Ferguson Enterprises Inc. Falls Short of Expectations with Q1 Results
Ferguson Enterprises Inc. (NYSE: FERG) delivered a modest increase in sales for the first quarter, reporting $7.8 billion in net sales, marking a 0.8% growth compared to the previous year. This growth was largely driven by a 3% increase in sales volume, although this was partially offset by a 2% decrease due to deflation in certain commodity categories.
The gross margin stood at 30.1%, a slight decline of 10 basis points from the previous year, reflecting continued market challenges and cost pressures. Operating profit was reported at $665 million, translating to an operating margin of 8.6%. On an adjusted basis, the operating profit was $706 million, with a margin of 9.1%, both figures showing a decline from the prior year.
The company declared a quarterly dividend of $0.83, a 5% increase over the previous year, demonstrating confidence in its cash flow and financial stability. Ferguson also completed one acquisition during the quarter and another subsequently, reflecting its ongoing strategy to leverage acquisitions for growth.
Share repurchases amounted to $256 million, and the company’s balance sheet remains robust with a net debt to adjusted EBITDA ratio of 1.2x. CEO Kevin Murphy expressed satisfaction with the company’s execution amid challenging market conditions, emphasizing the strong balance sheet and cash generation capability.
Ferguson’s First Quarter Performance Short of Market Expectations
Ferguson’s first-quarter performance fell short of market expectations. Analysts had anticipated earnings per share (EPS) of $2.88, but the company reported a diluted EPS of $2.34, or $2.45 on an adjusted basis.
This represents a 7.9% and 7.5% decrease from the previous year, primarily due to lower adjusted operating profit. The revenue of $7.8 billion was slightly below the expected $8.07 billion, highlighting the impact of continued deflation and market headwinds.
The U.S. operations, which account for the bulk of Ferguson’s revenue, saw a 0.5% increase in net sales. This was driven by a 0.9% contribution from acquisitions, offsetting a 0.4% organic revenue decline. Residential markets remained flat, while non-residential markets showed a slight improvement with a 1% growth.
However, adjusted operating profit in the U.S. fell by 9%, indicating ongoing challenges in maintaining profitability amidst competitive pressures and cost inflation.
Ferguson Maintains its Fiscal 2025 Full Year Guidance, Expects Adj. Operating Margin Between 9.0% to 9.5%
Ferguson maintained its fiscal 2025 guidance, anticipating low single-digit growth in net sales and an adjusted operating margin between 9.0% and 9.5%.
This outlook reflects the company’s expectation of continued market outperformance despite an anticipated challenging market environment. The guidance assumes a slight decline in pricing for the year, with market conditions expected to remain down low single digits.
Ferguson plans to continue investing in scale and capabilities to capitalize on long-term structural growth drivers, such as underbuilt U.S. housing and large capital projects in non-residential sectors.Interest expenses are projected to range between $180 million and $200 million, with capital expenditures expected to be between $400 million and $450 million.
The company does not provide a reconciliation of forward-looking non-GAAP measures, citing the unpredictability of non-recurring items. Ferguson’s commitment to its strategic priorities remains firm, with a focus on organic growth, market consolidation through acquisitions, and returning capital to shareholders.
Disclaimer: The author does not hold or have a position in any securities discussed in the article.
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