Reece delivers strong revenue growth despite challenging conditions

Trade equipment specialist Reece (ASX: REH) has returned solid financial results for the half-year ended 31 December 2023 (HY24) with good growth in sales and earnings.

Reece’s sales revenue climbed 2.5% to $4,537 million, while the company’s earnings before interest, taxes, depreciation and amortisation (EBITDA) jumped 8% to $526m and earnings before interest and taxes (EBIT) climbed 5% to $526m.

The positive performance saw Reece’s board agree to pay an interim dividend of 8 cents per share, fully franked.

“We delivered a very solid HY24 result, underpinned by our resilient business model and strong ongoing execution by our team,” group chief executive officer Peter Wilson said.

“The team has focused on strong execution of the fundamentals to continue delivering our customer promise, which is the driver of our success as a business.”

“As we look ahead to the second half, we expect subdued demand across our business with a softening in the environment in Australia and New Zealand.”

“We take a long-term view and will continue to invest to build a stronger business and deliver on our 2030 vision of being our trade’s most valuable partner.”

Demand and macro headwinds

Mr Wilson said Reece delivered a solid result despite a subdued demand setting and macro environment in the first half of FY24.

Group costs increased by 5% for the half, principally driven by higher employee expenses and an increase in depreciation and amortisation from recent investments in the network and digital capabilities.

Reece maintained a strong balance sheet with net debt down to $610m from $725m in FY23.

The strength of Reece’s balance sheet helped it complete an unsecured note issuance of approximately $460m in the US private placement market during the half year.

Mr Wilson said this will help Reece diversify its capital sources, reduce variable interest rate exposure and extend its debt maturity profile.

The company’s return on capital employed during the half increased to 16.1%.

Local strength

With moderating inflation issues and supported by an ongoing backlog of activity, Reece’s sales revenue in the Australia and New Zealand region increased 2% to $1,972m.

Mr Wilson said the company maintained its focus in the region on operational excellence and disciplined cost management following a period of significant growth.

“In particular, our focus on ‘brilliant fundamentals’ in core skill sets like selling and trading [was] refreshed and embedded across all facets of the business.”

“We also continued to optimise the network to ensure delivery of the Reece customer promise, with five branches relocated, six refurbished, one closed and one new branch opened during the period.”

At the end of the half, there was a total of 655 branches across Australia and New Zealand.

US operations flat

Driven by a subdued trading environment and modest deflation for the half, Reece’s US region returned flat sales revenue at around $2.6m.

“In the US, we continue to focus on uplifting all aspects of the business and building scale,” Mr Wilson said.

“During the half, nine new branches were opened, bringing the total branch network to 240 stores.”

“The Reece brand rollout continued, with 62 branches now trading as Reece across six states.”

“We also continued our focus on training and developing our team and building a strong employee value proposition in the US.”