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Plumbing products group Reliance Worldwide Corporation (ASX: RWC) is planning to cut China out of its tariff-impacted supply chain for the US, with Vietnam, Taiwan, Korea, Thailand and Australia possibly benefiting from the trade war.
While the Brisbane-based company has a significant manufacturing base in the US, almost half of the cost of goods sold (COGS) in the Americas are sourced outside of the US which puts a number of its products in the firing line for tariffs.
Reliance Worldwide estimates US tariffs will hurt its operating earnings by between US$25 million ($38.7 million) and US$35 million ($54.1 million) in FY26, although the direct impact of US tariffs on FY27 EBITDA is not expected to be material.
The group reveals today that it is “moving quickly” to diversify its product sourcing outside of China which is currently subject to a 145 per cent import tariff in the US.
“While there is continuing uncertainty around future US tariff rates, and the likelihood of new trade agreements being successfully concluded between individual countries and the US, RWC believes that reducing its purchasing exposure to China is appropriate given prevailing relative tariff levels and the current geopolitical context,” says the company.
“As a result of activities under way, RWC’s China-sourced COGS is on target to reduce by approximately 30 per cent from FY24 levels to US$80 million for FY25, and down from a peak of approximately US$160 million.”
Reliance Worldwide is aiming to eventually “reduce to zero” the number of tariff-impacted products sourced from China for sale in the US.
“This is expected to be largely achieved on a run rate basis by the end of FY26, with the remainder to be completed during FY27,” says the company.
Reliance Worldwide is planning to switch sourcing to countries such as Vietnam, Taiwan, Korea and Thailand and to the company’s own facilities in the US, UK and Australia.
The company joins the likes of Gale Pacific (ASX: GAP), the producer of Coolaroo shade sails, which also announced today that its strategy to diversify its manufacturing footprint outside of China is “progressing well”.
The impact of tariffs and the associated fall in consumer sentiment in the US has led Reliance Worldwide to expect its earnings for FY25 from the Americas will be at the lower end of guidance – which was already forecast to be flat.
Sales from the Asia Pacific region, excluding plumbing and home irrigation producer Holman Industries which was acquired last year, have also been downgraded from “mid-single-digit growth” to “low-single-digit growth" compared with FY24.
Europe, Middle East and Africa sales are still expected to be down by mid-single-digit percentage points.
Meanwhile, Gale Pacific CEO Troy Mortleman anticipates falling US consumer confidence and a cautious approach by customers looking to restock amid the current tariff environment to hit the company’s peak northern summer selling season despite a solid first-half performance.
“Performance in Australia, New Zealand and developing markets, especially in the Middle East, continues to meet expectations, reflecting the strength and resilience of our diversified portfolio,” says Mortleman.
“Gale has been actively exploring opportunities to diversify our manufacturing footprint across Asia even before the recent imposition of reciprocal tariffs. These efforts have now intensified.”
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