The Reliance Worldwide Corporation Ltd (ASX: RWC) share price is getting smacked today following the release of a trading update to the ASX.
About Reliance Worldwide (RWC)
Reliance Worldwide or RWC designs and manufactures products and parts for the plumbing industry. Its products are used in residential and commercial applications, with a focus on the residential repair and renovation end-market.
The business is most well known for its push-to-connect (PTC) products which have become the go to product for plumbers as they offer a quicker and more convenient way to install and repair plumbing fittings.
What happened to the RWC share price?
In the lengthy trading update today, Reliance has downgraded its full-year earnings guidance, after the lack of a winter freeze in the southern US meant there were fewer burst pipes, and therefore less demand for their products.
They now expect EBITDA of between $260 million and $270 million, compared to the $280 million to$290 million they forecast previously, which had baked in the occurence of a “modest freeze event”. Click here to learn what EBITDA means.
Reliance’s Management said, “there had been an almost complete absence of such conditions, which would have been expected to cause cracked or broken pipes, resulting in a full-year sales hit of between $12 million and $15 million”.
They also said the “business will usually benefit more from freeze events occurring in the southern parts of the USA than in the north-east or mid-west. This is because water pipes are generally not as well insulated in the south, meaning a freeze event can cause these pipes to break.”
Reliance also noted their recent acquisition of UK based John Guest is on track, following the first full year inclusion of its earnings.
Is It Time To Buy or Sell Reliance Shares?
Short interest in Reliance Worldwide’s shares has been growing for some time, quadrupling from 2% of the shares on issue in October last year to 8% this month. Concerns were growing that a freeze event might not occur and the Chairman of the business, Jonathon Munz sold his remaining 10% stake and retired from the board.
Investors will be wondering is this the end of the bad news?
I think it could be, but it may be worth sitting on your hands for now and waiting for the company’s full-year result in August.
You could consider shares of fellow plumbing business Reece Ltd (ASX: REH), which operates in the same industry but has a different business model to Reliance. Alternatively, there’s always the behemoth in the industry, Wesfarmers Ltd (ASX: WES), where Bunnings now contributes almost 50% of earnings.
Alternatively, if you’re looking for Rask’s top analyst investing report, click below to get our free investing report.
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Disclosure: At the time of writing David owns shares in Reliance Worldwide.
