Ferguson plc Q2 FY2025 earnings call

Second Quarter Performance

• Net sales were $6.9 billion, a 3% increase over prior year despite ~2% commodity-led deflation. Adjusted operating profit was $449 million.

End Markets

• Residential end market remained subdued but grew ~2%; non-residential market was more resilient with ~4% growth, driven by large capital projects.

Growth Initiatives

• HVAC: Over 500 counter conversions, geographic expansion, private label Durastar growth.
• Waterworks: Diversified solutions for water, wastewater, etc., using AI for maintenance, focus on large capital projects.
• Ferguson Home: Unified brand integrating showroom and digital channels for a seamless project experience.

Capital Allocation

• Deployed ~$500 million in capital during the quarter; $1 billion increase to share repurchase authorization.

In the United States, net sales grew 3% despite continued deflation. The residential end market, comprising approximately half of U.S. revenue, grew ~2% in the quarter, while the non-residential market saw ~4% growth. Customer groups: HVAC customer group increased 17%, Waterworks revenues were up 10%, Commercial Mechanical customer group grew 2%, and Industrial, Fire & Fabrication and Facility Supply customer groups delivered a combined net sales decline of 6%. In Canada, net sales were 3.2% ahead of last year, with organic growth of 3.1% and a 5.4% contribution from acquisitions, partially offset by a 5.3% adverse impact from foreign exchange rates.

Fiscal 2025 Guidance

• Total sales growth in low single-digit range.
• Adjusted operating margin range 8.3% to 8.8%.
• Interest expense $180 million to $200 million.
• Adjusted effective tax rate ~26%.
• CapEx estimate $325 million to $375 million.
• Expect market outperformance and ~1% contribution from acquisitions, offset by one fewer sales day in Q3.

• Commodity Deflation: Persistent deflation in commodity-based products impacting margins.
• Market Volatility: Subdued end markets and uncertain tariff impacts.
• Operational Complexity: Need to reduce complexity, simplify structures for better speed and accountability.

Q: About growth investments and cost reduction A: Kevin and Bill discussed HVAC, large capital projects, Waterworks growth, and ongoing cost reduction actions in non-customer-facing roles.

Q: Gross margins and pricing A: Bill and Kevin talked about gross margin pressure from deflation, mix, and seasonal factors, with expectation of margin improvement in the second half.

Q: Commodity trends A: Bill detailed copper, steel, PVC trends, with steel deflation expected to lessen but uncertainty around tariffs.

Q: Waterworks resi weakness A: Kevin said no pronounced downturn, mix shift in Waterworks between Public Works and Residential.

Q: Gross margin dynamics A: Kevin and Bill explained factors like seasonality, mix, and deflation contributing to margin impact, with intention to return to 30+% gross margin long-term.