Reece Faces Earnings Pressure as Housing Market Softness Persists
Reece Limited reported a modest 1% decline in FY25 sales to $9 billion, with earnings pressured by soft housing markets in Australia and the US. Despite operational investments and branch expansions, the company faces a cautious outlook over the next 12-18 months.
- FY25 sales revenue down 1% to $9.0 billion
- EBIT falls 20% to $548 million, EPS down 24% to 49 cents
- Branch network expanded by 39 locations across ANZ and US
- ANZ sales flat but EBIT down 17%; US sales down 5%, EBIT down 23%
- Cautious outlook due to subdued housing markets and mortgage pressures
FY25 Financial Snapshot
Reece Limited, a leading distributor of plumbing and HVAC-R products, released its FY25 results showing a slight contraction in sales revenue to $9.0 billion, down 1% from the prior year. Earnings before interest and tax (EBIT) declined more sharply by 20% to $548 million, while earnings per share (EPS) fell 24% to 49 cents. The return on capital dipped by 365 basis points to 11.8%, reflecting the challenging operating environment.
The company declared a fully franked dividend of 18.36 cents per share, signaling a commitment to shareholder returns despite earnings pressure.
Operational Expansion Amid Market Softness
Reece continued to invest in its growth strategy, expanding its branch network by 39 new locations; 15 in Australia and New Zealand (ANZ) and 24 in the United States. This growth was a mix of organic openings and bolt-on acquisitions, aimed at strengthening market presence and customer service capabilities.
Investments also focused on upgrading branch standards and extending digital capabilities, positioning the company to better serve its trade customers and adapt to evolving market demands.
Regional Performance Divergence
In ANZ, sales remained flat year-on-year, supported by acquisitions, but EBIT declined 17% due to soft volumes and elevated costs from business investments and inflationary pressures. The US segment faced a tougher environment, with sales down 5% in US dollars and EBIT falling 23%, impacted by weak demand in the residential new construction sector and intense market competition.
Despite these headwinds, Reece implemented cost initiatives that partially offset the earnings impact of network expansion and continued capital expenditure.
Cash Flow and Balance Sheet
Net cash inflow from operations decreased, reflecting softer demand, while capital expenditure remained robust at 2.9% of sales to support growth initiatives. Net debt increased, pushing the leverage ratio to 0.8 times EBITDA, though the company maintains a strong liquidity position with over $1.2 billion available.
Outlook, Cautious but Confident
Looking ahead, Reece anticipates continued softness in housing markets across ANZ and the US for the next 12 to 18 months. Mortgage rates and affordability challenges are expected to weigh on construction activity and demand. The company remains confident in its long-term strategy, emphasizing operational excellence, innovation, and capital discipline to navigate the cycle and position for future growth.
Bottom Line?
Reece’s FY25 results underscore the challenges of a subdued housing market, but its strategic investments and balance sheet strength set the stage for resilience ahead.
Questions in the middle?
- How will Reece balance growth investments with margin pressures in a soft market?
- What impact will potential US housing market recovery delays have on Reece’s US operations?
- Could further branch network expansions dilute profitability if demand remains weak?
