Ferguson Enterprises Inc. (FERG) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call presents a mixed picture: financial performance and market strategy show positive growth in key areas like Waterworks and HVAC, but challenges in residential construction and remodel markets temper enthusiasm. While guidance indicates low to mid-single-digit growth, uncertainties in pricing, inflation, and residential sectors create a balanced outlook. The Q&A reveals healthy backlogs and strategic focus but lacks clarity on specific challenges, suggesting a neutral sentiment with potential for slight positive or negative adjustments.
Key Financial Performance
Sales $8.5 billion increased 6.9% over prior year, driven by organic growth of 5.8% and acquisition growth of 1.1%.
Gross Margin 31.7% increased 70 basis points over the prior year.
Operating Profit $972 million grew 13.4% over last year.
Diluted Earnings Per Share $3.48 increased 16.8% over prior year.
Net Debt-to-EBITDA 1.1x remained strong.
U.S. Net Sales Increased 7.1%, driven by strong growth in nonresidential markets.
Residential Revenue Flat in the quarter due to weakened new construction starts and permit activity as well as soft demand in repair, maintenance, and improvement.
Nonresidential Revenue Grew approximately 15%, with 17% growth in commercial and 13% in civil infrastructure end markets.
HVAC Revenue Slightly down due to softer market conditions impacted by the industry's transition to new efficiency standards and weak new residential construction activity.
Residential Trade Plumbing Revenues Decreased 2% due to headwinds in new construction and ongoing PVC price deflation.
Ferguson Home Revenue Grew 3% in the fourth quarter.
Commercial Mechanical Revenue Grew 21%.
Waterworks Revenue Increased 15%.
Industrial, Fire & Fabrication and Facilities Supply Revenue Combined net sales growth of 5%.
Full Year Revenue $30.8 billion, 3.8% ahead of last year.
Full Year Operating Profit $2.84 billion, up 0.6%, representing a 9.2% operating margin.
Full Year Diluted Earnings Per Share $9.94, a 2.6% increase over last year.
Operating Cash Flow $1.9 billion, allowing continued investments in growth areas.
Return to Shareholders $1.4 billion via dividends and share repurchases during the year.
Residential End Markets Declined approximately 3% due to weak new construction and softer RMI markets, but organic revenue was up 1%.
Nonresidential Markets Approximately flat, but delivered 6% organic growth for the year.
HVAC Revenue (Full Year) Increased 8%, driven primarily by organic growth and approximately 1% from acquisitions.
Waterworks Revenue (Full Year) Grew 10%, driven by diversification efforts and addressing aging infrastructure.
Net Sales (U.S. Segment) Grew 7.1% with an organic increase of 6.1% and a 1% contribution from acquisitions.
Net Sales (Canada Segment) 4.8% above last year, with organic growth of 0.3% and a 4.9% contribution from acquisitions.
Full Year Gross Margin 30.7%, up 20 basis points.
EBITDA Approximately $3.1 billion, up $44 million on the prior year.
Free Cash Flow $1.654 billion, an increase of $132 million over the prior year.
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Operating Highlights
HVAC expansion: Revenue increased 8% for the year, driven by organic growth and acquisitions. Completed over 600 dual trade counter conversions, nearing the goal of 650 by early 2026. Recent acquisitions in Atlanta and Chicago strengthened the HVAC strategy.
Ferguson Home: Launched in February, combining residential building, remodel, and digital commerce into a unified brand. Accounts for 19% of U.S. sales and focuses on high-end projects, delivering 3% revenue growth in Q4.
Nonresidential market growth: Nonresidential revenue grew 15% in Q4, with 17% growth in commercial and 13% in civil infrastructure. Industrial grew 5%. For the year, nonresidential markets were flat, but Ferguson achieved 6% organic growth.
Residential market performance: Residential revenue was flat in Q4 due to weak new construction and soft demand in repair, maintenance, and improvement. For the year, residential markets declined 3%, but Ferguson achieved 1% organic growth.
Cost management and profit growth: Operating profit grew 13.4% in Q4 to $972 million, with a 16.8% increase in diluted EPS. For the year, operating profit was $2.84 billion, up 0.6%, with a 9.2% operating margin.
Capital allocation: Returned $1.4 billion to shareholders via dividends and share repurchases. Invested $300 million in CapEx and $300 million in working capital. Completed 9 acquisitions during the year.
Market positioning and diversification: Focused on HVAC and Waterworks diversification through acquisitions and geographic expansion. Strengthened expertise in water and wastewater treatment plant design with recent acquisitions.
Large capital projects: Leveraged capabilities in underground waterworks, commercial and industrial PVF, and fire protection to support data centers, manufacturing, and healthcare facilities. Achieved 7% total nonresidential growth for the year.
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Risk or Challenges
Residential End Market: Subdued due to weakened new construction starts, permit activity, and soft demand in repair, maintenance, and improvement. Residential revenue was flat in the quarter.
HVAC Revenue: Slightly down due to softer market conditions, impacted by the industry's transition to new efficiency standards and weak new residential construction activity.
Residential Trade Plumbing Revenues: Decreased 2% due to headwinds in new construction and ongoing PVC price deflation.
Economic Environment: Operating in an uncertain environment, which could impact medium-term market confidence and growth.
Commodity-Related Categories: Deflation in certain commodity-related categories, particularly early in the year, slightly impacted pricing.
Interest Expense: Expected to be between $180 million to $200 million, which could impact financial performance.
Market Uncertainty: General uncertainty in the market environment, which could affect strategic execution and growth.
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Guidance & Outlook
Revenue Growth: Mid-single-digit revenue growth expected for calendar year 2025.
Operating Margin: Operating margin range projected between 9.2% to 9.6% for calendar year 2025, reflecting an improvement of 10 to 50 basis points over the prior year.
Interest Expense: Expected to be between $180 million to $200 million for calendar year 2025.
Effective Tax Rate: Estimated to be approximately 26% for calendar year 2025.
Capital Expenditures (CapEx): Projected to range between $300 million to $350 million for calendar year 2025.
Market Outlook: Confidence in medium-term market attractiveness despite current uncertainties, leveraging multiyear tailwinds in residential and nonresidential markets.
HVAC Expansion: Continued focus on dual trade counter conversions, geographic expansion, and strategic acquisitions to support HVAC growth, with a goal of completing 650 counter conversions by early 2026.
Waterworks Diversification: Ongoing investments in water and wastewater treatment capabilities, including recent acquisitions to strengthen expertise in infrastructure and treatment plant design.
Large Capital Projects: Positioned to capitalize on onshoring and restoring initiatives, with a focus on data centers, manufacturing operations, and healthcare facilities.
Ferguson Home: Continued rollout and investment in Ferguson Home to enhance customer experience and support high-end residential projects.
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Shareholder Return Plan
Dividends returned to shareholders: $1.4 billion returned to shareholders via dividends and share repurchases during the year.
Quarterly dividend: $0.83 per share declared for the quarter, representing a 5% increase over the prior year.
Share repurchases: $948 million returned to shareholders via share repurchases this year, reducing share count by approximately 5 million.
Outstanding share repurchase program: Approximately $1 billion remains outstanding under the current share repurchase program.
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Key Q&A
Q:What are the growth assumptions for the end markets in the next few months?
A:The company entered fiscal year '25 expecting markets to be down low single digits, with residential markets down low- to mid-single digits and non-residential markets roughly flat. For the back half of calendar year '25, growth is expected to be softer due to continued weakness in new residential construction, softer repair and remodel markets, and affordability issues in HVAC. Non-residential markets are supported by large capital projects, but traditional non-residential activity is not expected to step up.
Q:What is the company's approach to large capital projects and multi-customer group strategy?
A:The company uses a multi-customer group approach, being best-in-class for individual contractors or trade professionals while engaging with engineers, architects, and owners to ensure projects are completed on time and on budget. This strategy has driven growth in areas like Waterworks (up 15%), commercial mechanical (up 21%), and fire protection (up 5%). Data center construction activity is accelerating, with no pauses or cancellations, and the company is leveraging value-added services like piping systems, valve automation, and virtual design.
Q:What is the outlook for non-residential markets and bidding activity?
A:Non-residential backlogs are healthy across commercial mechanical, fire protection, Waterworks, and industrial pipe valve and fitting. The gestation period of projects varies, but operational agility ensures timely completion. Strength is seen in data centers, biotechnology, pharma, large-scale hospital work, and water/wastewater treatment plants. The company is building capabilities in process equipment solutions, pump packages, valve offerings, and controls for water and wastewater treatment plants.
Q:What is the pricing and margin outlook for the company?
A:Pricing has moved back into low single-digit inflation, with commodities like copper and steel showing inflation, while PVC remains in deflation. Gross margins were 31.7% in the quarter, benefiting from earlier pricing actions and supplier price increases. However, normalized gross margins are expected to settle in the 30%-31% range as temporary benefits wane. August gross margins showed normalization.
Q:What is the expected operating margin for the second half of the calendar year?
A:The implied operating margin for the second half of the calendar year is expected to be in the upper 8% to mid-9% range, reflecting seasonality and a touch lighter performance in November and December due to holidays. This is an improvement from 8.8% in the second half of the previous calendar year.
Q:What is the status of the company's restructuring actions and cost savings?
A:The company has executed streamlining actions, achieving $100 million in annualized cost benefits. These savings are expected to contribute roughly $25 million year-over-year over the next three quarters. The cost base is positioned well for the second half, with operating leverage expected if the sales environment aligns with expectations.
Q:What is the outlook for the residential remodel market?
A:The residential remodel market continues to face pressure, with the higher end performing better. Ferguson Home achieved 3% growth, driven by the higher-end remodel market. Traffic in showrooms remains healthy, but the lower end of the market faces pressure from new construction weakness and PVC price deflation.
Q:What is the performance and outlook for the Waterworks segment?
A:Waterworks achieved 15% growth in the quarter, driven by diverse business mix and large capital projects. Residential Waterworks faces pressure from new residential construction weakness, but bidding activity remains decent. The company has a broad-based residential business across the U.S., with strength in the Southeast and South.
Q:What is the performance and outlook for the HVAC segment?
A:HVAC was down 1% in Q4, with low single-digit inflation overall. The transition from R410A to A2L systems is ongoing, with higher price points for A2L systems. The company is expanding counters, locations, and M&A to support growth. HVAC is expected to face near-term pressure due to affordability issues and new residential construction weakness, but the medium-term outlook remains positive.
Q:What is the company's approach to capital allocation and M&A?
A:The company operates towards the low end of its 1-2x net debt to EBITDA leverage range, maintaining a strong balance sheet for growth investments. The M&A pipeline is healthy, focusing on consolidating small- to medium-sized competitors in water and air. Valuations remain at the upper end of the 7-10x enterprise value to EBITDA range.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the residential remodel backlog compared to 1-2 quarters ago, the exact impact of tariffs on pricing, and the geographic breakdown of the residential Waterworks business. Additionally, they did not provide precise figures for HVAC inflation or the expected timeline for normalization of gross margins.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Atlanta Southeast
Atlanta supply
CFO Results
Cash generation
Chicago HVAC
Chicago end
Chicago metro
Communications Conference
Communications addition
Conference today
Duct Supply
End Results
Fabrication Facilities
HVAC plumbing
Industrial
Manufactured Duct
acquisition margin
area acquisition
associate market
change calendar
condition
distributor
improvement basis
interest tax
manufacturer representative
month transition
period month
process equipment
professional project
project Home
role partner
sheet debt
success
trade counter
trade plumbing
trade professional
transition period
FERG Transcript
Ferguson Enterprises Inc. (FERG) Q1 2026 Earnings Call Transcript
Positive5-5
The earnings call summary indicates strong financial performance with revenue, operating profit, and EPS all showing healthy growth. The operating margin also improved, suggesting effective cost management. Despite a slight decline in cash flow from operations, the overall financial health appears solid. The absence of negative sentiment or concerns in the Q&A section further supports a positive outlook. Given these factors, the stock price is likely to experience a positive movement in the short term.
Ferguson Enterprises Inc. (FERG) Q4 2025 Earnings Call Transcript
Positive2-24
The company exhibits a robust strategic plan, with expected revenue growth and operating margin expansion. The focus on nonresidential growth, particularly in data centers, and a strong acquisition strategy are positive indicators. The Q&A reveals confidence in the Waterworks sector and a promising M&A outlook for 2026. Despite flat margins due to normalization, the overall guidance is optimistic. Shareholder returns via share repurchases further enhance sentiment. While there are some uncertainties in management responses, the positive aspects outweigh them, suggesting a 2% to 8% stock price increase.
Ferguson Enterprises Inc. (FERG) Q1 2026 Earnings Call Transcript
Unknown12-9
The earnings call summary and Q&A indicate several concerns: a slowdown in Q4 growth due to residential and HVAC market pressures, unclear guidance for early 2026, and vague responses regarding large projects and HVAC recovery. While there is optimism for long-term growth, the immediate outlook is uncertain, with only modest margin improvements expected. The negative sentiment is compounded by the lack of specific guidance and ongoing market challenges, suggesting a likely negative stock price reaction over the next two weeks.
Ferguson Enterprises Inc. (FERG) Q4 2025 Earnings Call Transcript
Unknown9-16
The earnings call presents a mixed picture: financial performance and market strategy show positive growth in key areas like Waterworks and HVAC, but challenges in residential construction and remodel markets temper enthusiasm. While guidance indicates low to mid-single-digit growth, uncertainties in pricing, inflation, and residential sectors create a balanced outlook. The Q&A reveals healthy backlogs and strategic focus but lacks clarity on specific challenges, suggesting a neutral sentiment with potential for slight positive or negative adjustments.
FERG Slides
FERG Report
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