Travis Perkins benefits from price inflation as sales volumes flat

Third quarter sales from Travis Perkins impressed investors in the builders' merchants but there remained some caution about the outlook.

Group sales growth of 3.5% remained unchanged from the first half of the year, while like-for-like sales growth accelerated to 4.1% from 2.7% in the first half.

Volumes were flat, meaning inflation was behind the rise, with price inflation of 3.9% in the quarter reflecting the pass-through of cost price inflation.

Sales were up 3.4% in the year to date, or 3.3% on a LFL basis, which compares with 2016’s 4.6% increase in revenues, or 2.7% LFL.

Directors said they remained "cautious on the market outlook" and so would continue to carefully manage underlying costs, but despite these headwinds the performance remains on track to achieve full year expectations.

"Trading conditions in our markets continue to be mixed, with consumer discretionary spending under pressure from rising inflation and on-going uncertainty in the UK economy. We maintain our confidence in the long-term fundamental drivers of our markets, and this underpins our plan to invest in our businesses to improve our customer propositions and extend our competitive advantage," said chief executive John Carter.

While it was still relatively early in the transformation plan, he was encouraged by the progress in the Plumbing & Heating division, which increased LFL growth to 5.4%.

This was thanks to a better performance from City Plumbing as 33 branches closed, which along with wholesale businesses partially offset by continued challenging trading conditions in the contract installer market.

The General Merchanting business drove LFL sales growth of 2.4%, while the Contracts division grew LFLs 2.4%, supported by the continued strength of new residential housebuilding and pass through of cost price inflation.

Consumer sales slowed in the third quarter to 2.4%, primarily due to more subdued growth in Wickes amid the increasingly difficult market environment, though the roll out of the Toolstation network in the UK and the Netherlands continued, with excellent like-for-like and overall sales growth.

Travis Perkins shares were up 1.5% to 1,494p by mid morning on Thursday.

When you factor in the cost inflation, the sales growth doesn’t look as impressive as the headline number suggests, said Neil Wilson at ETX Capital, with higher commodity prices and the fall in sterling pushing up input prices.

He said this was one reason for some of the concern around profitability.

This represents acceleration from first-half revenue growth of 2.7%, which equated to adjusted operating profit 2.1% lower at £190m, which it said was largely due to the challenging Plumbing & Heating market as well as some recent investments.

"Some progress on LFL but slower overall growth reflecting moves to improve profitability. A tentatively cautious outlook from the firm points to it being on track to achieve full-year expectations."