British building products retailer Wolseley reported a 15 percent drop in quarterly pretax profit and said it was cutting 3,000 jobs as it expects the U.S. housing market to worsen, knocking its shares to 4-year lows.
Wolseley, which slashed about 6,000 jobs in its last financial year when it reported its first profit fall in more than a decade, said on Wednesday it had cut another 1,700 jobs in its first quarter to end-October and plans to trim another 1,300 in the current quarter.
Wolseley, the world's largest distributor of plumbing and heating products, said the combined annual savings relating to the headcount cuts would be about 60 million pounds ($123.6 million).
"The group's results continued to be affected by the slowing U.S. housing market, low consumer confidence following uncertainty relating to liquidity in global financial markets and the weakness of the dollar," it said in a statement.
Wolseley shares, which have nearly halved this year, fell 2.5 percent to 625 pence, recovering from an earlier drop to four-year lows.
"This is a profit warning from Wolseley...Trading conditions are expected to deteriorate further meaning a big downgrade to our forecasts," Panmure Gordon analysts said, adding they were now assuming a 20 percent fall in profits.
Wolseley said the U.S. housing market was likely to worsen until the current high levels of unsold inventory had declined and the full effects of problems in the subprime market had been assimilated.
"The U.S. market has so many issues: subprime, mortgages and foreclosures. Those are probably the biggest variables and we are anticipating it's going to be more difficult," Chief Executive Chip Hornsby told reporters.
"Beyond that, it's hard to envision exactly what's going to happen in 2009 and 2010."
Wolseley said profit before tax and exceptionals fell 15 percent in its first quarter to Oct. 31, although revenue rose more than 5 percent.
Before the trading update was announced, analysts had expected the group to make 768.7 million pounds in pretax profit for the year to end-July 2008.
Trading profit from North America, which generates roughly half of the group revenue, fell about 30 percent, as its building materials distribution business Stock posted a quarterly loss.
Its U.S. plumbing and heating division Ferguson continued to gain market share, although it was also hit by weakness in the new residential market and a slowdown in the repair, maintenance and improvement (RMI) sector, it said.
Wolseley said the cumulative job cuts will represent one third of Stock's workforce and more than 10 percent of Ferguson's.
Despite worsening trading conditions, Wolseley said it remained confident of meeting its target of at least 7 percent trading margin by 2011.
"We continue to drive for that objective and there is no reason to change it at this point," Hornsby said.
In Europe, revenue rose more than 25 percent and trading profit by more than 15 percent, bolstered by solid growth in the RMI, commercial and industrial segment, Wolseley said.
By region, the UK housing market was showing growing signs of a slowdown due to less liquidity and eroding consumer confidence, it said.
Weaknesses in other European markets was more attributable to other local factors, with Denmark's new housing market affected by higher interest rates, it said.