Reece Group's FY25 results reveal a mixed bag; are they genuinely battling market headwinds, or is it just a bit of a wobble?
The plumbing and bathroom supplies mob's FY25 figures paint a picture of a year wrestling with 'turbulent' conditions. Makes you wonder if this dip is a mere blip or signs of a deeper malaise. Reece Group, an Aussie behemoth making inroads in the US, saw group sales revenue drop 1% to $9.0 billion.
While ANZ (Australia and New Zealand) sales revenue edged up 1% to $3.9 billion, the US market took a 5% hit, dropping to US$3.3 billion. Seems even taps and toilets can't dodge a downturn.
Numbers Don't Lie
According to Peter Wilson, Chairman and CEO, "FY25 has been a turbulent year for Reece. We delivered a disappointing result, with full year earnings impacted by soft end markets across both regions." Disappointing indeed, especially for a company accustomed to upward curves.
Construction and housing, key for Reece, have been facing it due to interest rate rises and supply chain snags, impacting demand. Despite the gloomy numbers, Reece carried on expanding, completing three "bolt-on" acquisitions and adding 39 locations. Bold move or doubling down on a losing hand?
Brave Face or Fool's Errand?
Bolt-on acquisitions – smaller companies complementing the main show – are often chased to grab market share or new products. The company also claims to have trimmed corporate costs to be more efficient. A grand ambition; we'll see if they deliver. FY25 Results are here.
Group EBIT (Earnings Before Interest and Taxes) copped a 20% wallop, landing at $548 million, blamed on market softness and ongoing investment. Investing amidst strife is admirable, but shareholders might be twitching.
Across the Pond
Reece's US expansion, a strategic play in recent years, has had a bumpy ride. The US market offers growth, but it's a dogfight, and prone to its own economic wobbles. The US housing market slowdown, plus inflationary pressures, likely stung US sales revenue.
Reece is understandably keeping a stiff upper lip, anticipating a "slow market recovery" and backing its long-term plan. Wilson stated, "We are well capitalised and will continue to look beyond the cycle to protect and grow the business." We’ll see if their war chest is deep enough, or if they’re just whistling in the dark.
Building on Sand?
Wilson reckons Reece operates in "large, resilient markets where housing undersupply and population growth will drive demand for infrastructure across both our regions." A rosy view, banking on the enduring need for a roof over one's head and working drains.
This relies on the idea that long-term demographic shifts will outweigh short-term economic bumps. The housing undersupply Wilson mentions is a big factor in both Australia and the States. Years of under-building, plus rising populations, have created an imbalance expected to prop up construction and renovation. But the pace of new builds will decide how much suppliers like Reece benefit.
Reece's rivals are also feeling the pinch. The whole building supplies game is sensitive to economic ups and downs, especially interest rates and government spending.
Still, at least the toilets flush.
