Tariffs Slash RWC Earnings; Margin Recovery Hinges on Mexico Facility
RWC’s H1 FY26 results reveal a 4.6% sales decline and a 22.5% drop in adjusted EBITDA, largely due to US tariffs and regional market pressures. The company is countering challenges by opening a new manufacturing facility in Mexico and expects modest sales recovery in H2 FY26.
- Net sales down 4.6% to $645.4 million, adjusted EBITDA down 22.5%
- US tariffs weigh heavily on Americas segment earnings
- New Mexico manufacturing facility planned to mitigate tariff impact
- Net profit after tax falls 34.9% to $43.7 million
- FY26 second half sales expected to improve with cautious margin recovery
Challenging First Half Amid Tariff Pressures
RWC’s financial results for the six months ended 31 December 2025 paint a picture of a company navigating a complex global environment. Net sales declined by 4.6% to US$645.4 million, with adjusted EBITDA falling 22.5% to US$111.4 million. The primary culprit behind this downturn is the impact of US tariffs, which have significantly increased costs and compressed margins, particularly in the Americas segment.
Sales in the Americas dropped 7.2%, affected by lower volumes and the exit from certain low-margin product lines in Canada. The company also faced a pull-forward of demand in the prior period, which distorted year-on-year comparisons. Meanwhile, Asia Pacific sales were relatively stable, down just 0.7%, while EMEA sales grew modestly by 2.4%, helped by new product launches and operational improvements.
Strategic Response – New Manufacturing Facility in Mexico
To combat the tariff headwinds, RWC is investing in a new manufacturing facility in Mexico. This plant will focus on lower volume, manually assembled products and is expected to provide greater manufacturing flexibility and a more competitive cost base. Importantly, the Mexico facility will help reduce the company’s exposure to tariffs by shifting sourcing away from China and other higher-tariff countries.
The US plant in Cullman remains the core for high-volume, automated manufacturing, but the Mexico facility’s complementary capabilities are a strategic move to safeguard margins. The company anticipates that these initiatives, along with price increases, will reduce the tariff impact in the second half of FY26 and beyond, although a residual tariff cost of US$5-7 million is expected in FY27.
Regional Performance and Cost Pressures
In Asia Pacific, the launch of new products like the SharkBite Max fittings helped offset competitive pressures and a late start to the watering season in Australia. However, margins were squeezed by lower manufacturing overhead recoveries and increased third-party sourcing.
EMEA faced higher costs due to UK minimum wage increases and investments in customer service improvements, which have shortened order lead times but weighed on profitability. The opening of a new assembly facility in Poland is expected to lower costs going forward.
Financial Health and Shareholder Returns
Despite the earnings pressure, RWC’s balance sheet remains solid, with net debt reduced to US$310.4 million and leverage at a manageable 1.39 times EBITDA. Cash flow from operations was strong, converting 92.1% of adjusted EBITDA into cash.
The company declared a total distribution of US4.0 cents per share, split evenly between an unfranked interim dividend and an on-market share buy-back, reflecting a commitment to returning value to shareholders even amid a challenging trading environment.
Outlook – Cautious Optimism for Second Half
Looking ahead, RWC expects second half FY26 sales to improve by mid-single digits, driven by tariff mitigation and new product initiatives. Margins are forecast to recover but remain below prior year levels due to ongoing tariff effects. The company’s capital expenditure guidance of US$25-30 million and expected cost savings of US$8-10 million underscore a disciplined approach to managing costs and investing for the future.
Overall, RWC’s H1 results highlight the challenges of operating in a tariff-impacted global market but also demonstrate proactive steps to adapt and position for recovery.
Bottom Line?
RWC’s tariff mitigation efforts and new manufacturing footprint will be critical to restoring margins as FY26 unfolds.
Questions in the middle?
- How quickly will the Mexico facility ramp up and impact cost structures?
- What is the potential for further tariff changes or trade policy shifts affecting FY27?
- Can RWC sustain margin improvements amid ongoing competitive pressures in Asia Pacific and EMEA?
