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Why is the Reliance Worldwide share price down after reaffirming guidance?

The Reliance Worldwide Corporation Ltd (ASX: RWC) share price has fallen 3.12% to $4.66 on Friday afternoon.

Investors appear to have responded negatively after the company reaffirmed its FY2019 EBITDA guidance of $280 – $290 million subject to the assumption of a “modest freeze” event being experienced in the US.

A modest freeze is defined as “the average level occurrence of winter storms causing cracked or broken pipes over a sustained period across the USA”. As a plumbing supplier, Reliance benefits from such weather events; the company said that if this does not occur, FY2019 EBITDA will likely be 1.5 – 3.0% lower.

Further, Reliance typically benefits the most when such events affect the southern parts of the US, where water pipes lack the same level of insulation as in the Northeast or Midwest.

Why are Reliance shares down?

Although Reliance reaffirmed its EBITDA guidance, it’s likely that investors don’t like the uncertainty given that this year’s winter has been “relatively mild” in the southern US so far, with a freeze event yet to occur. Reliance said that it’s not too late, however, with freeze events possible in February and March.

Investors who have been keeping an eye on the news may also be disappointed to hear that the bitter cold in parts of the US brought on by a polar vortex has not yet translated into a boon to Reliance’s FY2019 outlook. The wide expanse of swirling cold air is yet to substantially impact the South.

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The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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