Ferguson Q1 Earnings Call Highlights

Key Points

• Ferguson reported Q1 sales of $7.5 billion (+3.6% y/y) with 2.8% organic growth, gross margin up 30 bps to 31%, operating profit +8.4% to $647 million, and EPS +9.1% to $2.28.
• End markets were split: U.S. residential (about half of revenue) was soft with residential revenue down 1%, while non‑residential rose 8% driven by large capital projects and growing backlog.
• Management continued active capital deployment—six acquisitions expected to add ~$350 million of revenue, returned $410 million to shareholders (including $236 million of buybacks), approved a new $2 billion repurchase authorization, and reaffirmed full‑year 2026 guidance with net debt/EBITDA at 1.0x.

Ferguson LON: FERG reported first-quarter results that showed sales growth and margin expansion, with management emphasizing execution in a “challenging market” and reiterating full-year 2026 guidance.

Quarterly results and profitability

CEO Kevin Murphy said the company delivered “another quarter of solid results despite a challenging market.” Sales totaled $7.5 billion, up 3.6% year over year, driven by 2.8% organic growth and 0.8% acquisition growth. Gross margin expanded 30 basis points to 31%, which Murphy attributed to “solid execution across the business.”

Operating profit rose 8.4% to $647 million, with operating margin expanding 40 basis points to 8.7%. Diluted earnings per share increased 9.1% to $2.28. CFO Bill Brundage said productivity initiatives and cost discipline contributed to the quarter’s performance “while we invest for future growth.”

End-market trends: residential remains soft, non-residential grows

Murphy said the U.S. residential end market—about half of company revenue—“remained challenged,” citing weak new residential construction and soft repair, maintenance, and improvement (RMI) activity. Ferguson’s residential revenue declined 1% for the quarter, which Murphy said reflected outperformance versus weak market conditions.

In non-residential, Murphy characterized the market as “mixed,” but said Ferguson’s scale, expertise, “multi-customer group approach,” and value-added solutions drove share gains. Non-residential revenue increased 8% in the quarter. Management also highlighted ongoing large capital project activity, with “solid shipments” and growth in “bidding activity and open orders.”

Customer group performance and project activity

Management detailed performance across U.S. customer groups:

• Waterworks revenue grew 5% against an 11% comparable, with Brundage saying growth was “all volume” with “a touch of deflation.” Murphy pointed to diversification across municipal, meters and metering technology, public works, erosion control, and stormwater management, which helped offset weaker residential activity.
• Commercial mechanical grew 18% on top of a 9% comparable. Murphy cited large capital projects such as data centers as a driver, while noting weaker activity in “traditional non-residential construction.”
• Industrial revenue increased 10%, with Murphy noting growth in power generation, life sciences, pharma, and chemical.
• Facility supply rose 3%, while fire and fabrication declined 6%.
• Ferguson Home declined 2%, though Murphy said the company was serving a “more resilient higher-end segment” through showrooms and digital capabilities.
• Residential trade plumbing declined 2% amid headwinds in both new and RMI construction.
• HVAC returned to growth, up 1% against a 5% comparable. Murphy said the business is benefiting from investments in associates, counter retrofits, greenfield expansion, and M&A, and he highlighted continued strength in repair versus replace demand.

On large projects, Brundage said backlog and open order volume “continues to grow,” particularly in commercial mechanical, adding that commercial mechanical backlog is up “greater than that 18%” growth rate. Murphy said the company is focused on inventory and supply chain readiness for large capital projects, citing large diameter steel pipe and related components in a geopolitically uncertain environment.

Inflation, pricing, and gross margin outlook

During Q&A, Brundage said first-quarter results included mid-single digit price inflation, higher than the company expected entering the year, while volumes were “a bit more pressured,” driven by new residential and expected HVAC volume pressure in Q1. Looking ahead, he said the company expects “a touch more inflation with a touch more volume pressure than we originally anticipated,” while maintaining the same overall revenue outlook.

Brundage said finished goods represent roughly 85% of total revenue, and commodities about 15%. Commodities moved back into “slight inflation” overall, though plastic pipe (about half of the commodity basket) remained in deflation in the first quarter, described as “still down low double digits” as a basket. He said price increase announcements tied to resin and transportation costs had emerged, but it remained early and uncertain whether those increases would stick and for how long.

On margins, Brundage said Ferguson was “really pleased” with the 31% gross margin, citing execution in pricing, product strategy, customer service, and own brand growth. He noted own brand is now “slightly above 10% of our total revenue.” However, he said gross margins could “tick down a bit” in the second and third quarters due to seasonal mix shifts toward HVAC and Waterworks, which carry lower gross margins than the overall company.

Acquisitions, shareholder returns, and guidance reaffirmed

Ferguson continued to deploy capital across acquisitions and shareholder returns. Brundage said the company completed two acquisitions in Waterworks during the quarter—Technology Sales Associates and Chesapeake Environmental Equipment—and acquired Carrier Great Lakes in HVAC after quarter end. The company also signed definitive purchase agreements for two additional HVAC acquisitions (Dealers Supply Company and New England Applied Products) and PRD Technologies Group in industrial, and expects to close those three transactions in the second quarter.

Brundage said the aggregate annual revenue impact of the six acquisitions is approximately $350 million, and described the acquisition pipeline as “healthy.” The company returned $410 million to shareholders through repurchases and dividends in the quarter, including $236 million of share repurchases, and declared a quarterly dividend of $0.89 per share. The board also approved a new $2 billion share repurchase authorization, replacing the existing program. Murphy said the balance sheet remained strong with net debt to EBITDA of 1.0x.

Management reaffirmed full-year 2026 guidance. Brundage said Ferguson expects markets to be broadly flat, with residential down low- to mid-single digits and non-residential up low- to mid-single digits. The company continues to expect:

• Net sales growth: low- to mid-single digits
• Operating margin: 9.4% to 9.8%
• Interest expense: approximately $200 million
• CapEx: approximately $350 million to $400 million
• Effective tax rate: approximately 26%

In closing remarks, Murphy said Ferguson expects to continue to outperform through “scale deployed locally,” its “multi-customer group approach,” and exposure to long-term drivers including water infrastructure, large capital projects, climate and comfort, and aging and under-built housing.

About Ferguson LON: FERG

Ferguson plc distributes plumbing and heating products in the United States and Canada. It offers plumbing and heating solutions to customers in the residential, commercial, civil/infrastructure, and industrial end markets. The company also provides expertise, solutions, and products, including infrastructure, plumbing, appliances, fire, fabrication, and others, as well as heating, ventilation, and air conditioning products under the Ferguson brand name. In addition, it supplies pipes, valves, fittings, plumbing supplies, water and wastewater treatment products, and refrigeration products under Wolseley brand name.

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