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Wolseley Hit by U.S. Housing, Sees no Recovery Signs

Building products distributor Wolseley reported its first profit fall in more than a decade on Monday, and warned that weakness in the U.S. housing market was spilling over into repairs and maintenance.

Shares in the British firm fell 5 percent to three-year lows as some analysts cut their profit forecasts for the current financial year by around 10%.

Wolseley , the world's biggest distributor of plumbing and heating products, said profit before tax and goodwill amortisation fell 7.3% to 758 million pounds ($1.52 billion) in the year to end-July, slightly below analysts' average forecast of 761.4 million.

Revenue rose 14.6% to 16.2 billion pounds, spurred by bolt-on acquisitions and the 1.3 billion pound purchase of Nordic-focused DT Group, which performed ahead of expectations.

"There are no signs yet of any upturn in the U.S. housing market, and the repairs, maintenance and improvement (RMI) market is now beginning to soften," Wolseley said.

It said uncertainty created by the U.S. subprime mortgage crisis hit sales at a number of its businesses and it was too early to say whether these trends would continue.

In North America, where Wolseley generates roughly half of group sales, trading profit fell 19%to 487 million pounds, as its building distribution business Stock saw profit tumbling 75%, hit by a weak housing market and one-off charges related to 3,500 job cuts and 46 branch closures.

"It's very difficult to determine exactly what's going to happen (in the U.S. housing market)," Chief Executive Chip Hornby told reporters.

"The most challenging part will be winter months ... It could potentially get worse before it gets better."

Wolseley's Stock division reported a 15% fall in volume, as the new residential market, which accounts for 80% of the business, suffered increased competition and slowing housing starts.

Its U.S. plumbing and heating division, Ferguson, showed solid results, with 5.5% organic growth and a record trading margin of 7.2%, as commercial and industrial markets were relatively untouched by the mortgage market woes.

Downgrades

Shares in Wolseley, which have lagged the U.K. support services sector index by about 30% this year, had fallen 2.8 percent to 824-1/2 pence, after falling as low as 800p.

According to Reuters Estimates, analysts were expecting pretax profit of 861 million pounds in the year to end-July 2008, but some said they would now revise those figures.

"Wolseley is a company under pressure on several fronts -- product demand is on the wane in its significant U.S. marketplace, financing costs have risen on acquisitions, and further pressure is being felt via the decline in the U.S. dollar," Hargreaves Lansdown analyst Keith Bowman said.

Brokers Landsbanki and Cazenove both cut their 2007/08 earnings forecasts by 10%.

In Europe the company said it expected to make further good progress as it forecast strong construction markets continuing.

Wolseley, which aims to grow through acquisitions in the highly fragmented 700 billion pound building materials market in Europe and North America, said it would continue to seek bolt-on acquisitions.

The company, which completed 43 deals worth 379 million pounds in the last financial year, expects to add 671 million of revenues in the current year.

Wolseley aims to raise its trading margin to 7% by 2011 but its 2006/07 margin fell to 5.4 percent from 6.2%.