Wolseley, the plumbing and heating engineer, which makes half its income in America, gave warning today that revenues of its US building materials business have collapsed by almost 75 per cent.

It has eliminated 3,500 staff and shut 46 branches.

Trading profit from its Stock business has dropped 74.9 per cent to only $86 million (£42 million) during the year to the end of July, helping to reduce group pre-tax profits by more than 7 per cent to £778 million.

Wolseley shares dropped 24p to 824.5p, down almost 3 per cent.

The group's warning that the crisis in the American housing market had spread into the home repairs business pulled trading profits across North America down more than 19 per cent to £487 million after one-off acquisition and other costs.

It was earned on revenues of nearly £8.7 billion.

Group revenues rose 14.6 per cent to £16.2 billion, with operating profits dropping 9.7 per cent to £753 million.

Wolseley, which also supplies materials, including lumber, to professional contractors, first highlighted its difficulties with the US market in March, sending its shares sharply lower at the time.

Chip Hornsby, the chief executive, said that there were no signs of a turnaround in the residential housing market and that "the repairs, maintenance and improvement market is now beginning to soften".

He said that the group's performance in September and October, traditionally strong months for Wolseley, would be crucial in determining where the market was going.

He signalled that Wolseley, which has cut about 5,500 staff worldwide in the past 12 months, would be prepared to offload more if the need arose.

Mr Hornsby said: "Right now it's very difficult to determine what's going to happen. The market has fallen every month for the past year. It was expected to be a soft landing this time last year and it certainly hasn't been that at all.

"We are just going to continue to react to it, so that when it comes back — and it will — we are in a position to react to it."

Mr Hornsby said, despite the turmoil affecting international credit markets and the uncertainty about housing, that Wolesely still expected to spend about £450 million on accquisitions this year.

He said that Wolseley would "absolutely not" backtrack on its aggressive growth strategy.

He said the commercial property market, beginning to slow in the UK, was holding up well in the US.

He said: "If you're building a five or eight-storey office block, you don't just stop on the second floor."

Mr Hornsby said that it was "too early to tell" what the knock-on effects of the Northern Rock crisis would be, although he said that Wolseley had been paying more heed to the threat of further interest rate rises than to the plight of the mortgage lender.

Keith Bowman, of Hargreaves Lansdown, said: "Wolseley is a company under pressure on several fronts — product demand is on the wane in its significant US marketplace, financing costs have risen on acquisitions and further pressure is being felt via the decline in the US dollar.

"On balance, market consensus opinion is still positive based on confidence in the group's business model, global diversification and management ability, although today's downbeat outlook statement is likely to test investor resolve still further."

Kevin Lapwood, of Seymour Pierce, said: "A very weak performance in the North American building materials markets was offset by strong performances in US plumbing and heating, and the Nordic regions. Continental Europe and the UK were also OK.

He added: "The US housing market worries are overdone."

Andy Brown, of Panmure Gordon, said: "Uncertainty remains in the US but European prospects are sound."

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