Sign in

    Ferguson Enterprises Inc. /DE/ (FERG)

    FERG Q4 2024: $1.5B Free Cash Flow Bolsters M&A, Dividends

    Reported on Jul 8, 2025 (Before Market Open)
    Pre-Earnings Price$197.22Last close (Sep 16, 2024)
    Post-Earnings Price$200.88Open (Sep 17, 2024)
    Price Change
    $3.66(+1.86%)
    • Robust Free Cash Flow and Capital Allocation: The company generated $1.9 billion in operating cash flow with $1.5 billion in free cash flow, underpinning its ability to invest in organic growth, pursue M&A opportunities, and support shareholder returns.
    • Strong Growth in the HVAC and Dual Trade Segment: With a reported 9% growth in HVAC—primarily organic—and initiatives expanding counter locations and greenfield investments, the company is well positioned to capture further growth in this high-potential segment.
    • Attractive Large Capital Projects Opportunity: The multi-customer group strategy targeting a growing addressable market (now estimated at around $50 billion through 2030) offers a compelling avenue for revenue expansion, especially as the company shifts focus from traditional nonresidential business.
    • Persistent deflationary pressures: The Q&A highlighted that commodity deflation of around 2% continues, which negatively impacts pricing and increases pressure on SG&A expenses, potentially compressing overall margins in a low-growth environment.
    • Weakness in residential markets: Management noted softness in the new residential construction and RMI segments, including declining starts and permits, which could hinder revenue growth despite some offset from remodel activity.
    • Economic uncertainty impacting demand: Cautious customer sentiment coupled with mixed macroeconomic signals—such as rate uncertainties and delayed project activity—could result in prolonged market challenges and subdued organic growth.
    1. Capital Allocation
      Q: What are cash flow and M&A plans?
      A: Management reported strong $1.9B operating cash flow and $1.5B free cash flow, maintaining a solid balance sheet with capacity to pursue targeted M&A and sustain dividends, underpinning their cautious yet opportunistic capital allocation strategy.

    2. Margin Outlook
      Q: What drives operating margin guidance?
      A: The team noted that while gross margins remain steady around 31%, margin compression is mainly due to increased SG&A pressure, accentuated by a one-time inventory reserve adjustment, with expectations for modest improvement later in the year.

    3. Revenue Guidance
      Q: What is the FY '25 revenue outlook?
      A: They expect revenue to grow in the low single digits with residential down modestly and nonresidential nearly flat, reflecting ongoing market headwinds and deflationary pressures.

    4. Deflation & Pricing
      Q: How is deflation impacting prices?
      A: Deflation has been around 2% driven by commodities; management expects these pressures to ease gradually during FY '25, stabilizing finished goods pricing as suppliers adjust.

    5. Macro Outlook
      Q: What are the base-case economic assumptions?
      A: The outlook incorporates cautious expectations of mild rate cuts, gradual residential recovery, and steady nonresidential conditions amid an overall challenging macro environment.

    6. HVAC Business
      Q: How is the HVAC segment performing?
      A: HVAC delivered 9% growth in Q4, driven largely by organic expansion, with further growth anticipated through counter expansions and selective acquisitions.

    7. Large Capital Projects
      Q: How advanced is the large capital project pipeline?
      A: Management sees an addressable market approaching $50B by 2030, with early-stage capital deployment growing through significant projects in data centers and power generation.

    8. Dual Trade Leadership
      Q: Are you the leader in dual trade?
      A: They believe their nationwide, integrated plumbing and HVAC model uniquely positions them as a leader among fragmented local distributors, offering superior service to dual trade professionals.

    9. Tax Guidance
      Q: What tax rate is expected for FY '25?
      A: The effective tax rate is anticipated to be around 26%, reflecting the U.S. domicile and associated state adjustments.

    10. Owned Brands
      Q: How are own brand products performing?
      A: Own brand revenue is just under 10% of total sales, growing faster in the residential segment as part of a broader product strategy to enhance customer offerings.

    Research analysts covering Ferguson Enterprises Inc. /DE/.