Lower interest rates in the United States could provide a useful boost to some ASX shares, helping them grow their operations and profit.
Companies with exposure to the US economy may get a lift if the recent US Federal Reserve interest rate cut of 50 basis points (0.50%) has a flow-on effect, although only a few ASX shares have sizeable operations in the US.
However, there are two very successful businesses that I think could grow in the US in the coming years.
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Reece Ltd (ASX: REH)
Reece describes itself as a leading distributor of plumbing, waterworks, and HVAC-R (heating, ventilation, air conditioning and refrigeration) to commercial and residential customers through more than 900 branches in Australia, New Zealand and the US.
The ASX share has 243 branches in the US, with a presence in the "sun belt" states of Texas, California, Florida, Arizona, and Georgia. In recent times, Reece has been working on a network expansion and upgrading its branch network. A new distribution centre in the US will support the service proposition.
In FY24, Reece US saw revenue growth of 3% to US$3.45 billion, and earnings before interest and tax (EBIT) grew 8% to $178 million.
I believe that the US interest rate drop could spur an increase in construction and renovation demand, which may then help Reece. I think the challenging trading environment in the US could start shifting as rate cuts play out.
Xero Ltd (ASX: XRO)
As a cloud accounting software provider, Xero can benefit from the growth in the US economy, particularly if more people start smaller businesses and need accounting software.
Xero has a large number of subscribers in Australia, New Zealand, the United Kingdom, South Africa, Canada, and the US.
The US Chamber of Commerce published an article earlier this year and said:
Entrepreneurship is booming in the United States. Over the last few years, the number of applications filed to start new businesses has surged. Application numbers doubled in 2020 compared to recent years, and 2021 and 2022 saw over 5 million applications filed, according to the U.S. Census Bureau.
The trend only accelerated in 2023, with a record-breaking 5.5 million new business applications filed. That bodes well for the ASX share, in my opinion.
In FY24, Xero added 38,000 net subscribers in North America to reach 422,000 subscribers.
Xero can benefit not just from cuts in the US but also in other markets such as Canada, the UK and elsewhere.
The ASX share can also benefit from rising global subscribers, increasing average revenue per user (ARPU) (with subscription price increases) and growing operating leverage. FY24 saw free cash flow rise $240 million and net profit jumped $288 million.
While the Xero share price has gone up, I think the company's profit can rise significantly in the next few years as well.
