As expected, Travis Perkins (LSE:TPK)’ interim results released today showed that the FTSE 250 builders’ merchant is struggling to cope with declining sales volumes and a general margin squeeze.
Interim revenues fell 2.5% to £2.5 billion, with adjusted operating profit of £112 million down 31% reflecting what the group called “weak market volumes in private domestic RMI (repairs, maintenance and improvements) and new-build housing”.
Merchanting, which constitutes 84% of group revenues, experienced a turnover slightly better than expected. However, margins declined to 6.3%, falling 20 basis points below the full-year projection of 6.5%.
Analysts attributed this to negative operating leverage due to lower year-on-year volumes and a reversal of stockholding profits as commodity prices, like timber, saw a decline.
Toolstation, which accounts for the remaining 16% of group revenues, actually exceeded turnover predictions, though it still incurred a £10 million operating loss.
However, the first-half dividend per share (DPS) remained steady at 12.5p compared to the previous year, reflecting the management's confidence in the medium-term outlook.
On that note, adjusted operating profit expectations for the whole year stand at approximately £240 million, which would constitute an 18.6 year-on-year fall.
In short, it could have been a worse earnings call, given the group’s profit warning in mid-June, but still not great.
Travis Perkins (LSE:TPK) shares have underperformed against the wider FTSE 250 set, though not by a significant sum, penning 4.5% of losses year to date compared to 0.3% for index as a whole.
At the same time, basic earnings per share fell 42.5% in the first half, while, according to Shore Cap, “free cashflow margins are well below sector average, and we have concerns that medium-term revenue growth will be impacted by nascent competition in general merchanting”.
For this reason, analysts kicked Travis Perkins stock down to a 'sell' rating with an 871p price target against the going price of 896.4p, suggesting a few more percentage points worth of losses are in store for the group’s share.