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Ferguson Enterprises Inc. /DE/ (FERG)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 FY2025 net sales were $6.87B (+3.0% YoY) on 5% volume growth offset by ~2% commodity-led price deflation; adjusted operating margin compressed to 6.5% and adjusted EPS was $1.52 .
  • Management reaffirmed FY2025 net sales growth (low single digits) but lowered adjusted operating margin guidance to 8.3%–8.8% (from 9.0%–9.5%) and cut CapEx to $325–$375M (from $400–$450M) .
  • HVAC (+17%) and Waterworks (+10%) were standouts, while Fire & Fabrication, Facilities Supply and Industrial declined ~6% on steel pipe deflation; gross margin fell 70 bps YoY to 29.7% on deflation and mix .
  • Capital return accelerated: $252M repurchases in Q2, share repurchase authorization increased by $1.0B (~$1.4B remaining), and quarterly dividend $0.83 (+5% YoY) .
  • Street consensus from S&P Global was unavailable during this session; estimate comparison is omitted due to data access limits (S&P Global unavailable).

What Went Well and What Went Wrong

What Went Well

  • HVAC grew 17% with strategy execution in dual-trade counter conversions (>500 completed, targeting >650 in FY2026), geographic expansion, and private label Durastar momentum .
  • Waterworks revenue rose 10% on strong public works, municipal, meters/metrology and civil/infrastructure activity; Ferguson highlighted AI-enabled solutions for preventative maintenance and leak detection .
  • Capital returns and balance sheet strength: 1.2x net debt/adjusted EBITDA, $252M Q2 buybacks, authorization +$1.0B, dividend $0.83 (+5% YoY) .

What Went Wrong

  • Gross margin fell 70 bps to 29.7%, driven by persistent commodity deflation (PVC, steel) and mix shift toward HVAC/Waterworks; adjusted operating profit -13.7% YoY .
  • Adjusted operating margin in the seasonally lightest quarter came in below internal expectations, prompting FY25 margin guide downshift to 8.3%–8.8% .
  • Fire & Fabrication and Industrial groups declined ~6% on steel pipe deflation; Canada faced FX headwinds (-5.3% impact) despite acquisitions .

Financial Results

MetricQ4 2024Q1 2025Q2 2025
Net sales ($USD Millions)$7,946 $7,772 $6,872
Gross margin (%)31.0% 30.1% 29.7%
Operating margin (%) (reported)10.2% 8.6% 6.0%
Adjusted operating margin (%)10.8% 9.1% 6.5%
Adjusted operating profit ($USD Millions)$857 $706 $449
Adjusted EBITDA ($USD Millions)$906 $758 $502
EPS - Diluted (reported) ($USD)$2.23 $2.34 $1.38
EPS - Diluted (adjusted) ($USD)$2.98 $2.45 $1.52
YoY net sales growth (%)+1.4% +0.8% +3.0%
YoY adjusted EPS change (%)+7.6% (7.5)% (12.6)%

Segment breakdown

Metric ($USD Millions)Q2 2024Q2 2025
US Net sales$6,364 $6,553
Canada Net sales$309 $319
Total Net sales$6,673 $6,872
US Adjusted operating profit$525 $455
Canada Adjusted operating profit$9 $11
Central & other costs$(14) $(17)
Total Adjusted operating profit$520 $449

US customer group dynamics (share of US net sales and growth)

Customer Group% of US net salesQ2 2025 growth/(decline)
HVAC12%+17%
Residential Trade Plumbing17%Flat
Residential Building & Remodel14%+1%
Residential Digital Commerce7%(7)%
Waterworks22%+10%
Commercial/Mechanical14%+2%
Fire & Fabrication, Facilities Supply & Industrial14%(6)%

KPIs

KPIQ2 2025Q2 2024
Gross margin (%)29.7% 30.4%
Net debt / Adjusted EBITDA (rolling 12m) (x)1.2x 1.1x
Net debt ($USD Millions)$3,590 $3,140
Cash & cash equivalents ($USD Millions)$764 $639
Long-term debt ($USD Millions)$3,949 $3,595
Share repurchases (quarter) ($USD Millions)$252 $—
Dividend per share ($USD)$0.83 $0.79 (Q4 2024 reference)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net sales growthFY2025Low single-digit growth Low single-digit growth Maintained
Adjusted operating marginFY20259.0%–9.5% 8.3%–8.8% Lowered
Interest expenseFY2025$180–$200M $180–$200M Maintained
Adjusted effective tax rateFY2025~26% ~26% Maintained
Capital expendituresFY2025$400–$450M $325–$375M Lowered
DividendQuarterly$0.83 declared $0.83 declared (paid May 6, 2025) Maintained

Notes: Share repurchase authorization increased by $1.0B (remaining balance ~$1.4B) . Dividend timetable: Ex/Record March 21, 2025; Payment May 6, 2025 .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024 and Q1 2025)Current Period (Q2 2025)Trend
Commodity pricing & gross marginQ4: gross margin +40 bps; deflation ~2%; adjusted EPS +7.6% YoY . Q1: finished goods broadly flat, commodity deflation ~2% pressuring margins .Gross margin down 70 bps; deflation (PVC, steel) persists; 2/3 margin pressure market/deflation, ~1/3 mix .Worsening early in quarter, stabilizing late Jan/Feb .
HVAC strategy & executionQ1: HVAC +10%; >400 counter conversions; growth despite residential softness .HVAC +17%; >500 counters; targeting >650; private label Durastar gaining traction .Improving.
Waterworks & infrastructureQ4: strong non-res, solid Waterworks demand . Q1: Waterworks +3%; diversification into geosynthetics/soil stabilization .Waterworks +10%; AI for leak detection/preventative maintenance; civil/infrastructure strength .Improving.
Large capital projects (data centers)Q4: continued bidding activity; non-res resilient . Q1: multi-customer approach; data centers “100% funded” momentum .Continued activity; shipments/open orders strong; mixed vs other non-res .Stable to improving.
Tariffs/macro & pricing outlookQ1: expect finished goods price increases in back half; overall slight down pricing for year .Tariffs on metals may stabilize steel; expect deflation to lessen in H2; Q3 likely still deflationary .Improving (potential stabilization).
Cost actions/OpExQ1: mid-single-digit OpEx growth to support growth initiatives; leverage expected to improve in H2 .Additional actions to streamline non-customer-facing roles; aim to slow cost growth through H2 .Improving (cost discipline).
AI/technologyQ1: digital tools investment noted .AI used in Waterworks for preventative maintenance/leak detection; BIM content for large projects .Expanding use cases.

Management Commentary

  • “We are navigating a unique time with continued subdued markets and persistent commodity price deflation that drove lower than expected adjusted operating margin in our seasonally lightest quarter.” — Kevin Murphy, CEO .
  • “We are taking additional steps to streamline the business to increase speed and efficiency…positioning the organization for future profitable growth.” — Kevin Murphy, CEO .
  • “Cost growth was about 5.5%…roughly 40 of that 60 basis points of deleverage [was] driven by deflation…remainder [due to] investments.” — Bill Brundage, CFO .
  • “With the use of artificial intelligence, we advise our customers in areas such as preventative maintenance and leak detection.” — Kevin Murphy, CEO .
  • “We intend this business to be a 30-plus percent gross margin business…as we add value-added services.” — Kevin Murphy, CEO .

Q&A Highlights

  • Gross margin drivers: ~2/3 due to market deflation, ~1/3 due to mix shift to HVAC/Waterworks; pressure was more pronounced in Nov/Dec, improved in Jan/Feb .
  • Tariff impacts: Metal tariffs and announced steel pipe increases could stabilize deflation; uncertainty remains; finished goods pricing expected to inflect with typical calendar-year increases .
  • Demand cadence: February growth roughly consistent with Q2 (~3%), with typical weather variability; H2 expected low-single-digit growth with markets down low single digits .
  • Cost actions: Streamlining non-customer-facing layers to slow cost growth rate in H2; Q3 likely bears most execution of actions .
  • Commodities: Copper inflation persists; steel deflation remains but may lessen; PVC is biggest deflation category and expected to continue pressure in H2 .

Estimates Context

  • Wall Street consensus (S&P Global) for Q2 FY2025 EPS and revenue was unavailable during this session due to data access limits; as a result, beat/miss vs consensus cannot be assessed (S&P Global unavailable).
  • Given the lowered FY25 adjusted operating margin guidance (8.3%–8.8% vs 9.0%–9.5% prior) and persistent commodity deflation, Street estimates for margins and FY EPS likely require downward revision to reflect mix and pricing dynamics .

Key Takeaways for Investors

  • Near-term margin reset: FY25 adjusted operating margin guide lowered to 8.3%–8.8% as deflation and mix weigh on Q2; expect seasonal margin improvement and cost controls to aid H2, but Q3 remains deflationary .
  • Growth engines intact: HVAC (+17%) and Waterworks (+10%) are delivering outsized growth via strategic initiatives (dual-trade counters, private label, AI-enabled solutions), providing medium-term share gains even as broader markets remain subdued .
  • Capital return is a support: Expanded buyback authorization (+$1.0B, ~$1.4B remaining) and sustained dividend ($0.83) offer downside mitigation while operations normalize .
  • Watch commodity signals and tariffs: Stabilization in steel and calendar-year finished goods price increases are potential gross margin tailwinds in H2; PVC remains a headwind .
  • Large projects pipeline resilient: Data center and civil infrastructure exposure continues to offset weaker traditional non-res, supporting volumes and open orders .
  • Canada resilient despite FX: Canadian segment grew 3.2% with acquisitions offsetting FX; modest adjusted OP uplift .
  • Tactical positioning: Favor exposure to HVAC/Waterworks and large-project solutions; trim expectations on near-term margins but maintain medium-term thesis of market outperformance and value-added service-led margin expansion .