It’s now a very familiar story – a company releases its results, they don’t look all that good, so there’s a downgrade somewhere in all the documents, investors concentrate that and down go the shares.
The extent of the fall is usually based on the level of surprise and whether the company is an investor favourite.
Not even a small rise in interim dividend to 4.5 cents a share from 4 cents (all a bit tokenistic really) could convince investors not to sell off the stock.
That’s, in a nutshell, the experience yesterday for RWC, the Australian based plumbing supplies multinational.
Reliance Worldwide’s share price plunged by more than a quarter after it downgraded its full-year guidance off the back of a near 24% slide in first-half profit.
They closed down more than 26% at $3.42.
The Melbourne-based company said it made $50.1 million in profit for the six months to December 31, 23.8% lower than the result for the December 2018 half year.
The lower result was struck after revenue rose 4.6% to $569.3 million.
RWC said it now expects to earn a full-year profit of $140 million to $150 million, compared with previous guidance of $150 million to $165 million.
It didn’t sound much, but it was a shock to the market and Reliance Worldwide shares lost 23.7% to a six-month low of $3.41.
But that reduced guidance is based on some contingent factors which is they occur, could very well sell another sell-off in the shares.
“Key assumptions underpinning earnings guidance include stronger sales performance in the Americas in the second half partly driven by specific marketing and promotional activity,” RWC pointed out in yesterday’s earnings release.
“Stronger sales are also expected in EMEA in the second half consistent with typical seasonal trading patterns, while in APAC the company anticipates flat external sales given the weakness in new housing construction in Australia.
“Given the heightened risk around external factors pertinent to RWC, including coronavirus and the ongoing impact of Brexit on the UK economy, achievement of earnings within the guidance range is contingent on no further material deterioration in trading as a result of these factors,” the company cautioned.
So the ride this half could very well be a bumpy one.
Looking at the December half, the company said: “The financial performance for the period was lower than plan.”
“While we had flagged softness and uncertainty in some markets, ultimately most markets were weaker than expected and consequently sales growth was lower than projected.”
RWC managing director Heath Sharp said the company reduced manufacturing volumes due to the lower sales activity, helping boost cash flow from operations by 163% to $112.8 million.
Reliance said it planned to close a manufacturing plant in Tennessee and consolidate US manufacturing in Alabama at a cost of $US4 million.
