Wolseley sees markets getting worse

By Marc Roca

LONDON (Reuters) - Building materials group Wolseley (WOS.L) posted a sharp drop in profits and cancelled its final dividend as it strives to stay within its borrowing limits, sending its shares to an eight-year low.

The world's biggest distributor of plumbing and heating materials said on Wednesday trading profit fell 28 percent in the 11 months ended June 30, as the U.S. housing downturn was joined by a rapid deterioration here since May.

Its shares, which had already plunged almost two-thirds in value since the start of the year, were down 19-1/2 pence at 270-3/4p by 11:11 a.m., having fallen as low as 268-3/4p -- their lowest since September 2000.

Wolseley, which did not give any profit numbers beyond the percentage change, said it had achieved some debt reduction but expected trading conditions to deteriorate further.

"Slightly improved debt has avoided the immediate need for additional funding but again the concerns remain. Omitting the final dividend shows how tight these funding issues are for the group," analysts at brokerage Panmure Gordon said in a note.

Wolseley is the latest construction-related group to warn of dire trading, led by problems in the UK and U.S. housing markets which have been hit by falling prices and a lock-down on new loans as banks try to cope with the global credit crunch.

Austria's Wienerberger AG (WBSV.VI), the world's largest brickmaker, last week issued a profit warning, saying residential construction "collapsed," while a string of house builders have slashed jobs and dividend payments.

"The news just keeps getting more challenging, with what's going on with the mortgage markets on both sides of the Atlantic, whether Fanny Mae and Freddy Mac or the mortgage issues we have in the UK," Wolseley Chief Executive Chip Hornsby told reporters on a conference call.