Reece taps into US for long haul with Morsco

Peter Wilson likes to think of Reece’s sprawling American business like a century-old historic mansion.

‘We could not have asked for a better start’ ... Reece chief executive Peter Wilson. Picture: David Geraghty

Peter Wilson likes to think of Reece’s sprawling American business like a century-old historic mansion.

“What we have here is a 100-year-old place that needs a refurbishment while you’re living in it. So we have started by restumping the place. Then there needs to be a new roof and walls,’’ the Reece managing director said of Morsco, a key American distributor of plumbing, waterworks, heating and cooling products.

“The biggest thing will be when we rewire the company, which is the technology part. The opportunity for Morsco is even bigger than I thought but there is still foundational risk.

“We need to get it right because it is a 10-year journey.”

The business was purchased by Reece for $1.91bn almost two years ago, marking its first move into the highly competitive and disparate $US32bn ($46.4bn) US plumbing market. Wilson hopes Reece’s American business will grow to one day be bigger than its legacy Australian and New Zealand operations.

A better than expected revenue performance from the Morsco business helped Reece deliver record sales revenue of $2.9bn for the half year and a 7 per cent lift in net profit to $113m.

Morsco’s sales revenue was up 19 per cent to $1.49bn and up 9 per cent on a like-for-like and constant-currency basis.

Reece, which celebrates its 100th birthday next month and whose chairman is Wilson family patriarch Alan Wilson, declared a fully franked dividend of 6c.

Reece shares rose from below $10 at the end of October to almost touch $12 in the middle of February. They have since fallen back below $11.50 in the past week’s market rout. During the first half, Morsco added 11 stores to its network of commercial and residential plumbing showrooms across 16 states in the southern parts of the US, bringing the total to 186.

This including six from Reece’s acquisition of Todd Pipe in October last year.

Peter Wilson said the Todd Pipe integration was progressing as planned. He is now spending one month every quarter in the US managing the integration of Morsco.

“For me, the business continues to be on track,” he said.

“We have shown more revenue growth than what the market was expecting. The positive part of my recent trip to America (he just arrived back in Australia in the middle of last week) was that Morsco’s people have really embraced Reece and having a long-term owner.’’

Morsco previously had private-equity owners.

“We have 13 of our senior guys who have relocated their families to America for this. When I go there and when you sit with their families and meet their wives, you can see they have all settled in well. It almost feels like it is a honeymoon period. Anything Reece or Australian is seen as a good thing over there. In terms of how we planned, we could not have asked for a better start.”

In the first half of 2020, Reece’s core Australian and New Zealand business maintained sales revenue at $1.46bn in a market that Wilson said continues to moderate.

“It is a challenging period coming up because of where we are in the housing cycle,” he said.

“We are not sure where the bottom is. We think it is getting closer. But the next 12 months looks challenging from a housing point of view.

“The positive is our business has never been more diversified. The renovation market is quite resilient — and that is largely driven by house prices. The non-residential and commercial part is also really buoyant.”

The success of the Reece approach so far in the US has been in stark contrast with building products giant Boral, which significantly overpaid for Utah-based construction materials group Headwaters.

Its chief executive, Mike Kane, is now leaving the company after the group’s annual result in August as Boral has also battled an accounting scandal in its US windows business. There is now speculation it could be a takeover target or a candidate for a break-up of its businesses.

“You need to do your research really thoroughly in the first place. My focus was two years before we did the acquisition. When we did the due diligence we had a huge team that went there. We knew exactly what we are getting,’’ Mr Wilson said when asked the lessons Reece has learnt so far moving into the American market for the first time.

“We have done everything conservatively. The US market is looking pretty good. All the fundamentals are good. We are only in the sunbelt region, which has strong population growth.’’

He added that “doing the cultural piece” after a big acquisition is fundamentally important.

“Showing you care for the people and that we are there for the long term is vital.

“The one thing I am learning about America, the average American respects a title and authority. Australians are much more cyclical people. If we do it right with the right purpose, they will respect us. Everything we do is about the long term. It is a long-term story.”