Highlights

  • Reece (ASX:REH) reported FY26 Revenue growth of around 4.5% to approximately $9.4 billion, while Earnings remained broadly stable.
  • The ANZ Business delivered growth, but US operations faced Margin pressure from weaker residential construction conditions.
  • Reece completed significant Capital returns through Buybacks while maintaining a conservative Leverage position.
  • Investors are watching the US housing recovery, branch expansion, ANZ trade conditions and margin improvement.

Reece (ASX:REH) delivered a mixed FY26 result, highlighting the contrast between a resilient Australian and New Zealand business and a more challenging US operation. While group revenue increased and earnings remained within guidance, weaker US margins continued to weigh on profitability. The focus for investors has shifted toward whether Reece's long-term US expansion strategy can generate stronger returns when housing conditions improve.

A tale of two markets

The central theme of Reece's FY26 result was the divergence between its two major operating regions.

Australia and New Zealand continued to provide stability, supported by improving trade conditions and branch expansion.

The US business, however, remained under pressure as residential construction activity stayed weak.

For Reece, the US represents the largest Long-term Growth opportunity but also the biggest current earnings challenge.

The company continues to invest through the downturn, expanding its network and positioning for a future housing recovery.

The market debate is therefore focused on timing: whether the current Investment period will translate into stronger returns when US Demand improves.

The Key Development

The most important feature of FY26 was the widening performance gap between ANZ and the US.

In Australia and New Zealand, revenue increased 8.3% to approximately $4.2 billion.

Segment EBIT increased 6.1% to around $360 million.

The domestic business benefited from gradual trade recovery and continued network development.

The US business showed a different pattern.

US revenue increased 6.5% in local currency terms to approximately US$3.5 billion.

However, like-for-like sales declined 1.7%.

Segment EBIT declined around 13% to approximately US$118 million.

US margins fell to around 3.4%, impacted by weak residential new construction, labour-cost Inflation and competitive pressures.

Despite the softer conditions, Reece continued expanding its US footprint, adding 25 net new branches and increasing the network to 292 locations.

Financial Performance

Group revenue increased approximately 4.5% to $9.4 billion.

Underlying EBITDA was broadly stable at around $901 million.

EBIT declined approximately 2.6% to around $534 million, remaining within the company's previous guidance range of $520–540 million.

Earnings per share increased slightly by approximately 0.7% to 49.5 cents, supported by a lower share count following buybacks.

The first-half result had already highlighted the earnings pressure.

For the six months to December 2025, revenue increased 6% to $4.65 billion, while net profit after tax declined 20% to $144 million.

The stronger second half, supported by ANZ performance, helped stabilise the full-year outcome.

Capital management was a major feature.

Reece completed a $365 million off-market buyback at $13.00 per share and returned approximately $400 million through buybacks during FY26.

Dividend payments remained modest, with the interim Dividend maintained at 5.44 cents per share fully franked.

The buyback strategy contributed to higher net debt, which increased to approximately $744 million from $590 million.

However, leverage remained conservative at around 1.0 times EBITDA.

Free Cash Flow was approximately $487 million, while Capital Expenditure declined to around $174 million from $258 million.

What Management Is Saying

Management described FY26 as a period of disciplined investment through challenging market conditions.

Chair and chief executive Peter Wilson highlighted gradual improvement across ANZ markets while noting that conditions remained uneven.

The US outlook remained cautious.

Management expects residential construction demand to remain subdued until affordability conditions improve.

Non-residential activity is expected to provide near-term support.

For FY27, the company remains focused on long-term growth rather than short-term margin protection.

The strategy remains centred on building network density in the US, with management expecting the expanded footprint to create stronger returns when market conditions recover.

Why Investors Are Reacting

The market reaction reflects concerns around valuation and timing rather than a breakdown in the business model.

Reece shares had recovered strongly before the result, supported by expectations of an improving housing cycle.

That recovery increased expectations for earnings improvement.

The FY26 result confirmed that the US business remains under pressure, limiting the pace of profit recovery.

Investors are now assessing whether the current valuation already reflects a future US recovery.

The core debate is whether Reece is investing ahead of the cycle or carrying excess costs for too long.

The company's long-term strategy remains intact, but the timing of improvement remains uncertain.

What Could Drive the Stock Next

The biggest catalyst is a recovery in US residential construction.

A return of housing activity would allow Reece to better utilise its expanded branch network and improve margins.

Other potential drivers include:

  • improving US like-for-like sales trends;
  • lower interest rates supporting housing demand;
  • continued ANZ trade recovery;
  • further benefits from operational scale;
  • ongoing capital management.

The Australian and New Zealand businesses will also remain important contributors while the US recovery develops.

Evidence that US margins have stabilised would likely be a key confidence signal for investors.

Risks to Watch

The largest risk is that the US recovery takes longer than expected.

A prolonged period of weak housing activity could leave Reece carrying the cost of its expanded network without sufficient Volume growth.

Labour costs, competitive intensity and pricing pressure could continue limiting US profitability.

Interest rates remain an important macro factor.

Higher-for-longer rates could delay housing recovery and reduce renovation activity.

The capital-return strategy also requires monitoring.

While leverage remains manageable, debt-funded buybacks increase sensitivity if earnings weaken.

Currency movements are another consideration due to Reece's significant US exposure.

Investor Takeaway

Reece (ASX:REH) delivered a FY26 result that highlighted both the strength and challenge of its investment strategy.

The ANZ business continues to provide stability, while the US operation remains positioned for a longer-term recovery but has yet to deliver the expected earnings improvement.

The company remains financially disciplined, with conservative leverage and significant operational scale.

However, the next phase depends on execution.

Investors will be watching US housing conditions, like-for-like sales trends, margin recovery and whether the expanded US network can generate stronger returns.

For now, Reece remains a long-term recovery story where the market is waiting for the reported earnings to catch up with the strategic ambition.