying trading profit was down 28% for the latest quarter.
However, majority of the Group's business units maintained or improved their market share in the quarter. The overall gross margin was 50 basis points down from the prior year and the company expects the pricing pressure to continue.
In North America, revenue for the quarter was down 17% in sterling, while trading profit was down by around 44%, reflecting lower profitability in Ferguson and the one off property profit in the prior year. On a constant currency basis, revenue and trading profit were around 24% and 49% respectively, down from the prior year.
During the quarter, Ferguson witnessed a further decline in the Commercial and Industrial market due to continued shortage of funds for project financing. Revenue in local currency for the quarter was down around 26% and underlying trading profit excluding property profits for the quarter was down around 47%.
Local currency revenue for Wolseley Canada decreased by around 16% with trading profit down around 33% .
First-quarter revenue in sterling for Europe was down by around 10% and trading profit dropped by around 23%. On a constant currency basis, revenue and trading profit declined by about 16% and 30%, respectively, from the corresponding period last year.
While revenue for the UK and Ireland decreased by about 13%, trading profit excluding GBP 5 million of restructuring costs was up by around 17%.
Trading profit in the Lightside division was marginally up in the first quarter despite a lower gross margin. The Heavyside division is showing improving sales and profit trends, the company noted, while trading profit in the Commercial and Industrial division continues to be affected by aggressive price competition and competitive tendering. The Irish market continues to be extremely challenging, although the rate of trading losses has stabilised and is broadly in line with last year.
The Nordic region reported a 19% decline in first-quarter revenue in local currency and trading profit was down around 14%, with market conditions in Denmark continuing to be the most challenging. Revenue in Sweden almost reached the prior-year level. Despite some pricing pressure, underlying gross margin was slightly ahead from the prior year due to a better mix and improved rebate terms negotiated with suppliers.
In France, revenue in local currency for the quarter was down 17% and gross margin was marginally down due to the Lightside division. Wolseley France made a trading loss of GBP 9 million for the quarter, compared to breakeven position excluding GBP 4 million profit on disposal reported last year, mainly due to continued underperformance in the Lightside division.
Revenue in Central and Eastern Europe in local currency was down around 16% and trading profit down around 33%, with the prior year recording revenues from some disposed businesses. On a pro forma basis, revenue in local currency for the first quarter for the continuing businesses in the region was down 7% and trading profit was down 28%.
Operating cash flow for the first three months declined from the prior year due to lower level of trading profit and a seasonal reversal in the strong working capital performance at year-end. Wolseley said it continues to expect a modest inflow of cash relating to working capital for the year ending July 31, 2010.
Futher, Wolseley said plans are under review for the deployment of the Group's Business Change Program in Ferguson over the remainder of the financial year to defer costs and avoid business disruption in difficult markets. This is likely to impact the deployment of this program, which could result in an impairment at the half-year stage, the company noted.
Looking ahead, the Group expects market conditions to remain challenging, particularly in the Industrial and Commercial segment. The New Residential and RMI markets are expected to continue to move towards stabilisation, although majority of the Group's Commercial and Industrial markets are likely to deteriorate further in the short term.
In September, the company had reported a loss for fiscal 2009, reflecting increased impairment charges and higher exceptional costs. Loss attributable to equity holders were GBP 1.17 billion or 558 pence per share, in comparison with a profit of GBP 74 million or 40.9 pence per share in the earlier year. Revenues for the year decreased to GBP 14.44 billion from GBP 14.81 billion.
WOS.L is currently trading at 1,333.00 pence, down 40.00 or 2.91%, on 417,273 shares.
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