Ferguson plc(FERG) - 2025 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Net sales for the second quarter reached $6.9 billion, a 3$449 million, down $71 million from the previous year, resulting in a 6.5$1.52 [26] Performance by Business Lines - HVAC customer group saw a revenue increase of 17%, driven by strategic investments [13][63] - Waterworks revenues increased by 10%, supported by robust activity in public works and municipal projects [15][63] - Residential trade plumbing revenues remained flat, reflecting challenges in new construction and ongoing price deflation [13][16] Market Performance Data - U.S. net sales grew by 3%, with organic growth of 2% and a 1% contribution from acquisitions [27] - Canadian net sales increased by 3.2%, with organic growth of 3.1% and a 5.4% contribution from acquisitions, partially offset by a 5.3% adverse impact from foreign exchange rates [28] Company Strategy and Industry Competition - The company is focused on balancing investments in customer-facing associates and capabilities while addressing near-term efficiency improvements [9][39] - Strategic growth initiatives include expanding HVAC counter locations and enhancing Waterworks capabilities through M&A and organic growth [17][34] - The company aims to leverage its size and scale to outperform in fragmented markets, particularly in residential and non-residential sectors [42][44] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in medium-term growth despite current market headwinds and commodity-led deflation [9][44] - The company anticipates continued market outperformance, with total sales growth expected in the low single-digit range for fiscal 2025 [36][37] - Adjusted operating margin guidance for fiscal 2025 is set between 8.3% to 8.8% [38] Other Important Information - The company announced a $1 billion increase to its share repurchase authorization, reflecting confidence in its business [9][35] - Capital expenditures for fiscal 2025 are revised to be between$325 million to $375 million due to extended project timelines [39] Q&A Session Summary Question: Growth investments and OpEx - Management discussed ongoing investments in HVAC and large capital projects, emphasizing the importance of counter conversions and geographic expansion [47][50] - They highlighted a focus on reducing costs in non-customer-facing roles while managing operational efficiency [59][60] Question: Customer group performance - The majority of growth in HVAC and Waterworks was organic, with minimal contribution from acquisitions [61][63] Question: Gross margins and pricing dynamics - Management attributed the decline in gross margins to persistent deflation and a challenging market environment [71][72] - They expect pricing levels to improve in the second half, although deflation is anticipated to continue in Q3 [125][126] Question: Demand trends and market conditions - February's top-line growth was consistent with Q2, but management noted potential pressures in the market [80][82] Question: Commodity impacts - Management provided insights on commodity trends, indicating ongoing deflation in steel and PVC, with expectations for stabilization due to tariffs [86][88] Question: Waterworks performance - Management noted balanced business mix in Waterworks, with no significant downturn in builder activity [105][106]