27th Mar 2018 13:48
LONDON (Alliance News) - Ferguson shares were trading higher on Tuesday after the heating and plumbing products distributor reported strong trading in the US supported by the country's robust housing market, offsetting challenging conditions in the UK.
Ferguson, which changed its name from Wolseley last year to its US trading name Ferguson, said it saw strong US organic revenue growth of 8.7% and continued to take market share gains.
The company's US business Ferguson Enterprises is headquartered in Newport News, Virginia, and is the largest plumbing wholesaler in the country. It is a major distributor of commercial and residential plumbing supplies, pipes, valves, and fittings. It was acquired by the then-Wolseley in 1982.
For the half year ending January 31, revenue grew to USD10.03 billion from USD9.38 billion in the previous year. Pretax profit increased to USD598 million from USD556 million year over year. Before exceptional items, pretax profit climbed to USD644 million from USD557 million.
In the US, which accounts for 79% of group revenue, Ferguson reported revenue of USD7.91 billion compared to USD7.16 billion in the corresponding period - an increase of 11%.
The company said its performance in the US was supported by robust residential markets which are "growing well", alongside commercial market growth and a recovery in industrial markets.
"The group delivered a strong trading performance in the first half driven by good growth and margin progression in the US where we continued to grow well across all geographic regions and business units," said Chief Executive Officer John Martin.
Ferguson declared an interim dividend of 57.4 cents per share, up 10% from last year's 52.1 cents per share.
The company also delighted investors by announcing plans to return USD1.00 billion via a special dividend of USD4 per share, representing the expected proceeds from the disposal of Stark Group at the end of March.
Ferguson announced the sale agreement of Stark Group, its Nordics building materials distribution business, to Lone Star Funds for EUR1.02 billion in November.
The ongoing share buyback programme of approximately USD650 million announced in October will continue as well. To date Ferguson has purchased 4.8 million shares for USD335 million.
"[The half year results were] driven by strong US residential markets, accompanied by welcome confirmation of a USD1 billion special dividend to be paid with proceeds of its sale of Nordic building materials distributor Stark," said Mike Van Dulken, head of research at Accendo Markets.
"Whilst the former maintains the positive corporate message that took shares to January's mid-month peak, the latter boosts cash returns to a very healthy circa 7.5%, making it difficult to ignore for those hunting the combination of solid, growing FTSE businesses with attractive yields," Van Dulken added
Despite the strong performance in the US, Ferguson's fortunes contrasted domestically, as it highlighted challenging conditions in the UK plumbing and heating market.
The UK accounts for 5% of group profit. Ferguson reported revenue growth of 0.5% for the first half, to USD1.35 billion from USD1.28 billion a year prior.
The company also said trading profit in the UK came in at USD38 million, which was USD6 million lower than last year's USD44 million.
"Organic revenue growth in the UK was 0.5%, including inflation of 3% to 4%, offset by a reduction in revenue from closed branches and the exit of low-margin business towards the end of the half," the company said.
Ferguson said it has accelerated its UK restructuring programme as it announced the closure of a further 52 branches.
"Although it flags challenging UK markets, that country has minimal contribution to group earnings. Ferguson is predominantly a US business and that market is looking healthy, according to the company's outlook statement," said analysts at AJ Bell.
Ferguson shares were up 5.8% at 5,430.00 pence, the second best performer in the FTSE 100 on Tuesday. The stock is up 10% over the past 12 months.
Related Shares:
Ferguson
