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Ferguson Enterprises Inc. /DE/ (FERG)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 delivered modest revenue growth with deflation headwinds: net sales $7.77B (+0.8% YoY), adjusted operating margin 9.1% and adjusted EPS $2.45; guidance unchanged for FY2025, implying continued modest top-line growth and 9.0–9.5% adjusted operating margin .
  • Mix and deflation pressured profitability: gross margin 30.1% (-10 bps YoY), SG&A deleverage from wage inflation and growth investments; management expects margins to improve in 2H as finished goods pricing normalizes and commodity deflation eases .
  • Strategic progress: HVAC up 10%, Waterworks up 3%, residential flat; continued share gains in non-residential and large projects (data centers) offsetting traditional commercial softness .
  • Capital deployment: $256M buybacks, $0.83 dividend (+5% YoY), net debt/adjusted EBITDA 1.2x; $750M 5.000% senior notes due 2034 issued to prepay term loans and fund general corporate purposes .
  • Catalysts: unchanged guidance in a challenging macro, HVAC and large projects momentum, pricing normalization; watch SG&A leverage trajectory and commodity trends for operating margin progression .

What Went Well and What Went Wrong

What Went Well

  • Continued market outperformance with volume growth: total volume +~3% despite ~2% deflation; adjusted operating margin 9.1% and adjusted EPS $2.45 in line with expectations. CEO: “balanced business mix and ability to deploy scale locally give us confidence” .
  • Segment execution: HVAC +10% on strategic initiatives; Waterworks +3% with strong municipal/public works activity; non-residential revenue +~1% and share gains driven by data centers and large capital projects .
  • Capital allocation strength: $256M buybacks in quarter, $0.83 dividend declared (+5% YoY), leverage at 1.2x; $750M notes issuance extends funding flexibility .

What Went Wrong

  • Margin compression: gross margin 30.1% (-10 bps YoY) and operating margin 8.6% reported (adjusted 9.1% vs 10.0% prior year) due to commodity deflation and mix (HVAC/Waterworks lower margin) .
  • SG&A deleverage: cost base up ~5% vs volume +~3% from wage inflation and investments (trainee class, HVAC counter expansion, large project teams, digital tools) .
  • Residential softness persists: residential revenue flat; continued weakness in RMI and new construction; residential digital commerce -8% on weak consumer demand .

Financial Results

Revenue, EPS, and Margins vs prior quarters (oldest → newest)

MetricQ3 2024Q4 2024Q1 2025
Revenue ($USD Billions)$7.31 $7.95 $7.77
Gross Margin (%)30.5% 31.0% 30.1%
Operating Margin (Reported, %)8.6% 10.2% 8.6%
Operating Margin (Adjusted, %)9.2% 10.8% 9.1%
Diluted EPS (Reported, $)$2.18 $2.23 $2.34
Diluted EPS (Adjusted, $)$2.32 $2.98 $2.45

Segment Breakdown (Net Sales and Adjusted Operating Profit)

Segment Metric ($USD Millions)Q3 2024Q4 2024Q1 2025
USA Net Sales6,974 7,528 7,369
Canada Net Sales334 418 403
USA Adjusted Operating Profit685 844 697
Canada Adjusted Operating Profit6 22 23
Central and Other Costs(17) (9) (14)
Total Adjusted Operating Profit674 857 706

KPIs and Cash/Balance Sheet

KPIQ3 2024Q4 2024Q1 2025
Price Deflation (YoY)~2% ~2% ~2%
Volume Growth (YoY)~+1% org. ~+2% org. ~+3% total, ~+2% org.
Net Debt / Adjusted EBITDA (x)1.0x 1.1x 1.2x
Share Repurchases ($USD Millions)171 213 256
Dividend per Share ($)0.79 0.79 0.83
Operating Cash Flow ($USD Millions)——345
Free Cash Flow ($USD Millions)——274
Capex ($USD Millions)——77
Working Capital Investment ($USD Millions)——376

Notes: “—” indicates not disclosed in cited quarter-level sources above.

Guidance Changes

MetricPeriodPrevious Guidance (Q4 2024)Current Guidance (Q1 2025)Change
Net SalesFY2025Low single digit growth Low single digit growth Maintained
Adjusted Operating MarginFY20259.0% – 9.5% 9.0% – 9.5% Maintained
Interest ExpenseFY2025$180 – $200M $180 – $200M Maintained
Adjusted Effective Tax RateFY2025~26% ~26% Maintained
Capital ExpendituresFY2025$400 – $450M $400 – $450M Maintained
DividendQ1 2025$0.79 (Q4 declared) $0.83 declared Raised vs prior year

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2024)Previous Mentions (Q4 2024)Current Period (Q1 2025)Trend
Pricing/DeflationOverall ~2% deflation; finished goods broadly flat; commodity stability emerging Expect pricing slightly down FY25; deflation early in year ~2% deflation persists; finished goods flat in Q1, expecting normalization in CY2025 Gradual easing expected 2H
SG&A LeverageManaged cost vs volume; some deleverage SG&A deleverage ~40 bps FY24; labor ~60% of cost base Cost base +~5% vs volume +~3% due to wages/investments; more pressure in 1H Near-term pressure; improvement expected later
HVAC initiatives / Dual TradeHVAC +4%; building counter conversions and greenfields HVAC +9%; strategy “HVAC everywhere we are plumbing” HVAC +10%; >400 counters built, targeting >500 FY and >650 in ~24 months Accelerating buildout
Large Capital Projects / Data CentersStrong bidding; offset traditional non-res Tailwinds through data centers, onshoring; TAM ~$50B to FY2030 Continued “100% funded/go-fast” data center momentum; pipeline robust post-election Sustained multi-year tailwind
Residential End MarketsMuted; slight sequential improvement; residential trade +1% Flat in Q4; RMI pressured; high-end remodel holds Residential flat; digital commerce -8%; cautious on RMI/new starts Stabilizing but soft
Own Brand & Pricing ToolsEmphasis on pricing analytics/tools; own brand ~10% Own brand just under 10% revenue; margin lever Own brand just under 10%; margin improvement lever Incremental margin support
Supply Chain/AutomationMDC rollout; Toronto opened; automation expansion Network optimization via automation/expansion Investments in supply chain network and digital tools continue Ongoing optimization
Tariffs/International Sourcing——Diversified sourcing; reduced China exposure in own brand; flexibility to pass price Risk mitigation maintained

Management Commentary

  • CEO: “Our associates remained focused on execution, delivering revenue growth in the quarter, despite continued market headwinds and commodity price deflation… Our balanced business mix and ability to deploy scale locally give us confidence in our continued market outperformance.” .
  • CFO: “Adjusted operating profit of $706 million… Adjusted diluted EPS of $2.45 was 7.5% lower than last year driven by lower adjusted operating profit, partially offset by share repurchases… balance sheet remains strong at 1.2x net debt to adjusted EBITDA.” .
  • On margins: “The businesses that are growing the fastest for us right now [HVAC, Waterworks] have a slightly lower overall gross margin… putting a bit of mix pressure.” .
  • On outlook: “We expect deflationary pressures to ease as we move through the year… finished goods pricing to inflect positive in the second half.” .
  • On large projects: “Data center activity… 100% funded and go as fast as you can… share has been attractive as we approached those [projects] in a more holistic way.” .

Q&A Highlights

  • SG&A deleverage and investments: SG&A up ~5% vs volume +~3% from wage inflation and growth investments (trainees, HVAC counters, project teams, digital); leverages expected to improve as volumes and pricing normalize .
  • Margin trajectory: Expect continued pressure in Q2 (seasonally light), improving in 2H as finished goods pricing returns and commodity deflation eases; full-year adjusted operating margin guided at 9.0–9.5% .
  • Commodity pricing: Copper showing YoY deflation but sequential improvement; steel/PVC still pressured; expect deflation headwinds in early FY25, easing as comps roll .
  • Calendar/seasonality: One fewer selling day in Q3 (Feb leap-year comp), small impact; cost actions will be considered only if volumes deteriorate materially .
  • Own brand as margin lever: Own brand just under 10% of sales with room to grow; pricing tools/analytics and value-added services support gross margin expansion over time .

Estimates Context

  • S&P Global consensus for Q1 2025 EPS and revenue was unavailable due to request limits; therefore, estimate comparisons could not be provided at this time. If needed, we can reattempt retrieval for precise beat/miss analysis [GetEstimates error].

Key Takeaways for Investors

  • Mix and macro headwinds are transitory: deflation (~2%) and lower-margin mix (HVAC/Waterworks) pressured gross and operating margins; management expects normalization in 2H and improved SG&A leverage as volumes rise .
  • Structural growth vectors intact: dual-trade HVAC expansion (>400 counters, aiming >500 this FY), large project momentum (data centers/power) offset traditional commercial softness—supporting share gains and diversified end-market exposure .
  • Capital deployment remains shareholder-friendly: $256M buybacks, $0.83 dividend, 1.2x leverage; $750M notes enhance flexibility for investment and M&A .
  • Guidance credibility: FY2025 unchanged (low single-digit revenue growth; 9.0–9.5% adjusted OM); watch for finished goods price increases early CY2025 and easing commodity deflation to drive 2H margin uplift .
  • Near-term trading: Expect margin pressure in Q2 (seasonally light, continued deflation); 2H set-up improves with pricing normalization and volume trends (open orders building) .
  • Medium-term thesis: HVAC runway, large capital projects TAM (~$50B through FY2030), supply chain automation and pricing analytics support sustained outperformance and margin durability .
  • Monitoring list: commodity basket trajectory (steel/PVC/copper), SG&A leverage vs volume, residential RMI stabilization, cadence of supplier price increases, and M&A pipeline execution .

Additional Relevant Q1 Press Releases

  • $750M 5.000% senior notes due 2034 priced; proceeds to prepay term loans and for general corporate purposes .