Reliance Worldwide share price slumps 3% on 'year of significant operational challenges'

The ASX 200 company's sales lifted 17% last financial year.

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Key points

  • The Reliance Worldwide share price is falling on Monday, slipping 3% to trade at $4.36
  • It follows the release of the company's earnings for the 12 months ended 30 June
  • The company reported 17% higher sales for the period while its profit slipped 3%

The Reliance Worldwide Corporation Ltd (ASX: RWC) share price is in the red this morning after the S&P/ASX 200 Index (ASX: XJO) plumbing products producer released its full-year earnings results.

After opening at $4.22 – 6.4% lower than its previous close – the stock has regain some ground to trade at $4.36. However, that's still 3.33% lower than it was at the end of Friday's session.

Reliance Worldwide share price falls despite surging sales

Reliance Worldwide's operating cash flow was down 44% year-on-year to US$139.6 million as the company invested in its inventory levels in a bid to counter supply chain disruptions. On top of supply chain issues, the company battled high commodity, freight, packaging, and energy prices, as well as inflation.  

Meanwhile, its revenue was boosted by its EZ-Flo acquisition, new product revenues, volume growth, and price increases. Average price increases of around 9.5% were implemented in its key markets over the period.

Its sales in the America's lifted 26% last financial year. In the Asia Pacific and Europe, Middle East, and Africa regions, they increased 6% and 1% respectively on a constant currency basis.

When adjusting for acquisition and integration costs, among other impacts, the company's EBITDA came to US$268.7 million while its NPAT increased to US$161.4 million. Those figures represent respective improvements of 3% and 2%.  

What else happened in FY22?

The major news from the company last financial year was its acquisition of EZ-Flo International. EZ-Flo manufactures and distributes plumping supplies, with a focus on specialty products.

News of the acquisition – which dropped alongside a trading update – saw the market bid the Reliance Worldwide share price 0.4% higher in October.

The company also completed the acquisition of Australia's largest producer of bronze brass copper alloys, LCL, in August 2021.

What did management say?

Reliance Worldwide CEO Heath Sharp commented on the company's earnings, saying:

This was a year of significant operational challenges. Supply chain disruption, ongoing COVID outbreaks, and cost inflation were all prominent. Despite this, our team has guided the company effectively through these disruptions and delivered record underlying net earnings.

For a second consecutive year we have set new all-time volume records across many of our markets. At the same time, we have been able to implement price increases in all our markets to offset the significant cost inflation we encountered throughout the year.

What's next?

The company didn't offer new earnings guidance today. However, it did provide an update on market conditions.

It said short-term demand outlook for its key markets was satisfactory while backlogs in repair and maintenance markets and construction activity in Australia should support volumes. It also noted that its end market exposure – predominantly repair and maintenance activity – should provide greater economic resilience than the residential construction market.

However, looking to the medium term, the company says weaker global economic conditions and recession risks in its key markets means its outlook is less certain. Its working to mitigate risks of rising interest rates, weaker consumer confidence, inflation, and supply chain disruption in financial year 2023.

Reliance Worldwide share price snapshot

Today's fall included, the Reliance Worldwide share price is trading 32% lower than it was at the start of 2022. It has also dumped 25% since this time last year.

For comparison, the ASX 200 has fallen 7% year to date and around 6% over the last 12 months.

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Reliance Worldwide Corporation Limited. The Motley Fool Australia has recommended Reliance Worldwide Corporation Limited. 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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