U.S. Construction Slowdown Fears Stoked by Ferguson Outlook

LONDON (Capital Markets in Africa) – Stocks of U.S. construction-industry suppliers declined in London after Ferguson Plc, a wholesaler of heating and plumbing products viewed as a bellwether for the sector, forecast annual profit at the low end of analysts’ estimates.

“After a strong revenue performance in the first half, our growth rate has moderated recently in line with conditions in our markets,” the FTSE 100 constituent said in a statement Tuesday.

The update reflected a “sharp slowdown” in residential construction trends in the U.S. over the past six months, which could lead to a significant deceleration in organic growth in the second half of the current financial year, Bloomberg Intelligence analyst Eshan Toorabally wrote in a note.

Ferguson shares fell as much as 11 percent, the most since September 2015. Equipment rental firm Ashtead Group Plc and Dublin-based construction materials group CRH Plc, which are both heavily-dependent on U.S. sales, declined too.

While U.S. organic growth has remained robust, “it is now clearly slowing down,” UBS analysts Gregor Kuglitsch and Miguel Borrega wrote in a note. Although “not that surprising” given the weaker trends in housing over the last few quarters, “the sharpness of the moderation in growth will surprise some,” they said.

Ferguson’s update was followed by data on Tuesday that revealed U.S. new home groundbreakings fell in February by the most in eight months. Building permits declined 1.6 percent to about 1.3 million, slightly below the average economist estimate.

Away from the U.S., Ferguson Chief Executive Officer John Martin said the company will attempt to reduce costs following a decline in spending on home improvements in Canada and the U.K. Uncertainty surrounding Britain’s future relationship with the European Union has dented consumer confidence, while fear of a wider economic slowdown across the globe is setting in elsewhere.

Ferguson, which switched its name from Wolseley in 2017 to highlight its U.S.-based brand, traded 10 percent lower at 4,638 pence as of 1 p.m. in London. Ashtead was down 2.3 percent at 1,785 pence and CRH dropped 1.7 percent to 2,296 pence.

Source: Bloomberg Business News