Reece (ASX:REH) executives told investors the company delivered a “mixed” performance in the first half, as housing affordability pressures weighed on demand in both Australia/New Zealand and the U.S., while ongoing investment and network expansion continued to influence margins and returns.
Half-year result: sales up, earnings down
Chair and CEO Peter Wilson said group sales increased 6% to AUD 4.6 billion, “largely supported by network expansion,” while group like-for-like sales were flat in a subdued market. EBITDA declined 6% to AUD 448 million and EBIT fell 14% to AUD 262 million. The group’s return on capital ratio decreased 222 basis points to 10.8%.
ANZ: network investment continues amid elevated costs
Chief Operating Officer Sasha Nikolic said network density remains a competitive advantage in Australia and New Zealand, with targeted infill and upgrades continuing. During the half, the group added four net new branches and completed 17 refurbishments in ANZ.
Nikolic highlighted investment in broader product ranges and designs intended to enhance quality at competitive price points. In digital, Reece combined Shadowboxer with its existing team into a single digital experience team, which management said improved collaboration and productivity while accelerating customer-focused innovation. The company also introduced new digital tools aimed at making complex projects easier to manage and helping teams serve customers.
Chief Financial Officer Andy Young reported ANZ sales revenue rose 4% to AUD 2.1 billion, supported by modest volume growth, though performance remained mixed across states. EBITDA declined 4% to AUD 261 million and the EBITDA margin contracted 104 basis points as costs stayed elevated, reflecting a competitive market for talent, continued investment in employee retention and growth, ongoing digital projects, and inflationary pressure across labor, IT, and property. EBIT fell 7% to AUD 179 million, with an EBIT margin of 8.7%, down 106 basis points year over year.
Young said the ANZ cost run rate was trending down as the company exited the half, driven by tight management of full-time equivalent headcount and discretionary spend, though he said the company would not provide specific outlook detail on the cost run rate. He also told analysts that the ANZ result reflected “very little price impact,” and was largely volume-driven.
U.S.: expansion drives sales growth as end markets remain soft
In the U.S., Nikolic said Reece continued to roll out branches and added 19 new branches during the half, bringing the U.S. total to 286. Management reiterated a long-term sustainable pace of 10–15 new branches per year, while noting there may be periods above or below that range depending on capacity and development timeframes. Nikolic said the company has a solid pipeline for the second half, but not at the same rate as the first half.
The company also pointed to U.S. initiatives designed to improve the customer experience, including rapid delivery and a Spanish-enabled version of its maX app, as well as tools to streamline quoting and reduce turnaround times.
Young said U.S. sales increased 6% to $1.7 billion, driven by incremental revenue from network expansion, while like-for-like sales declined by “low single digits.” He attributed the softer backdrop to weakness in residential new construction, citing housing units under construction still down year over year in the Sun Belt region. EBITDA declined 9%, with margin down 120 basis points, due to higher costs associated with elevated network expansion over the past 12–18 months and ongoing operating cost inflation. Young said cost growth is expected to remain elevated through the remainder of FY26 as new branches mature. EBIT declined 26% to $55 million, with margin down 143 basis points, including the impact of higher depreciation and amortization tied to growth investment.
During Q&A, Wilson said demand conditions in Reece’s U.S. regions remain soft and tied closely to affordability, describing the housing market as “relatively frozen.” He cited the gap between existing mortgage rates and new mortgage rates as a constraint on market activity. Wilson also said the company had a challenging start to the second half in January due to extreme weather conditions.
Cash flow, balance sheet, and capital allocation
Young said the group generated net operating cash inflows of $199 million for the half. Capital expenditure represented 1.8% of sales, supporting network expansion, refurbishments, and technology investments. The company deployed $401 million to support share buyback activity during the half.
Gross interest expense was $31 million for the half, and based on current drawn debt, the company expects gross interest expense of $65 million to $75 million for full-year FY26. Net working capital to sales increased to 20%, up 1% since June, which Young attributed to seasonality in receivables and payables. Net debt increased to AUD 1 billion, driven by lower operating cash inflow and partial funding of the buyback program, though Young said the balance sheet remains strong with conservative leverage and capacity to fund growth.
Young also confirmed a reduction in the allowance for slow-moving inventory during the half, explaining that volume uplift—particularly in ANZ—supported a revision to provisioning levels, and said the change does flow through earnings.
Outlook: “no substantial change” expected in the second half
Looking ahead, Wilson said ANZ showed signs of a housing market recovery during the half, though the picture is “geographically mixed,” and affordability remains a challenge. He said the company is cautious on the pace of any near-term recovery and flagged the potential impact of recent interest rate rises.
In the U.S., Wilson said residential new construction demand remains weak in key regions and competitive dynamics continue to create headwinds. He said the company does not expect a “substantial change in performance” in the second half.
Against that backdrop, management guided to full-year FY26 group EBIT of AUD 520 million to AUD 540 million. Wilson said the company remains focused on its long-term strategy—operational excellence, innovation, and investing for profitable growth—while seeking to run the business more efficiently through a complex period.
About Reece (ASX:REH)
Reece Limited engages in the distribution of plumbing, waterworks, bathroom, heating, ventilation, air-conditioning, and refrigeration products to commercial and residential customers in Australia, the United States, and New Zealand. It also distributes irrigation and pools, and kitchen products. The company serves customers in the trade, retail, commercial, and infrastructure markets. The company was formerly known as Reece Australia Limited and changed its name to Reece Limited in November 2015.
