October 2, 2012 / 11:04 AM / 5 years ago

Firmer American market lifts Wolseley profits

LONDON (Reuters) - Improving industrial and residential activity in North America offset weak European markets for British plumbing and building supplies group Wolseley WOS.L over the past year, leading to a 10.4 percent rise in trading profit.

The group, which operates the Plumb Center and Ferguson chains in the UK and the U.S., also declared a special dividend of 350 million pounds ($565 million) on Tuesday, largely from proceeds from disposals of businesses and assets during the year.

The U.S. economy has grown at a lackluster pace this year and has struggled to create jobs, but the housing sector has been a relative bright spot for the first time since the 2007-09 recession, boosting business in Wolseley’s core geography.

Wolseley said like for like sales in the U.S. had risen 8.4 percent in the year to July 31 as industrial and commercial activity picked up and residential markets began to recover.

Many economists expect construction of new homes will contribute to growth this year for the first time since 2005, boosting a U.S. economy that has hinted at some signs of improvement in recent weeks.

Repair and maintenance work had also improved in line with better consumer confidence in America, where Wolseley generates over half of group profit.

The group posted full-year trading profit of its ongoing businesses of 658 million pounds, just below a company-compiled consensus of 662 million, with group revenue up 5.4 percent to around 12.7 billion pounds.

“Wolseley continues to be highly cash generative and we have adequate resources to fund future investment in the business alongside growth in ordinary dividends,” Chief Executive Ian Meakins said, adding the company was confident of progress this year.

Improvements in the U.S. and Canada helped ease the pain of struggling markets in Europe, including the Nordic regions, where it said more cost cuts were planned in light of rapidly deteriorating construction markets, and in France, where the group may shut its business.

The group is considering all options in France, including an outright sale, a joint venture or restructuring, after construction markets were hurt by government incentives for new homes and renovations coming to an end.

“We have had quite a lot of incoming interest from various parties but we are at an early stage. We expect this to be resolved over the coming six months,” Meakins said.

UK sales, which represent around 16 percent of profit, fell 1 percent and the firm warned it had yet to see any improvement in market conditions.

Wolseley rival Saint-Gobain (SGOB.PA), which has also seen good growth in North America, said in July it would aim to save 750 million euros in the next year to cope with declining sales in Western Europe. <ID: nL6E8IQPDH>

Shares in Wolseley, which proposed a final dividend of 40 pence, bringing the total for the year to 60p and 33 percent ahead of last year, were up 2 percent at 0945 GMT, having risen 26 percent in the year to date.

“The overall footprint seems right now, as shown by the increased revenue growth from continuing operations. It’s largest market - North America - is still the strongest, so overall further progress is likely,” Neil Shah, analyst at Edison Investment Research, said.

($1 = 0.6192 British pounds)

Editing by Paul Sandle and Hans-Juergen Peters

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