Midland-based heating and plumbing giant Wolseley reported its first profit fall in more than a decade yesterday, blaming the global credit squeeze and the effect the weakness in the US housing market was having on its repairs and maintenance business.
Wolseley, which has its UK headquarters in Leamington Spa, said profit before tax and goodwill amortisation fell 7.3 per cent to £758 million in the year to July 31, slightly below analysts' average forecast of £761.4 million.
Revenue rose 14.6 per cent to £16.2 billion, spurred by bolt-on acquisitions and the £1.3 billion purchase of Nordic-focused DT Group, which performed ahead of expectations.
Chief executive Chip Hornsby described the results as "very creditable", with the US downturn offset by healthier trading in Europe.
However, the company, which is the world's biggest distributor of plumbing and heating products, added that recent events involving the US sub-prime mortgage market and concerns over liquidity in financial markets had created uncertainty which was being reflected in less favourable sales trends for a number of group businesses.
"There are no signs yet of any upturn in the US housing market, and the repairs, maintenance and improvement market is now beginning to soften," Wolseley said in a statement.
The company - best known for its Plumb Center and Build Center businesses - said it had been "fast and decisive" in its response to the US downturn, including through cost savings. It reduced staff numbers by around 3,500 in the last financial year, representing 20 per cent of the region's total workforce.
However, it said it was too early to say whether these measures would prove effective or whether the US problems would continue.
In North America, where Wolseley generates roughly half of group sales, trading profit fell 19 per cent to £487 million, as its building distribution business Stock saw profit tumble
75 per cent, hit by a weak housing market and one-off charges related to the job cuts and 46 branch closures.
"It's very difficult to determine exactly what's going to happen in the US housing market," said Mr Hornsby. "The most challenging part will be winter months. It could potentially get worse before it gets better."
In Europe, Wolseley said the underlying fundamentals of the construction markets remained sound, with its operations expected to show further progress. Revenue growth in the region increased 46.8 per cent to £7.56 billion in the last financial year, of which 8.8 per cent came from organic growth.
Wolseley UK and Ireland recorded a 17.9 per cent increase in revenue to £3.17 billion, helped by government spending on schools, hospitals and social housing repairs and maintenance work.
Mr Hornsby said it was too early to say what effect the Northern Rock crisis may have on the housing market.
In Ireland, the market saw continued rapid decline in housing starts, with some of the shortfall taken up by strong maintenance activity.
Trading profit increased by five per cent, but margins were lower as a result of £13 million of one-off restructuring costs relating to 40 branch closures and rationalisation of head office.
Wolseley had 1,917 branches in the UK and Ireland at the end of the financial year, an increase on the 1,858 seen a year earlier.
Across the group, Mr Hornsby said current market conditions would not prevent the company from pursuing its strategy of achieving both organic growth and acquisitions.
He added: "We will not be deflected from the rigorous execution of our long term strategy to create competitive advantage and a truly world class company."