Stock and Ferguson feel pinch: U.K.-based parent company Wolseley looks for ways to cut costs

The stalled U.S. housing market continues to take its toll on U.K.-based Wolseley, a global distributor of plumbing and heating supplies and building materials. In a conference call with analysts on May 21, Wolseley reported that Stock Building Supply, its chain of lumberyards and manufacturing plants headquartered in Raleigh, N.C., lost $158 million during the first nine months of its fiscal year ending April 30, 2008. This compares to a profit of $19 million in the same period last year. Stock’s revenues for the nine-month period dropped 25 percent.

Ferguson, Wolseley’s plumbing and HVAC business that includes upscale bath, kitchen and lighting showrooms, experienced a 1 percent rise in sales during the first nine months of fiscal 2008. Excluding acquisitions, the Newport News, Va.-based division saw its revenues decline 3 percent and profits drop 1 percent compared to the previous year.

Wolseley executives said they intend to “focus on cost reduction and cash flow enhancement” through further restructuring, branch closures, layoffs, and “selective asset disposals” such as real estate sales. Although it was short on details, the company told analysts it was identifying properties in the United States and Europe that can be either sold outright or sold with leaseback agreements.

The properties are “a long way from major business disposals,” said Wolseley CFO Stephen Webster, who described the reale state as “peripheral stuff” picked up through acquisitions.

The company is also curtailing capital expenditures and adopting a cautious approach to acquisitions across all its business groups. But North America will feel the deepest pinch. A slowdown in the U.S. remodeling market has led to the decision to close or consolidate 75 Ferguson branches in the company’s fourth fiscal quarter, which ends on July 31, 2008. This will result in a net loss of 200 jobs. During the last 18 months, Ferguson has reduced its head count by 1,800 jobs.

The Canadian division of Wolseley North America achieved growth of 2 percent, but profits declined 15 percent. Wolseley Canada will close or consolidate 15 locations over the next two months.

“The residential markets [in Canada] held up well and have so far avoided the problems of the U.S. housing market,” said Webster. “The economy remains positive, although the strength of the Canadian dollar is affecting their exporting business, causing some price deflation in our markets as cheaper products are bought in from the U.S.”

But Wolseley’s CFO resisted suggestions to make further cuts at Stock, which has seen its work force reduced by a third, or 3,500 people, since the building downturn.

“Some of the worst performing [lumberyards] now, and the worst performing markets, are going to be in the top five residential markets over the next 10 years,” said Webster, giving Florida as one example.

“Fundamentally, we’re still looking to retain the fabric of the business,” he explained. ”The U.S. housing market will pick up. It’s a question of time.”

Webster gave an upbeat outlook for commercial and industrial construction over the next few months. While retail and commercial office buildings are showing some declines, hotel and leisure, education and health care facilities are still being built, Webster noted.

Head quartered in Reading, England, Wolseley is an international building materials distributor with nearly 5,000 branch operations in 28 countries.

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