Ferguson plc

Good morning ladies and gentlemen, my name is Harry and I will be your conference operator today. At this time I would like to welcome you to the Ferguson Results report that ended on 31st October 2025 conference call. All lines have been placed on mute to prevent any interference with the presentation. At the end of prepared remarks there will be a question and answer session. If you ask a question at that time please press star followed by the number 1 on your telephone keypad. If you withdraw your question please press star followed by the number 2. Thank you. I would now like to turn the call over to Mr. Brian Lance, Ferguson's VP of Investor Relations and Communications. You may begin your conference call.

Good morning, everyone, and welcome to Ferguson's quarterly earnings conference call and webcast. Hopefully, you've had a chance to review the earnings announcement we issued this morning. The announcement is available in the investor section of our corporate website and on our SEC filings webpage. A recording of this call will be made available later today. I want to remind everyone that some of our statements today may be forward-looking and are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected, including the various risks and uncertainties discussed in our Form 10K available on the SEC's website. Also, any forward-looking statements represent the company's expectations only as of today, and we disclaim any obligation to update these statements. In addition, on today's call, we will also discuss certain non-GAAP financial measures. Therefore, all references to operating profit, operating margin, diluted earnings per share, effective tax rate, and earnings before interest, taxes, depreciation, and amortization reflect certain non-GAAP adjustments. Please refer to our earnings presentation and announcement on our website for additional information regarding those non-GAAP measures, including reconciliations to their most directly comparable GAAP financial measures. With me on the call today are Kevin Murphy, our CEO, and Bill Brundage, our CFO. I will now turn the call over to Kevin.

Thank you, Brian. Welcome, everyone, to Ferguson's quarterly results conference call. On today's call, we'll cover highlights of our quarterly performance. I'll also provide a more detailed view of our performance by end market and customer group. I'll turn the call over to Bill to review financials and our updated guidance before I wrap up with a few final comments. We'll have time to take your questions at the end. During the quarter, once again, our expert associates delivered strong results, continuing to execute our growth strategy in a challenging market environment. Sales of $8.2 billion increased 5% over prior year driven by organic growth of 4% and acquisition growth of 1%. Gross margin of 30.7% increased 60 basis points over the prior year. We remained disciplined on costs, and generated $808 million of operating profit, which grew 14% over last year. Looted earnings per share increased nearly 16% over the prior year to $2.84. We continued to execute our capital priorities, flowing $511 million this quarter. We've declared a 7% increase to our quarterly dividend to $0.89 per share. And we acquired more supply company, HVAC equipment and supplies business in the Chicago metro area. We also returned $372 million to shareholders by a share repurchases and dividends. Our balance sheet remains strong with net debt to EBITDA of 1.1 times. While we continue to operate in a challenging environment, we remain confident in our markets over the medium term. and we'll stay focused on leveraging multi-year tailwinds in both residential and non-residential end markets as we support the complex project needs of the water and air specialized professional. Turning to our performance by end markets in the United States. Net sales grew by 5.3%. Residential end markets, representing approximately half of U.S. revenue, remain challenged. New residential housing starts and permit activity have been weak, Repair, maintenance, and improvement work has also remained soft. We continue to outperform the markets with residential revenue down 1% in the quarter. Non-residential end markets perform better than residential. Our scale, expertise, multi-customer group approach, and value-added services drove continued share gains with non-residential revenue up 12% during the quarter. Strength in large capital project activity has continued, and we've seen solid shipments, growth in open order volumes and bidding activity. Our intentional balanced approach to end markets continues to position us well. Moving next to revenue performance across our customer groups in the United States. We grew WaterWorks revenues by 14% as our highly diversified customer group saw strength in large capital projects, public works, general municipal, and meters and metering technology, offsetting weakness in residential. Ferguson Homes which brings together our best in class showroom and digital experience, grew 1% in a challenging new construction and remodel market. Our ability to present a unified experience and cater to higher end projects drove out performance against the broader market. Residential trade plumbing declined by 4% due to headwinds in both new and RMI construction. HVAC declined by 6% against a strong 9% comparable and weaker markets impacted by the industry's transition to new efficiency standards, weak new residential construction activity, as well as a pressured consumer. We remain pleased with our execution, our counter build out for the dual trade and M&A opportunities. Commercial mechanical customer group grew 21% on top of a 1% prior year comparable, driven by large capital projects such as data centers, partially offset by weaker activity in traditional non-residential projects. Our fire and fabrication, facility supply, and industrial customer groups all saw growth during the quarter as we continued to take share and leverage our unique multi-customer group approach. Our customer groups are better together, sharing expertise to provide end-to-end solutions that help simplify complex projects and maximize contractor productivity. Now let me pass the call over to Bill for the financial results in more detail. Thank you, Kevin, and good morning, everyone. Net sales of $8.2 billion were 5.1% ahead of last year, driven by organic revenue growth of 4.2% and acquisition growth of 1%, partially offset by 0.1% from the adverse impact of foreign exchange rates and from a divestment in Canada. Price inflation was approximately 3%, with modest sequential improvement in finished goods pricing offset by commodity-related categories being down low single digits. Gross margin of 30.7% increased 60 basis points over last year, driven by our associates' disciplined execution. Operating costs grew slower than revenue, delivering 20 basis points of operating leverage. An operating profit of $808 million was up 14.4%, delivering a 9.9% operating margin with 80 basis points of expansion over the prior year. Diluted earnings per share of $2.84 was 15.9% above last year, driven by operating profit growth and the impact of share repurchases. And our balance sheet remains strong at 1.1 times net debt to EBITDA. Moving to our segment results, net sales in the U.S. grew 5.3%, with organic growth of 4.4% and a further 0.9% contribution from acquisitions. Operating profit of $806 million increased $109 million over the prior year, delivering an operating margin of 10.4%. In Canada, net sales were 2.2% ahead of last year, with organic growth of 0.7% and a 4.6% contribution from acquisitions, partially offset by a 1.6% adverse impact from foreign exchange rates, as well as 1.5% from a non-core business divestment. markets have remained subdued in Canada, particularly in residential. Operating profit of $16 million was $7 million below last year. Moving next to our cash flow performance for the quarter, EBITDA of $867 million was $109 million ahead of last year. Working capital investments of $440 million during the quarter was up slightly from $376 million in the prior year, principally driven by timing. Operating cash flow is $430 million compared to $345 million in the prior year. We have continued to invest in organic growth through CapEx, investing $118 million in the quarter, resulting in free cash flow of $325 million compared to $274 million in the prior year. Turning to capital allocation, as previously mentioned, we invested $440 million in working capital and another $118 million in CapEx. to further build on our competitive advantages and drive above market organic growth. We paid $164 million of dividends during the quarter and our board declared an 89 cent per share quarterly dividend representing a 7% increase on the prior year and reflecting our confidence in the business. We continue to consolidate our fragmented markets through bolt-on geographic and capability acquisitions. As Kevin mentioned, We completed the acquisition of Moore Supply Company during the quarter, a great addition to our HVAC presence in the Chicago area. Our markets remain very highly fragmented, and our acquisition pipeline is healthy. And finally, we are committed to returning surplus capital to shareholders when we are below the low end of our target leverage range of one to two times net debt to EBITDA. We returned $208 million to shareholders via share repurchases during the quarter, reducing the share count by nearly 1 million. and we have approximately $800 million outstanding under the current share repurchase program. Now turning to our updated calendar 2025 guidance. We are pleased with our continued market outperformance and solid growth in the quarter. We are well positioned to deliver a strong calendar year 2025 performance and remain confident in our markets over the medium term, despite near-term uncertainties. We now expect approximately 5% revenue growth for the year. And we expect an operating margin range of between 9.4 to 9.6%, up from our prior expectation of between 9.2 to 9.6%. Interest expense is expected to be approximately $190 million for the year. We estimate CapEx of approximately $350 million, the upper end of our previous guide. We continue to expect our effective tax rate to land at approximately 26%. We believe we are well positioned as we finish the year and head into the new calendar year. Thank you, and I'll now pass back to Kevin. Thank you, Bill. As we conclude our remarks, let me first reiterate our thanks for the hard work and diligence of our expert associates. They continue to execute on our growth strategy as we work to drive construction productivity for our customers. We're particularly pleased with the double-digit non-residential growth as our teams closely collaborate to simplify projects bring order to chaos, and deliver end-to-end solutions to help maximize customer success. We're poised to deliver a strong calendar 2025 performance, and our strong balance sheet enables us to invest in organic growth, consolidate our fragmented markets through acquisitions, and return capital to our shareholders. We'll continue to operate at the lower end of our target leverage range, maintain flexibility, and capitalize on strategic opportunities as they arise. We remain confident in our markets over the medium term and expect to continue to outperform our markets as we leverage multi-year structural tailwinds. With our size, scale, and strategy, we believe we're well positioned to take advantage of opportunities in the underbuilt and aging U.S. housing market, non-residential large capital projects, and the growing demand for water and air specialized professionals. Thank you for your time today. Bill and I are now happy to take your questions. Operator? I'll hand the call back over to you.