Reliance Worldwide Corporation Ltd (ASX: RWC) share price should react positively to its profit news but a sombre outlook could give investors pause for thought.
However, the nearer-term outlook could be brighter than the company is making it out to be. Management made no mention of the extreme snow storm hitting the US. I'll explain more later.
Reliance share price gets profit boost
The plumbing products supplier reported an 82% surge in interim net profit to $91.4 million while revenue increased by 13% to $642.4million.
Its bottom line was bolstered by a tax benefit but even adjusting for that, its adjusted net profit still managed an enviable 56% uplift to $99.3 million.
First half revenue growth would have been a more impressive 17% too if not for the weakening US dollar that lowered its Australian dollar adjusted figures.
The growth in profit prompted management to increase its interim dividend by a third to 6 cents a share.
Firing on all cylinders
But what supporters might be most pleased about is that all the markets that Reliance Worldwide operates in reported good growth.
Sales in its Americas division jumped 22% on a constant currency basis. Strong residential renovation and building activity in the US drove most of this increase.
Meanwhile, its Asia Pacific business experienced a 14% sales improvement while Europe, Middle East and Africa (EMEA) jumped 10%.
Government stimulus and pent-up demand
The housing boom in Australia is the main contributor to growth in Asia Pacific. Record low interest rates and government stimulus have benefitted Reliance.
These same factors should also be supportive of the BlueScope Steel Limited (ASX: BSL) share price, CSR Limited (ASX: CSR) share price and Boral Limited (ASX: BLD) share price.
Coming back to Reliance Worldwide, growth in its EMEA division was largely due to the UK. The company reported pent-up demand for its products in that country as COVID-19 lockdown restrictions were eased.
Growth to moderate?
However, management is warning that the strong sales growth may not persist, at least not at the same pace.
For instance, the unwinding of both the HomeBuilder program and some state government incentives could also put the brakes on growth in Australia.
Also, the US housing market experienced a significant upswing since March 2020 and Reliance Worldwide believes things will slow from March this year.
Snowstorm could prove a second tailwind
But this may not be the case for the US, in my opinion. The snow storm that is sweeping over large parts of the US is likely to drive a spike in demand for its unique pipe repair product.
Extreme cold is good for Reliance Worldwide sales as water pipes burst when water freezes. As the snow storm recedes, I believe there will be a lot of pipes that will need repairing in more states than has historically been the case.
After all, you only need to look at Texas to see what I mean.
