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Ferguson (NYSE: FERG) reported fourth-quarter sales of $7.9 billion, reflecting a 1.4% increase compared to the same period last year. Despite experiencing a price deflation of approximately 2%, the company managed to achieve this growth through a combination of organic revenue and acquisitions. The operating margin for the quarter stood at 10.2%, a 20 basis point improvement from the previous year. On an adjusted basis, the operating margin was 10.8%, up by 40 basis points.

Ferguson’s diluted earnings per share (EPS) for the fourth quarter were $2.23, but on an adjusted basis, the EPS was $2.98. The company declared a quarterly dividend of $0.79 per share and completed four acquisitions during this period. Additionally, Ferguson repurchased shares worth $213 million in the fourth quarter, demonstrating its commitment to returning value to shareholders.

Full-year performance showed net sales of $29.6 billion, a slight decrease of 0.3% from the previous year. The gross margin improved by 10 basis points to 30.5%, and the operating margin remained flat at 8.9%. On an adjusted basis, the operating margin was 9.5%, down 30 basis points. The full-year diluted EPS was $8.53, while the adjusted EPS was $9.69. The company generated strong cash flow, with $1.9 billion in net cash from operating activities.

Ferguson Beats EPS Expectations at $2.89

The fourth-quarter results reveal that Ferguson’s performance was below market expectations. Analysts had anticipated an EPS of $2.89, but the reported EPS was $2.23. However, the adjusted EPS of $2.98 exceeded expectations. This discrepancy was largely due to one-time, non-cash deferred tax charges arising from the new corporate structure, which impacted the reported EPS.

Revenue expectations for the quarter were set at $8.06 billion, but Ferguson reported $7.9 billion in sales. Despite this shortfall, the company managed to achieve a 1.4% increase in net sales compared to the same period last year. This growth was primarily driven by acquisitions, which contributed 1.7% to the overall sales growth, offsetting a 0.2% decline in organic revenue and a 0.1% adverse impact from foreign exchange rates.

Ferguson’s gross margin for the quarter was 31.0%, a 40 basis point improvement compared to last year. This increase was attributed to the value provided to customers and a decrease in inventory reserves. The operating profit for the quarter was $811 million, a 3.7% increase from the previous year, while the adjusted operating profit was $857 million, a 5.3% increase.

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Guidance

Ferguson has issued its guidance for FY2025, projecting modest full-year growth with continued market outperformance. The company anticipates net sales to grow in the low single digits, assuming market conditions remain challenging and pricing slightly down for the year. The adjusted operating margin is expected to be between 9.0% and 9.5%.

Interest expenses are projected to range between $180 million and $200 million, while the adjusted effective tax rate is estimated to be around 26%. Capital expenditures are expected to be between $400 million and $450 million. These projections reflect Ferguson’s strategy to invest in scale and capabilities, aiming to capitalize on multi-year structural tailwinds such as underbuilt and aging U.S. housing, non-residential large capital projects, and opportunities with dual-trade plumbing and HVAC contractors.

CEO Kevin Murphy expressed confidence in the company’s ability to outperform the market as it returns to growth. He highlighted the balanced business mix and the ability to deploy scale locally as key factors that will enable Ferguson to navigate the ongoing challenging market environment. The company plans to continue its investment in organic growth, sustainable dividend growth, and market consolidation through acquisitions.

Disclaimer: The author does not hold or have a position in any securities discussed in the article.

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