Ferguson Raises Outlook as U.S. Sales Accelerate
Reported earnings rose 6.9% to $3.43 a share as share count declined.
The plumbing and heating-products distributor Ferguson Enterprises (FERG) raised its annual outlook after quarterly net sales rose 4.6%, an acceleration from 3.6% growth in the March quarter.
Organic revenue growth increased to 3.8% from 2.8%, while acquisitions contributed 1.0%, up from 0.8%. Price inflation slowed to the low-single digits from the mid-single digits, leaving volume and acquisitions to carry more of the expansion.
Net sales reached $8.751 billion. Adjusted earnings rose 5.3% to $3.39 a share, extending a slowdown from growth of 9.1% in March, 11.7% in December and 15.9% in October. Diluted weighted-average shares fell to 194.0 million from 197.5 million, helping reported EPS growth outpace net-income growth of about 5%.
The U.S. business drove the pickup, with sales growth accelerating to 5.0% from 3.5% in March. Residential revenue returned to 2% growth after a 1% decline, while non-residential revenue grew 8% for a second consecutive quarter. Canadian sales fell 1.9% as a divestment more than offset organic growth, and adjusted operating profit declined by $1 million to $22 million.
Margin performance tempered the faster sales growth. Gross margin held at 31.0% sequentially and declined 20 basis points from a year earlier, reversing a 30-basis-point increase in March. Adjusted operating margin slipped 10 basis points year over year to 10.7%, and adjusted operating-profit growth slowed to 2.9% from 8.4%.
Ferguson now expects mid-single-digit sales growth for 2026, compared with its previous forecast for low- to mid-single-digit growth. The adjusted operating-margin range is 9.5% to 9.8%, with the lower end raised by 10 basis points. Capital-spending guidance is $375 million to $425 million, up $25 million at both ends.
Acquisition spending reached $573 million during the quarter as Ferguson completed five transactions. The eight acquisitions announced year to date represent about $1.4 billion in annualized revenue. Ferguson also agreed to buy FloWorks for about $1.6 billion, adding roughly $1 billion of 2025 revenue and more than 60 locations. The company expects the transaction to close in the third quarter and be immediately accretive to adjusted earnings; the deal remains excluded from its updated 2026 guidance.
The acquisition pace lifted net debt to $4.468 billion and leverage to 1.3 times adjusted EBITDA, from 1.0 times in March. First-half operating cash flow fell to $716 million from $1.123 billion as inventory and receivables absorbed more cash, while quarterly share repurchases declined to $202 million from $236 million.