Wolseley's third-quarter interim update fell in line with our expectations, providing additional evidence that the residential and repair and remodel markets are stabilising while commercial construction activity continues to decline. Revenue declined 7% from the year-ago period, due primarily to lower volume levels. UK revenues fell 5% while US sales decreased 10% (US revenue declined 4% excluding the negative impact of foreign currency exchange).
While residential demand is still in the midst of a modest recovery, we think Wolseley's results showed a pocket of relative strength in the repair and remodel end-market. On a like-for-like basis (excluding the effects of business disposals and adjusted for currency), all of the firm's geographic regions posted single-digit percentage revenue declines--an improvement from the double-digit declines recorded during the last few quarters. Although residential demand appears to be recovering, we don't think the modest improvements will be enough to offset the decline from the commercial sector. We are maintaining our 1,290p fair value estimate at this time.
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