FERG

• Overall Q2 2026 Financial Performance

  • Total company net sales of $8.8 billion, up 4.6% year-over-year, driven by 3.8% organic growth and 1% acquisition growth, partially offset by 0.2% divestment impact
  • Gross margin of 31%, down 20 basis points year-over-year, in line with expectations due to difficult prior-year comparisons
  • Operating profit increased 2.9% to $932 million, for an operating margin of 10.7%, down 10 basis points year-over-year
  • Diluted earnings per share of $3.39, up 5.3% year-over-year, supported by operating profit growth and share repurchases
  • Balance sheet remains strong, with net debt to EBITDA of 1.3x at quarter-end, within the 1-2x target range

• End Market Performance

  • U.S. non-residential end markets delivered 8% year-over-year growth, on top of 13% prior-year growth, with strong large capital project activity offsetting softer traditional non-residential work
  • U.S. residential end markets returned to 2% year-over-year growth, despite ongoing headwinds to new construction and repair/remodel activity

• Customer Group U.S. Revenue Performance

  • Waterworks: +3% year-over-year; diversified exposure to large capital projects and public works offset weaker residential demand
  • Commercial mechanical: +15% year-over-year, driven by strong execution on large capital projects including data centers, pharmaceutical/biotechnology facilities, and general manufacturing
  • Industrial: +18% year-over-year, with steady demand across life sciences, pharma, chemical, and power generation infrastructure
  • Facility supply: +5% year-over-year; Fire and fabrication: -13% year-over-year; Ferguson Home (residential): -1% year-over-year; Residential trade plumbing: flat
  • HVAC: +11% year-over-year, driven by strong organic performance and acquisition contributions, outperforming broader market trends

• M&A Activity

  • 8 acquisitions announced year-to-date, 5 closed in Q2, with nearly $600 million invested in Q2; aggregate annualized revenue of all 8 announced acquisitions is ~$1.4 billion
  • Post-quarter-end, definitive agreement signed to acquire FlowWorks, a leading U.S. and Canadian distributor of technical valves and flow control solutions with ~$1 billion 2025 revenue, 60+ locations (including 25 service/repair centers), and 1,000+ associates
  • The FlowWorks acquisition is an all-cash transaction with an enterprise value of ~$1.6 billion (10x EBITDA including $45 million expected synergies), expected to close in Q3 2026 and be immediately accretive to adjusted EPS; it will increase Ferguson's total addressable market from $340 billion to $400 billion, add recurring MRO revenue, expand exposure to high-growth end markets (data centers, semiconductors, pharma/biotech, water infrastructure), and create cross-sell opportunities across customer groups
  • Leverage will rise to ~1.8x post-close, remaining within the 1-2x target range

• Capital Allocation

  • $375 million returned to shareholders via dividends and share repurchases in Q2; $438 million returned year-to-date via share repurchases, reducing share count by ~1.7 million
  • Board declared a quarterly dividend of $0.89 per share; share buybacks will be paused after FlowWorks closing until leverage returns to the lower end of the target range
  • $234 million invested in year-to-date capital expenditure, focused on supply chain expansion/optimization, branch network, and technology initiatives

• Management raised full-year 2026 net sales growth guidance to mid-single digits, up from the prior guidance of low to mid-single digits, driven by stronger year-to-date performance versus expectations
• Full-year operating margin guidance range is updated to 9.5% to 9.8%, with an increase to the lower bound of the range from prior guidance
• Interest expense is maintained at approximately $200 million; the expected effective tax rate is approximately 26%
• Capital expenditure guidance is updated to a range of $375 million to $425 million, to reflect the timing of planned capital deployment
• The updated guidance does not include the impact of the FlowWorks acquisition, which is expected to close in Q3; guidance will be updated alongside Q3 2026 earnings results after closing
• Management expects second half 2026 organic revenue growth to be slightly higher than first half growth, with Q3 2026 growth expected to exceed Q2 2026 growth, supported by growing large capital project backlogs and continued HVAC growth

United States segment: Net sales grew 5% year-over-year, with 4% organic growth and 1% acquisition contribution. Operating profit reached $925 million, a 2.9% increase from the prior year, for an operating margin of 11.1% of segment revenue. This segment contributes over 97% of Ferguson's total operating profit.

Canada segment: Net sales decreased 1.9% year-over-year, as 1.7% organic growth was fully offset by 3.6% impact from a non-core business divestment. Adjusted operating profit was $22 million, a $1 million decrease from the prior year. Challenging market conditions, particularly in the residential segment, pressured performance.

• The broader macroeconomic environment remains uncertain, with persistent headwinds in residential construction and repair/remodel markets
• Commodity price volatility, particularly for products like PVC, creates uncertainty for overall inflation and gross margin trends
• Long gestation periods for large capital projects create uncertainty around the timing of revenue recognition in individual quarters
• Tariff policy changes create potential uncertainty for input pricing, though management notes no material impact from recent tariff refund activity
• Inventory is currently slightly elevated to support HVAC growth and large capital project backlog, creating some near-term balance sheet pressure that is expected to normalize by year-end

Q: Analyst asks about strong growth in large capital projects, specifically current backlog/open order trends and how this business is incorporated into full-year guidance. / A: Management confirms large capital projects make up mid-to-high single digit percentage of total revenue, and backlogs continue to build across commercial mechanical, industrial, and waterworks, with backlogs growing faster than current quarterly revenue. The long-term trend for the sector remains strongly positive, driven by broad-based activity beyond data centers including power generation and water infrastructure. Early engagement with project teams to manage supply chain needs positions Ferguson well to capture growth from the large project pipeline, though quarterly revenue timing remains unpredictable due to long project gestation.

Q: Analyst asks what is driving the slowdown in inflation to low single digits, and how inflation is tracking into the third quarter. / A: Management notes the slowdown was broadly in line with full-year expectations, as lapping strong prior-year price increases led to compression in overall inflation. Blended finished goods inflation is now in the low single digit range, while commodity prices overall were flat in the quarter, with PVC still experiencing double-digit deflation as price increases struggled to stick. Management reaffirms expectations for full-year inflation to remain in the low single digit range.

Q: Analyst asks why management raised full-year guidance, and what expectations are for second half organic growth versus Q2. / A: Management notes the guidance upgrade is driven by stronger-than-expected first half performance, not a change in overall market expectations. Market forecasts remain unchanged: residential is expected to be down low-to-mid single digits, non-residential up low-to-mid single digits. The second half is expected to deliver slightly higher growth than the first half, supported by the current large backlog of open large capital project orders.

Q: Analyst asks what revenue synergies are expected from the FlowWorks acquisition, beyond adding products Ferguson already sells. / A: Management explains FlowWorks brings deep specialized technical capabilities in valves, automation, flow control, pump, and valve repair services that complement Ferguson's existing offerings. It also adds strong existing customer relationships in high-growth priority end markets including power generation, semiconductor manufacturing, and downstream oil and gas. The combination strengthens Ferguson's end-to-end offering for large capital projects across its existing customer groups and adds a substantial recurring MRO business that will grow alongside the expanding installed base, creating significant cross-sell opportunities.