Shares of Marshalls plc, the Elland, West Yorkshire-based stone and landscaping firm, fell as much as 18% on Friday after it published a trading update saying it now anticipates “that the outturn for the group as a whole will be slightly below the bottom end of the current range of market expectations.”
Marshalls said its company-compiled market consensus is £98.5 million with a range of £95.1 million to £101 million.
The company said group revenue for the nine months ended September 30, 2022, was £544 million, which represents year-on-year growth of 20% including the benefit of the acquisition of Marley.
On a like-for-like basis, group revenue growth was 4%.
Marshalls said its Landscape Products unit has continued to face tough trading conditions and reported revenue of £311 million in the nine-month period, a reduction of 6%.
The rate of contraction at the Landscape Products unit increased in the third quarter to 16% compared to 1% at the half year, due to a marked softening of demand for private housing RMI (repairs, maintenance and improvement) in both the UK and international markets and “destocking” in the distribution channel.
“The group’s segmental performance followed the trends that we reported at our results for the half year ended 30 June 2022, with the more positive backdrop within Marshalls Building Products and Marley offset by the continuation of tougher trading conditions in Marshalls Landscape Products, which has greater exposure to the discretionary element of private housing RMI (repairs, maintenance and improvement),” said Marshalls.
“Marshalls Building Products has seen revenue growth of 22 per cent to £149 million (2021: £123 million) in the nine-month period, with a particularly strong performance from the Bricks & Masonry business.
“Demand has remained robust throughout the third quarter, with revenue growth at a similar level to the first half of the year.
“Marley delivered revenue of £84 million in the post-acquisition period, which represents growth of nine per cent compared to the corresponding period in 2021.
“The business grew in the third quarter, albeit the rate of growth moderated due to a combination of a softer market backdrop and destocking in the distribution channel, however the business continues to trade ahead of our expectations at the time of the acquisition.
“Marshalls Landscape Products has continued to face tough trading conditions and reported revenue of £311 million (2021: £330 million) in the nine-month period, which represents a reduction of six percent.
“The rate of contraction increased in the third quarter to 16 per cent compared to one per cent at the half year, due to a marked softening of demand for private housing RMI in both the UK and international markets and destocking in the distribution channel.
“We have responded by reducing our manufacturing output to manage inventory levels, which has impacted the efficiency of our factories in the short term.
“These actions will reduce capacity and costs within our manufacturing network and trading function to ensure alignment with lower levels of demand and this is expected to reduce operating costs by around £10 million per annum from the start of 2023.
“In the medium term, we continue to target returning this business to a 15 per cent plus operating margin.
“The group’s balance sheet continues to be robust, with pre-IFRS16 net debt to proforma EBITDA expected to be approximately 1.5 times at the year end, and we maintain good headroom against our bank facility and its covenants, which will support investment priorities going forward.
“We continue to effectively mitigate cost inflation through price increases.
“However, taking into account the combined impact of the accelerated rate of revenue contraction in Marshalls Landscape Products in the third quarter and the reduction in efficiency resulting from lower manufacturing output in this reporting segment, the board now anticipates that the outturn for the group as a whole will be slightly below the bottom end of the current range of market expectations.”