Why is ASX 200 share Reliance Worldwide crashing 16% today?

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The S&P/ASX 200 Index (ASX: XJO) is having a fairly solid, if tenuous, day of gains so far this Tuesday. At present, the ASX 200 has gained 0.3%. But the same can't be said for the Reliance Worldwide Corporation Ltd (ASX: RWC) share price.

Reliance Worldwide shares are having a shocker. This ASX 200 share has suffered a 16.3% drop at the time of writing, putting the company down to $3 a share. That's right on a new 52-week low for Reliance.

Reliance Worldwide share price tanks 16% on quarterly update

It's not hard to see why investors have sent this company down by such a large margin this Tuesday. Reliance Worldwide put out a trading update this morning before market open. This covers the three months ending 30 September 2022.

It was something of a mixed bag for the quarter for Reliance. The company reported sales for the period of US$303.1 million, up 23% over the prior corresponding period (pcp). This includes US$53.8 million from EZ-Flo after the November 2021 acquisition. Excluding this acquisition, sales growth was 6%.

This was driven primarily by pricing increases from the company, which were implemented to offset the effects of inflation.

Meanwhile, operating earnings before interest, tax, depreciation and amortisation (EBITDA) came in at US$76.8 million, an increase of 16% over the pcp. However, excluding synergies from EZ-Flo and the sale of surplus property in the United Kingdom, EBITDA was US$63.2 million. That represents a loss of 4% over the pcp.

EBITDA margins fell from 26.6% in the pcp to 21.4% over this quarter. According to Reliance, "lower
volumes and higher costs negatively impacted margins, while price rises implemented to recover
costs resulted in diluted margins".


In terms of outlook, Reliance Worldwide said the following:

RWC's end market exposure, which is predominantly to repair and maintenance activity, should provide greater resilience to economic shocks compared with the more cyclical new residential construction market. Weaker global economic conditions and the risk of a downturn in RWC's key markets, however, mean the immediate outlook is uncertain.

RWC believes it is well placed with its local manufacturing operations and strong track record of classleading customer service to navigate these challenges and respond to customer needs. We also expect our ongoing new product introductions will enable us to continue our longstanding track record of delivering abovemarket growth with quality margins.

So clearly ASX 200 investors haven't been too impressed with this quarterly update, judging by the share price reaction. It puts the Reliance Worldwide share price down 53.1% year to date.

Motley Fool contributor Sebastian Bowen 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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