Reliance Worldwide share price tanks 9% as profits slump

Investors haven't been impressed with this company's earnings today.

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The Reliance Worldwide Corporation Ltd (ASX: RWC) share price is cratering today after the ASX 200 plumbing supplies company reported its full-year results for the 2023 financial year.

Reliance shares closed at $4.24 each last week but opened at just $3.94 this morning before dropping to their current share price of $3.86. That represents a nasty share price loss of 8.84%.

What did the company report?

  • Net sales of US$1,243.8 million, up 6% from FY2022's US$1,172.2 million (up 9% constant currency) 
  • Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) of US$274.6 million, up 2% from FY2022's US$268.7 million
  • Adjusted EBITDA margin of 22.1%, down 0.8% from last year's 22.9%
  • Adjusted net profit after tax (NPAT) of US$155.7 million, down 4% from the US$161.4 million reported for FY2022
  • Cash flow generated from operations of US$292.7 million, up 110% from FY2022's US$139.6 million 
  • Final dividend of 5 US cents per share announced, flat on last year

What else happened in FY2023?

Reliance Worldwide's sales growth for the 2023 financial year largely came from North America. The company has now moved some of its manufacturing, and all assembly, of North American products to the United States. The EZ-Flow acquisition has helped boost North American sales growth by 13% to US$890.1 million.

However, this shift to US production has hindered Reliance's Asia Pacific segment. Asia Pacific net sales fell 4% over the period, dropping from US$293.5 million to US$282.7 million.

Reliance's Europe, Middle East and Africa (EMEA) segment recorded mild growth, with net sales rising 3% to 226 million British pounds.

What did Reliance Worldwide's management say?

Here's some of what Reliance CEO Heath Sharp had to say on today's results:

Our core business is oriented towards the more defensive repair and remodel work, and so our volumes have held up well. While we have seen demand moderate in each of our markets following two exceptionally strong years, our strong brands and execution have allowed us to out-perform the broader market…

The sales results in each of our markets represented out-performance by RWC compared with end-markets more broadly. Our business has held up well in the face of significant changes in sentiment brought about by higher inflation and steep interest rate increases. This strong performance also was evident in cash generation, with operating cash flow more than doubling on last year.

What's next for Reliance Worldwide?

Turning to FY2024, Reliance Worldwide wasn't exactly optimistic. The company reports that it expects "consolidated revenues expected to be down by low single digit percentage points in FY24, lower sales in most markets".

Reliance is "targeting stable operating margins" for FY2024, with "lower sales to be offset by cost savings and price increases".

CEO Health Sharp added the following:

In FY24, we expect our core repair and remodel business to remain solid, but total demand to be lower due to a downturn in sentiment impacting larger remodel projects.

Despite expecting lower sales, we are targeting to maintain operating margins through cost efficiencies and pricing actions. We are also focusing on maintaining strong cash flow. Our priority is to ensure RWC is strongly positioned for when markets start to recover.

Reliance Worldwide share price snapshot

Today's share price slump comes after what has been a stellar year for Reliance Worldwide in 2023 so far. Even after today's drop, the Reliance share price remains up by 30.3% in 2023. However, the company remains down by 8.63% over the past 12 months, as you can see below:

As it stands today, Reliance Worldwide shares have a market capitalisation of $3.06 billion, with a trailing dividend yield of 3.53%.

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. The Motley Fool Australia has recommended Reliance Worldwide. 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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