Global plumbing supplies group Reliance Worldwide (ASX:RWC) witnessed a decline of over 8% in its shares yesterday as its results for the 2022-23 period fell short of expectations. The company experienced a 4% decrease in underlying net profit and presented a lackluster forecast for the upcoming year.
The multinational company, headquartered in Brisbane, reported a 6% increase in sales, reaching $1.243 billion in the year (a 9% rise in constant currency terms). The 'adjusted' EBITDA also saw a modest uptick of 2%, amounting to $274.6 million.
However, the 'adjusted' net profit witnessed a decline of 4%, settling at $155.7 million. The final dividend of 5 US cents per share remained unchanged from the previous year, perhaps aimed at maintaining shareholder confidence in anticipation of a challenging year ahead.
Reliance attributed the slight sales growth mainly to North America. The company has recently relocated a portion of its manufacturing and all assembly operations for North American products to the United States. The acquisition of EZ-Flow in late 2021 contributed to a notable 13% growth in North American sales, totaling $890.1 million.
Conversely, net sales in the Asia Pacific region experienced a 4% decline, dropping from $293.5 million to $282.7 million. The Europe, Middle East, and Africa (EMEA) segment saw some growth, with net sales rising by 3% to 226 million British pounds.
CEO Heath Sharp maintained an optimistic tone in his commentary on the year 2023: "Our core business is geared towards the more defensive repair and remodeling work, which has helped sustain our volumes. While demand has moderated after two exceptionally strong years, our robust brands and execution have enabled us to outperform the broader market."
Sharp also noted the strong performance in cash generation, with operating cash flow more than doubling compared to the previous year.
However, the downward trajectory in share price on Monday was largely attributed to a pessimistic outlook for 2023-24. Reliance projected "consolidated revenues expected to be down by a low single-digit percentage points in FY24, with lower sales in most markets." The company emphasised its aim to maintain stable operating margins for 2024, offsetting the lower sales through cost savings and price adjustments, as stated by the CEO.
Heath further elaborated on the strategy, stating, "Despite anticipating reduced sales, we are committed to upholding operating margins through efficiency improvements and pricing strategies. Our primary focus is to position RWC strongly for the eventual market recovery."
