Ferguson plc Q4 FY2025 earnings call

• Expert associates drove market outperformance and strong growth in Q4 despite challenging market. Sales of $8.5 billion increased 6.9% over prior year. - Gross margin of 31.7% increased 70 basis points. Operating profit grew 13.4% to $972 million. Diluted EPS increased 16.8% to $3.48. - Invested $483 million this quarter, with key growth areas like HVAC expansion, Waterworks diversification, large capital projects, and Ferguson Home showing solid results. - Completed 4 acquisitions in Q4 and 1 subsequent to year-end, focusing on HVAC and Waterworks diversification. - Full year net sales $30.8 billion, up 3.8%, operating profit $2.84 billion, up 0.6%, operating margin 9.2%, diluted EPS $9.94, up 2.6%.

In the fourth quarter, U.S. net sales increased 7.1%, with residential end market flat and nonresidential up 15%. By customer group, HVAC was slightly down, residential trade plumbing down 2%, Ferguson Home grew 3%, Waterworks up 15%, commercial mechanical up 21%. Full year revenue was $30.8 billion, up 3.8% from prior year. Operating profit was $2.84 billion, up 0.6%, and diluted earnings per share was $9.94, up 2.6%. HVAC revenue grew 8% for the year, Waterworks revenue grew 10%, and Ferguson Home began rollout in February with 3% growth in Q4.

• Expect mid-single-digit revenue growth in 2025 calendar year. - Operating margin range of 9.2% to 9.6%, an improvement of between 10 and 50 basis points over prior year. - Interest expense expected to be between $180 million to $200 million. - Effective tax rate expected to be approximately 26%. - CapEx expected to be between $300 million to $350 million. - Second half of calendar year growth expected to be a touch softer due to seasonality.

• Uncertain market environment which could impact actual results. - Continued weakness in new residential construction and repair, maintenance, and improvement demand. - Commodity deflation, particularly in PVC, and uncertain inflation trends. - Competition for acquisitions and potential challenges in integrating acquired businesses.

Q: So kind of a broad question on growth and the end market outlook here. Obviously, a lot of crosscurrents recently around new residential, HVAC, et cetera, all of that. Meanwhile, you showed this strong non-residential result and inflation is improving. So really I'm asking, looking ahead, kind of thinking about this mid-single-digit growth for the total calendar year. Just trying to put all these trends together kind of -- it would -- I guess, it would be helpful on kind of price and volume quarter-to-date to sort of help us out there. But then really, what are your assumptions going forward on these kind of changing end markets here over these next few months?

A: Thank you for the question. Maybe I'll take a little bit about the market and then let Bill fill in with a bit of color. If I take a step back, if we look at when we entered fiscal year '25, we came into the year believing that our markets would be down, low single digits. We thought that the residential markets would be down low- to mid-single digits, and we thought non-res would be roughly flat. And so suffice it to say, we're pretty pleased with Q4 plus 7% and a year-to-date of plus 3.8%. And probably even more pleased that our key growth areas that we wanted to focus on drove that growth, whether it's HVAC expansion, Ferguson Home, Waterworks diversification. And then what we were doing with what we believe is a strong value proposition on large capital projects in non-residential, and that really did drive the growth. If we then take a shift into where we are currently and how we view, call it, the back half of calendar year '25 or this stub period of 5 months, we think that growth could be a bit softer in half 2 of calendar year. And we really recognize that new residential construction weakness continues. We've seen continuation of softer RMI or repair remodel markets. And then candidly, when we look at some of our larger growth areas like HVAC, we have an affordability issue with a pressured consumer and a movement to more repair versus replace. Now the nonresidential markets really continue as traditional nonresidential activity isn't going to step up or we don't see that step up happening. But the strength of large capital projects and that being our growth area does play out. But we do recognize that, that residential new construction in RMI market can be a bit more challenged.

Q: So kind of a broad question on growth and the end market outlook here. Obviously, a lot of crosscurrents recently around new residential, HVAC, et cetera, all of that. Meanwhile, you showed this strong non-residential result and inflation is improving. So really I'm asking, looking ahead, kind of thinking about this mid-single-digit growth for the total calendar year. Just trying to put all these trends together kind of -- it would -- I guess, it would be helpful on kind of price and volume quarter-to-date to sort of help us out there. But then really, what are your assumptions going forward on these kind of changing end markets here over these next few months?

A: Yes. And Matt, maybe just to build on that. If you look at the first half calendar results that we just walked through and that we put in the slide deck, revenue was up about 5% for the first half. I would tell you, July was a strong month, a solid month in line largely with what we saw in Q4. But as we stepped into August, we did see that growth come down a touch. August sales per day were up about 5%. And I say sales per day because we had 1 fewer sales day which we'll pick back up in September, but it did step down to 5%. And to Kevin's point, as we look into the back half of the year, and we've provided a full year guide of mid-single digits, we would expect the overall growth rate to maybe be a touch softer in the second half, the market dynamics that Kevin outlined are certainly the driving force of that. And then if you just look at our comparables, our volume comparables do step-up as we go through Q1 and into our old fiscal Q2, which would be November, December. So we feel good about the guide that we've provided. We think we will continue to have good growth in the second half, but probably a touch softer than half 1.