Leaking confidence – Reece’s outlook looking drained
In the twelve months to June 2025, Reece Limited (ASX:REH) delivered its shareholders a negative 43 per cent return, dramatically underperforming the ASX 300 Accumulation Index, which increased by 14 per cent.
Anticipated revenue of $8.475 billion for fiscal year 2025 is expected to be weighed 54 per cent to the U.S. and 46 per cent to Australia and New Zealand. The weakness recorded in the December 2024 half-year, particularly in the U.S., where revenue was down by 6 per cent in Australian Dollars, appears it will continue throughout the 2025 calendar year.
Table 1 below reveals revenue for the June 2025 half-year of around $4.075 billion is expected to be down $487 million or 11 per cent on the $4.562 billion recorded in the June 2024 half-year.
Table 1. Reece financial results across the U.S. and Australia/NewZealand
Earnings before Interest Tax and Depreciation (EBIT) are expected to hit $553 million for the year. Whilst the December 2024 half-year figure of $305 million was down 17 per cent on the six months to December 2023, there was an implied 21 per cent slide in June 2025 half-year EBIT to an anticipated $248 million.
EBIT/Revenue margins have deteriorated over the past four half-year periods from 8.1 per cent to 6.9 per cent, to 6.9 per cent to an estimated 6.1 per cent. High mortgage rates in the U.S. and rising input prices are weighing on the U.S. residential market, and the residential new construction sector, including in the sunbelt where Reece operates, is down year on year.
Increased competition across all segments of the U.S. business from the economic slowdown and new market entrants will likely to see further deterioration to the U.S. EBIT/Revenue margins, which were only 4.6 per cent in the six months to December 2024. Given the protracted housing downturn, we suspect U.S. EBIT/Revenue margins will slide below 4.0 per cent for some time, and this could continue to weigh on the outlook for Reece Limited.
Disclaimer:
The Australian Eagle Trust Long Short Fund holds a short position in Reece Limited. This article was prepared 30 June 2025 with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade this company you should seek financial advice.
Chief Executive Officer of Montgomery Investment Management, David Buckland has over 30 years of industry experience.
David is a deeply knowledgeable and highly experienced financial services executive. Prior to joining Montgomery in 2012, David was CEO and Executive Director of Hunter Hall for 11 years, as well as a Director at JP Morgan in Sydney and London for eight years.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
