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Morningstar | Reliance Downgrades 2019 Guidance on Softer Than Anticipated Sales Globally; Updated

Extenuating circumstances have prevented the publication of our updated research on Reliance Worldwide by our previously communicated deadline of May 17. We now plan to relaunch coverage next week. We apologise for any inconvenience the delay may cause.

As a reminder, following the company’s recent guidance downgrade on May 13, we wrote that:

Weaker than expected sales across each of its segments led no-moat Reliance Worldwide to downgrade its fiscal 2019 guidance. It now expects EBITDA in the range of AUD 260 million-AUD 270 million, 7% below its prior expectations and below our AUD 287 million forecast. While we continue to expect strong top-line growth over the medium term, with Reliance to continue to benefit as push-to-connect fittings take increased category share, we put our coverage under review as we assess profitability outlook and transfer coverage to a new analyst.

The absence of a freeze event in the U.S.’s south during winter months negatively impacted the Americas segment sales in the second half by an estimated AUD 12 million-AUD 15 million. Sales have also been impacted by Reliance’s hardware retailing customers acting to reduce inventory levels, creating a further, one-time impact on sales.

Product discontinuations in the U.K. and intense competition in continental European markets for Reliance’s Spanish operation also contributed to the downgrade. Established European PEX manufacturers have inhibited the growth of Reliance’s Spanish PEX and fittings business, a relative newcomer to continental Europe markets. Reliance now expects EMEA sales to be AUD 12 million lower than previous guidance. However, the John Guest acquisition is tracking Reliance’s expectations post acquisition in June 2018.

Australian housing starts, particularly multifamily starts, are declining faster than Reliance had anticipated. Reliance now anticipates sales in the Asia Pacific segment to be AUD 10 million to AUD 15 million lower than prior guidance.