There's a group of ASX companies that are betting big on the US but with mixed results. One that seems to be gaining traction is oft overlooked Reece Ltd (ASX: REH), which posted record revenues for FY19.
You'd thing that companies will want to boast about strong results but go discreet on poor earnings. Not in Reece's case though as the bathroom materials supplier released its full year report card close to 6pm last night when just about all investors have turned off their screens for the day.
Not sure what the thinking there was or if the 1.7% drop in Reece's share price to $10.03 this morning had anything to do with anything – but it's bound to stump some investors, myself included.
Record revenue in challenging markets
Under the cover of darkness, management unveiled a doubling in FY19 revenue to $5.46 billion, the highest in the group's 99-year history, and a 38% jump in normalised earnings before interest, tax, depreciation and amortisation (EBITDA) to $522 million.
The big increases were driven by its acquisition of US-based MORSCO, but pleasingly, the group's Australia and New Zealand operations also posted a record sales result as revenue increased 6.6% to $2.87 billion in the 12 months to end June 2019.
That's a good performance given the slowdown in residential construction, dwelling approvals and the renovation market.
The big US bet
There's uncertainty over what 1HFY20 holds for Reece's ANZ business given that management didn't give an outlook or guidance and noted that conditions continue to soften, but at least it has the US business that it can lean on.
MORSCO is performing to expectations and there aren't any nasty surprises one-year into the takeover.
The transaction gives Reece a network of 175 outlets in the US and it looks like there's plenty of room to grow given that Reece has 601 branches in Australia (up 5 from last year), which has only around a tenth of the US population.
It's also expanding quite aggressively in New Zealand where it rolled out 14 new branches to take its network to 33 outlets.
The only thing that might worry shareholders is the amount of debt on its balance sheet, which is at an eye-watering $1.6 billion. This puts the stock on a net debt to equity ratio of over 74%.
This shows how big Reece is betting on the US and so far, the expansion appears to be paying off.
