Reliance Worldwide share price slips despite sales growth

A man holds a bucket to stop the roof leaking while on the phone calling for helpA man holds a bucket to stop the roof leaking while on the phone calling for help

Shares in Reliance Worldwide Corporation Ltd (ASX: RWC) are having a mixed trading day on Friday after the company released its trading update for the nine months ending 31 March 2022.

The Reliance Worldwide share price spiked hard from the open and touched $4.14. After spending a morning in the green, however, shares in the company have since plunged into negative territory and are now down 1.6%, trading at $3.95 apiece.

Reliance Worldwide is an ASX industrial share that designs and manufactures branded plumbing products across major global operations. Let’s take a look at its results.

Reliance Worldwide sees sales growth

Key takeouts for the nine months include:

  • Net sales $845 million, a 14% gain over the same period in FY21
  • Sales growth in the Americas and Asia Pacific (APAC) region, whilst Europe, Middle East, Africa (EMEA) was lower
  • Reported EBITDA of $182.6 million, an 8% backstep from the prior corresponding period (pcp)
  • Net debt of $555 million, up 278% from the pcp, from unsecured note issuance in the United States private placement market
  • Supply chain constraints have continued to inhibit growth in remodelling activity in the United Kingdom.

What else happened during this period?

Sales for the nine months were 14% stronger than the same time last year. Of the $845 million recognised, around $70 million came from the acquisition of EZ-FLO, acquired by the company back in November.

Geographically, growth was seen most in the Americas and APAC regions, underlined by a “winter freeze” event in Texas.

“Sales in the third quarter of the pcp included an estimated $31 million resulting from a winter freeze event in Texas and surrounding US states,” the company said.

“Adjusting for this, and excluding EZ-FLO, group sales were 9% higher than pcp,” it added.

Aside from that, the company saw some headwinds to operating margins, the result of “the impact of higher prices…[that] were dilutive to overall margins”.

Management commentary

Speaking on the results, Reliance Worldwide CEO Heath Sharp said:

Repair and remodelling activity levels have remained strong. In the Americas, Asia Pacific and Continental Europe, we have been able to grow revenues from the significantly higher base recorded
in FY21. The UK has seen demand revert to longer term trend after a period of heightened activity last year following the COVID lockdowns in that market.

We have been able to achieve further price increases to offset materials and other cost inflation, with prices on average up 8.7% for the nine months. Given the lag between cost rises and price increases, however, EBITDA margins were adversely impacted in the third quarter.

Further price increases introduced in the third quarter and planned for the fourth quarter will deliver near double-digit price increases for the full year.

What’s next for Reliance Worldwide?

Regarding its outlook for upcoming periods, the company didn’t provide specific sales or earnings guidance.

“RWC expects to achieve further price increases in the fourth quarter to offset cost inflation, with average price increases across the group expected to be close to 10% for the year as a whole,” Reliance said.

As a result, it expects operating margins to improve from these latest results. However, as per the company, rising interest rates, supply chain constraints and inflationary pressures remain headwinds for the company.

RWC believes it is well placed with its local manufacturing operations and strong track record of class-leading customer execution to navigate these challenges and respond to customer needs. We also expect our ongoing new product introductions will enable us to continue our long-standing record of delivering above-market growth with quality margins.

Reliance Worldwide share price

The Reliance Worldwide share price has slipped 20% into the red in the last 12 months and has fallen almost 37% this year to date.

The post Reliance Worldwide share price slips despite sales growth appeared first on The Motley Fool Australia.

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Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Reliance Worldwide Corporation Limited. The Motley Fool Australia has recommended Reliance Worldwide Corporation Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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