Reliance Worldwide (ASX:RWC) reported a challenging first half of fiscal 2026, with management attributing weaker earnings primarily to U.S. tariffs and soft end-market demand in the U.S. and U.K., while highlighting strong cash generation and progress on several operational and strategic initiatives.
First-half financial results
For the six months ended 31 December 2025, reported net sales declined 4.6% versus the prior corresponding period. On an underlying basis—adjusted for demand pull-forward in the Americas in the prior first half, the exit of selected product lines in Canada, and the sale of manufacturing operations in Spain—sales were down 1.9%, which management said was consistent with guidance provided in August.
Tariffs and margin pressure
CFO Andrew Johnson said the “real story” of the half was margin compression. Adjusted EBITDA margin fell to 17.3% from 21.3% in the prior year’s first half. Johnson broke the roughly 400 basis point decline into:
- Approximately 250 basis points from tariffs
- About 100 basis points from lower volumes and operational deleverage
- The remainder from EMEA investment in service capabilities and competitive pressure in the DWV market in Australia
Management reiterated that the FY2026 tariff impact on operating earnings is expected to be $25 million to $30 million, with around two-thirds absorbed in the first half. Pricing actions to offset tariffs have been completed and are expected to flow through the second half, alongside continued sourcing diversification away from China and other cost and operational actions. The company also reported $4.4 million in cost savings during the period through procurement, manufacturing efficiencies, and distribution optimization.
In a tariff update, CEO Heath Sharp said there was no change to the expected FY2026 net EBITDA impact. However, for FY2027, management now expects a residual net EBITDA impact of $5 million to $7 million, compared with a previous target of zero, citing changes in country and material tariffs and supporting its decision to invest in manufacturing in Mexico. Sharp emphasized the tariff environment has remained volatile, with “goalposts” moving across countries and materials.
Regional performance and operational initiatives
Americas: Underlying sales declined 3.4% and EBITDA margin compressed 410 basis points to 16.9%. Adjusted EBITDA fell 25.4% to $69.1 million. Management pointed to weak U.S. market conditions, noting existing home sales remain near multi-decade lows and that it is not assuming a significant improvement in FY2026. Johnson also said customer inventory reductions negatively impacted revenue by about $7 million, but added channel inventory appears broadly normalized and the company is not expecting further material reductions in the second half.
As part of tariff mitigation, Reliance Worldwide is augmenting U.S. manufacturing with a new facility in Mexico aimed at manufacturing flexibility, cost optimization, and tariff mitigation. The facility is expected to focus on lower-volume, manually assembled products to complement the high-volume Cullman facility, with operations targeted to begin in 2027. Sharp described the approach as “low CapEx, fast and reversible,” and said the company is partnering with a local operator to de-risk execution.
Asia Pacific: Sales rose 0.6% in local currency, but EBITDA margin fell 340 basis points to 8.6%. Management cited competitive intensity in PVC pipes and fittings, lower manufacturing overhead recoveries due to increased third-party sourcing, and unusually wet weather that delayed the spring selling season for watering products. Sharp said the decision to outsource certain manufacturing was cost-driven after prior intercompany assembly volumes moved out of Australia, making it harder to support overhead on Australia-only volume. Management said PVC margins were already showing sequential improvement in Q3, and the SharkBite Max launch in Australia performed well.
EMEA: Underlying sales declined 1.3% in local currency, with management describing the region as resilient but impacted by deliberate investments that compressed margins. In the U.K., sales fell 1.6% amid weak remodel demand, while the company focused on improving service levels, including reduced order lead times and higher fill rates. Sharp and Johnson said these improvements came with incremental costs viewed as short-term investments. Continental Europe was described as a bright spot, with underlying sales up 5.7% (after adjusting for the Spain disposal), driven by new product launches with key distributors in Germany, France, and Italy. The company also commissioned a new Poland assembly plant during the half, which management positioned as strategic given rising U.K. labor costs, including minimum wage increases.
Cash flow, balance sheet, and capital allocation
Despite lower earnings, the company reported cash generated from operations of $102.6 million, with operating cash flow conversion of 92.1%, exceeding both the prior year and a 90% target. Net debt declined $21.2 million during the half and $70.2 million over the past 12 months, bringing net leverage to 1.39 times.
Working capital reflected a $33 million inventory increase, which management attributed to tariff impacts on inventory values, positioning ahead of sourcing transitions, and inventory builds to support customer initiatives. This was largely offset by lower receivables from tighter collections and higher payables from improved supplier terms. Capital expenditure was $12.6 million, or about 2% of sales, as the company maintained discipline while funding projects such as Poland and Mexico within existing guidance. Management said it expects inventory levels to normalize as tariff transitions complete.
Outlook and focus on copper
For the second half of FY2026, management said it is not assuming a material improvement in end-market demand, but is targeting margin improvement in each region. The company expects:
- Americas underlying sales up mid- to high-single digits on the prior year’s second half, driven in part by pricing flowing through and a softer comparison due to last year’s pull-forward
- Asia Pacific sales broadly flat to up low single digits, with meaningful margin improvement as PVC stabilizes and overhead efficiencies are recaptured
- EMEA broadly flat underlying sales, with margins improving as service delivery costs normalize and Poland ramps up
At the consolidated level, management expects second-half external sales to be up mid-single digits and full-year FY2026 external sales to be broadly flat versus the prior year, with second-half EBITDA margin improving sequentially but full-year margin below FY2025.
Management also highlighted copper volatility as a major multi-year priority. Sharp said the company aims for copper to “no longer be a material part” of the company’s profit and loss statement by FY2029, through material substitution (including polymers and alternative metals), product redesign, and alternative manufacturing processes. In Q&A, Johnson said the EBITDA impact is about $900,000 for every $100 move in the LME copper price, and noted there is an additional copper tariff cost “probably another 25%” on top of that sensitivity. He also said the company is conducting a small hedging trial but is not currently hedging copper on a broader basis.
About Reliance Worldwide (ASX:RWC)
Reliance Worldwide Corporation Limited, together with its subsidiaries, engages in the design, manufacture, and supply of water flow, control, and monitoring products and solutions for plumbing and heating industries. It offers plumbing solutions comprising brass and plastic push-to-connect plumbing fittings, other fittings, pipes, valves, and integrated installation solutions; appliance installations solutions, such as fluid tech and appliance installation and repair services; and other products.
