FTSE 250 builders’ merchant Travis Perkins (TPK) issued a downbeat third quarter trading update and warned profit for the full year would be below its previous guidance.

The shares, which had already lost 14% of their value this year as of yesterday’s close, dropped as much as 15% to 685p at the market open on 11 October before clawing their way back to 722p for a loss of 10%.

WEAK DEMAND IMPACTS PRICING AND PROFITS

The building supplies group said it experienced ‘challenging market conditions with the pronounced slowdown in new build housing and domestic RMI activity persisting into the third quarter’, resulting in three-month sales shrinking by 1.8% on a like-for-like basis.

While the quarter started on a firm footing in merchanting, September saw ‘a marked deterioration in market activity and sentiment’ with the drivers of revenue having shifted ‘markedly’.

Whereas the group had benefited from higher selling prices in the first half, ‘strong deflationary pressures on commodity products’ forced the firm to lower prices on existing stock to generate volume sales, resulting in lower gross margins and profits.

The one bright spot was Toolstation, the firm’s trade outlet for power tools, ironmongery and general building supplies, which posted 7% revenue growth in the UK and 9% growth in Europe during the quarter.

‘Market conditions remain challenging with continued weakness across new build housing and domestic RMI,’ commented chief executive Nick Roberts. ‘Deflation on commodity products has also been greater than we had anticipated.’

The firm lowered its full-year adjusted operating profit forecast from ‘around £240 million’ at the start of August to between £175 million and £195 million, which taking the mid-point of the range represents a 23% downgrade.

BRICK MARKET SOFTER THAN FORECAST 

Alongside the Travis Perkins warning, brickmaker Forterra (FORT) delivered a disappointing third-quarter update saying the signs of market improvement it saw in May and June ‘did not continue into the second half with demand deteriorating in July and August’.

Figures published by the Department of Business and Trade show average UK brick despatches in July and August were 16% lower than June and 28% lower than the same period last year.

‘Within this, August was weaker than July and our own despatches suggest a further softening in September. These figures also highlight that UK brick industry despatches are currently running below the levels seen in 2009,’ the firm added.

In contrast to Travis Perkins, Forterra said pricing was ‘resilient overall’ during the quarter but it admitted full-year EBITDA (earnings before interest, tax, depreciation and amortisation) would be below its previous expectations.

Moreover, market weakness combined with the time needed to reduce production means the firm will end the year with more inventory than it expected which will impact working capital.

As a result, it is in talks to mothball a second brick factory in Lancashire and reduce output in its Aircrete business to try to offset the inventory build.

LEARN MORE ABOUT TRAVIS PERKINS

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