The Reliance share price is rocketing up despite drop in net profit. Here's why.

The Reliance share price has surged more than 23% in early trade today, despite the company recording a significant drop in profit for FY20.

child in superman outfit pointing skyward, indicating a rising share price

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Reliance Worldwide Corporation Ltd (ASX: RWC) share price surged more than 23% in early trade today. That's despite the plumbing supplies company recording a significant drop in profit for FY20.

How did Reliance perform in FY20?

In its financial report released today, Reliance headlined a 33% drop of $89.4 million in net profit after tax (NPAT) for FY20. Reliance also reported an 18% drop in adjusted NPAT of $130.3 million. Earnings before interest, taxes, depreciation and amortisation  EBITDA were $217.9 million.

Despite the hit to earnings, Reliance recorded promising revenue figures for FY20. The company highlighted a 5% lift in net sales for FY20 of $1.16 billion. However, the coronavirus pandemic heavily impacted sales in the second half of FY20, with sales performance varying across regions.

Reliance sales in the US fared well during the pandemic, with a 13% lift in FY20 net sales for the region. Sales in the Australian market saw a small growth of 2%. However, sales in Europe, the Middle East and Africa dropped 20 per cent in the second half due to the coronavirus restrictions, and fell 10% for FY20.

Reliance cited a slowdown in global residential construction due to COVID-19 for its performance in FY20. Reliance management said despite growth in demand, the company's performance was hampered by supply chain challenges and different market responses to the pandemic.

Although Reliance reported a significant drop in net profit, the company declared a final dividend of 2.5 cents per share.

Outlook for the Reliance share price

Given the uncertain market outlook and potential impacts of the COVID-19 pandemic, Reliance did not provide earnings guidance for FY21. However, the company expected core end-markets to remain resilient in the 2021 financial year.

Reliance highlighted a 22% lift in sales in the US in July 2020. The company also noted a slight increase in sales in the APAC region and reported that sales were recovering in Europe, the Middle East and Africa.

In addition, the company said it had undertaken several restructuring initiatives in FY20 to support future growth. This included the closure of its Tennessee manufacturing facility and restructuring of activities in the UK.

As a result, the company expected to deliver annual cost savings of $25 million by the end of 2021. Synergies from its recent acquisition of John Guest were also expected to deliver annual savings of about $31.3 million by the end of year.

Foolish Takeaway

At the time of writing, the Reliance share price is trading more than 17% higher for the day. Shares in the company have been sold-down slightly after hitting an intra-day high of $3.54 earlier.

Nikhil Gangaram has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Reliance Worldwide Limited. The Motley Fool Australia has recommended Reliance Worldwide Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Market News

A man has computer-generated images rushing through his head indicating an AI (Artificial Intelligence) concept of a communication network.
Technology Shares

ASX investors are obsessed with Nvidia shares! Here's why

The global chipmaker reported a 94% increase in annual revenue in the third quarter.

Read more »

A man wearing a red jacket and mountain hiking clothes stands at the top of a mountain peak and looks out over countless mountain ranges.
Share Gainers

Here are the top 10 ASX 200 shares today

It was another disappointing day for ASX investors this Thursday.

Read more »

two racing cars battle to take first place on a formula one track with one tailing the the leader and looking to overtake the car.
Opinions

Down 21% in 2024. This ASX 300 stock looks like a money-making monster

Profits are expected to plunge, but the future could still be bright.

Read more »

A businesswoman exhales a deep sigh after receiving bad news, and gets on with it.
52-Week Lows

Down 68% from highs, this ASX 200 stock just hit a 4-year low. Time to pounce?

Is this beaten down stock a buy? Let's see what one leading broker is saying.

Read more »

two men smiling with a laptop in front of them, symbolising a rising share price.
Share Gainers

Why Pinnacle, PWR, Race Oncology, and Vulcan shares are flying today

These shares are having a good session on Thursday. But why?

Read more »

A young man clasps his hand to his head with his eyes closed and a pained expression on his face as he clasps a laptop computer in front of him, seemingly learning of bad news or a poor investment.
Share Fallers

Why Accent, Sayona Mining, Web Travel, and Weebit Nano shares are dropping today

These shares are having a tough time on Thursday. Why are they being sold off?

Read more »

Modern accountant woman in a light business suit in modern green office with documents and laptop.
Share Market News

Insider buying alert: 3 ASX 200 shares directors are snapping up right now

Directors in some of Australia's blue-chip businesses aren't shying away from the market.

Read more »

A man has a surprised and relieved expression on his face. as he raises his hands up to his face in response to the high fluctuations in the Galileo share price today
Broker Notes

Guess which beaten down ASX share is rocketing 11% today

Why are investors buying this beaten down stock? Let's find out.

Read more »