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Ashtead could be the next company sunk by record US rainfall

Since the start of 2019, areas of the US have been enduring multiple months of flash flooding as torrential rainfall has engulfed large portions of the Midwest and the South
Heavy rain
The last 12 months have bee the wettest for the continental US since records began 125 years ago

While the UK’s ‘beast from the east’ cold snap battered the bottom lines of several firms in the first part of last year, this time it could be torrential US rainfall that leaves the figures of many companies looking soggy.

Since the start of 2019, areas of the US have been enduring multiple months of flash flooding as torrential rainfall coupled with snowmelt in some states have engulfed large portions of the Midwest and the South.

READ: Ted Baker expects profits to fall as much by as 20% after difficult trading

The episodic warming of the tropical Pacific waters, known as El Niño, is also causing a higher frequency of storms and more intense rainfall, with the ongoing effects of climate change adding to their severity.

These conditions have combined to make the last 12 months the wettest for the continental US since records began 125 years ago, according to data from the National Oceanic and Atmospheric Administration (NOAA), with the total at the end of May amounting to 37.68 inches of rain (96cm), beating the previous 12-month record of 36.2 inches (91.9cm) set in April.

All that rain, much like the UK’s cold spell last year, has made trading in the first quarter of 2019 tricky for companies that have large US businesses and rely on their customers either going outside to buy products or starting projects that require outdoor working.

For example, clothing retailer Ted Baker PLC (LON:TED) blamed the US downpours in part for its lacklustre performance in the year to date as it issued a warning on Tuesday forecasting that its full-year profits could fall by as much as 20%.

Meanwhile, blue-chip plumbing firm Ferguson Plc (LON:FERG) saw its organic sales growth in the US slow to 3.3% in the first three months of 2019, its third quarter, from 10% in its first half.

While the company’s management did not blame the rain, analysts at Liberum on Monday did note the “exceptional” rainfall in a note on the results.

The broker added that for the three months to April the US got around 20% more rain than usual, with the wet weather reducing the opportunity for construction groups to start building projects, particularly those involving groundwork.

READ: Somero underwater as record US rainfall causes earnings warning

The damp conditions also caused ructions for AIM-listed levelling machinery specialist Somero Enterprises Inc (LON:SOM), which was forced to issue a profit warning last week after the rainfall pushed trading in the US, its largest market, below management expectations.

While the firm said the weather wasn’t expected to be as dismal for the rest of the year, the deluge meant it would be unable to make up the shortfall in the remaining part of the year.

Ashtead next for a dousing?

The rain-related misery, particularly from Somero, provides a somewhat stormy read-across for FTSE 100 construction equipment renter Ashtead Group PLC (LON:AHT), which derives around 85% of its sales and 90% of profits from its American business, Sunbelt.

The company had been on a strong run in the first three quarters of its last financial year, which ended on 31 January, although it is set to report its final results for the year ended 30 April next Tuesday, which will include most of the record rainy period.

While the company reported a 23% rise in pre-tax profit for the first nine months of the year alongside a 19% jump in revenues, investors may be worried that the downpour could have stalled momentum in its final months.

“I suspect Ashtead will see slower growth”, says Charlie Campbell, an analyst at Liberum.

However, the reduced growth from the blue-chip firm won’t just be down to the heavy rainfall but rather a more general slowdown in US construction activity over the start of the year as a result of higher interest and mortgage rates at the end of 2018, which tend to be a brake on the sector.

While this may cause Ashtead’s numbers to slip for the first part of 2019, Campbell adds that the US markets are currently “upbeat” about the outlook for the country's construction industry, which could provide more of a boost once the literal and figurative grey skies clear.

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Ashtead Group Timeline

Article
December 11 2018

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