A big restructuring plan has not been enough to stop one S&P/ASX 200 Index (ASX: XJO) stock from falling on Tuesday.
Reliance Worldwide Corporation Ltd (ASX: RWC) is in focus after the company announced another round of operational changes.
At the time of writing, the Reliance share price is down 4.36% to $3.51.
The plumbing products company has still gained around 12% over the past month, but it remains about 15% lower than this time last year.
Here’s what was in the update.
Reliance closing brass sites
In a statement to the ASX, Reliance said it plans to close its brass casting, forging, and machining operations in Moorabbin and Braeside, Melbourne.
It will also shut several smaller sites as part of a wider move to make its manufacturing operations more efficient.
Reliance said the closures follow a sustained fall in brass production volumes at its Melbourne facilities in recent years. As such, the company no longer sees enough value in keeping those sites running.
Management said the changes are expected to start supporting earnings from FY27.
However, the move will affect around 85 employees in Australia. The company has started consulting with those workers and expects that process to finish in July 2026.
Why is brass demand falling?
Reliance pointed to a few reasons why its brass volumes have been falling.
In the US, the company has invested in its Alabama facility to automate the assembly of its SharkBite Max brass push-to-connect fittings.
SharkBite Max has also been redesigned so it uses less brass. According to the company, that has reduced the amount of brass needed per fitting by about 20%.
Reliance is also moving some of its APAC SharkBite production out of Melbourne and to third-party suppliers in Asia.
On top of this, the company expects brass demand to fall further as it keeps replacing brass with stainless steel across some of its key product ranges.
What will it cost?
The changes will come with a fairly large hit in the short term.
Reliance expects to record a one-off net charge of between US$100 million and US$110 million in FY26. This will be left out of operating earnings.
The charge includes about US$5 million for redundancy and property exit costs, around US$25 million in net asset write-downs, and a US$70 million to US$80 million impairment of intangible assets.
However, most of that isn’t a cash cost. Reliance said only about US$5 million is expected to be cash, with the rest being non-cash.
From FY27, the company expects more production to shift away from the APAC region. That is expected to reduce APAC revenue by about US$38 million compared with FY25, but improve APAC operating earnings by about US$9 million.
Across the group, Reliance expects the changes to lift annual EBITDA by about US$9 million by the end of FY27. Once all the benefits are flowing through, the total annual uplift could reach around US$15 million.
The post This ASX 200 stock just dropped 4% after revealing a big business reset appeared first on The Motley Fool Australia.
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Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.