UPDATE 2-Wolseley sees no let up in market gloom

* Says Q1 underlying profit falls 45 pct to 76 mln stg

* Commercial, industrial markets to get worse

* Net debt rises to 1.22 bln stg

* Shares down 2.55 pct (Adds CFO, analyst comment, share price)

By Lorraine Turner

LONDON, Nov 18 (Reuters) - British building supplies company Wolseley (WOS.L) warned on Wednesday that market conditions remain taxing, as it reported weaker first-quarter sales and profits and gave no clear indication of a recovery.

Wolseley, the world's largest builders merchant distributor, said it is performing in line with its expectations, but revenue fell across all its regions.

"We expect markets to remain challenging for the rest of the financial year," chief financial officer, Steve Webster, said on a call with journalists.

"You can tell from what we're saying about the industrial and commercial market, we do expect that to get worse before it gets better," he added.

The FTSE 100 company, which called on shareholders for 1 billion pounds earlier this year, said group underlying profit from continuing operations fell 45 percent to 76 million pounds ($127.9 million) in the three months to end October, while revenue dropped 13 percent to 3.4 billion pounds.

"1Q10 results show no signs of recovery," said Kevin Lapwood at Seymour Pierce.

"The shares are trading on 32.9 times FY2010 earnings but they are likely to react positively to even the slightest morsel of good news," he added.

Shares in Wolseley, which is the largest plumbing and heating merchant in the UK, were down 2.55 percent to 1338 pence at 0842GMT, a fourth of their value in 2007.

Gloom in the construction sector continues to weigh on companies such as Wolseley, but some cheer is coming from the residential sector as well as from operational improvements implemented by the new chief executive.

UK housebuilders this week posted encouraging trading updates, reporting a stabilisation of sales and house prices. [ID:nL0312171]

Webster said the business took out 20 million pounds in costs in the quarter while trading profit in the UK and Ireland rose by 17 percent, excluding restructuring costs, driven by operational synergies in the previous year.

Net debt stood at 1.22 billion pounds at the end of October, nudging higher from 959 million at the end of July. This is expected to lower again by January, the company added. ($1=.5941 Pound) (Editing by Will Waterman and Hans Peters)