Reliance Worldwide Downgrades Earnings Guidance
Back in 2019 when President Donald Trump announced plans to increase tariffs in the United States, plumbing supplies group Reliance Worldwide was confident that it could benefit as a result. The firm makes about 85 per cent of its revenue are offshore and is advantageous relative to other firms as it manufactures its products in its factories. This is a stark contrast relative to Reliance’s competitors who continue to purchase finished goods from Mainland China. As a result, the firm stands to benefit as it could capture a greater market share of the SharkBite PTC plumbing fittings commonly used by tradies in kitchen, laundries and bathrooms.
However, the positivity proved to be short-lived. In its recent half-year report for the period ending 31 December 2019, the overall results did not satisfy investors. This is evident in its share price, which plummeted upon the announcement, witnessing a significant 26 per cent fall shortly after markets opened.
Specifically, revenue grew by a meagre 0.4 per cent even after accounting for currency fluctuations. Net profit after tax came in at $60.7 million, relative to $80.5 million from the previous period. Collectively, the firm suffered a $970 million plunge in its sharemarket value after the downgrading of its profit in part attributed to softer market conditions in Australia and the United Kingdom.
Nevertheless, chief executive Heath Sharp was of the view that the firm’s long-term fundamentals of the business remain strong even though fears about a drag on the global economy from the coronavirus would weigh heavily on the stock. Presently, the plumbing group foresees net profit to fall between the bracket of $140-$150 million, as compared to the previous guidance range of $150-$165 million.
As a result, the firm will be undertaking a series of measures. The research & development review that is undertaken aims to allow the business to channel its attention on its core product range. The nature of the plumbing business will require Reliance to invest in new products approximately 30 months before they make it on the shelves. Consequently, the chief executive would like to place a greater emphasis on products where Reliance receives highest brand recognition and holds the highest market share.
Thereafter, other options such as the acquisitions of businesses and technology for the purpose of commercialising other products can potentially be considered alongside the collaboration with partners. The firm remains positive as its Chinese suppliers have now resumed work in their respective factories, with only a handful of items in its inventory that require attention.
Another of Mr Sharp’s worry is Brexit. Presently, Britain’s no-deal exit from the European Union will imply that confusion is unlikely to go away anytime soon. Likewise, softer market conditions within Britain’s residential construction sector will likely persist in the short term. From a broader point of view, leadership changes within the organisation will witness current Chief Financial Officer, Gerry Bollman, leaving his role after a four-year tenure.
By Caroline Wong
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