Ferguson plc (FERG, Financial), a leading distributor of building products like plumbing, HVAC, waterworks, and lighting, reported a mixed Q4 (Jul) performance. While FERG exceeded earnings expectations, it fell short on revenue predictions. The company’s initial FY25 revenue guidance suggests low single-digit growth year-over-year, a modest improvement from the 0.3% decline in FY24 but still below consensus estimates.
Operating in the residential and commercial housing market, FERG has faced numerous challenges. The repair and remodel (R&R) industry has softened through much of 2023 and into 2024. Louisiana-Pacific (LPX, Financial), a major producer of oriented strand board panels, noted last month that R&R spending remains constrained due to high interest rates and economic uncertainty. New residential housing starts have also been muted, weakening during Q4. Non-residential construction, a bright spot for FERG, showed sluggish growth with sales expanding by just 3% year-over-year in Q4.
However, investors are optimistic as the Federal Reserve shifts its monetary policy, potentially cutting interest rates by up to 100 basis points by year’s end. This easing could lower financing costs and encourage homeowners to upgrade, setting a more favorable housing market in motion.
- FERG reported a 1.4% year-over-year sales increase to $7.95 billion, a slight deceleration from the +2.4% growth last quarter. Adjusted EPS rose 7.6% year-over-year to $2.98, driven by a 40 basis point improvement in adjusted operating margins to 10.8%.
- Residential end markets, including R&R, were flat year-over-year in Q4 due to weak new construction and softer R&R activity. However, healthy non-residential bidding activity helped boost sales in this segment, contributing to overall positive revenue growth.
- Over the long term, FERG consistently delivers above-market growth, largely through mergers and acquisitions (M&A). The company acquired ten companies during FY24, including four in Q4 alone. Management noted continued market share gains in both residential and non-residential end markets during Q4.
FERG benefits from trends like an undersupply of homes, aging housing, and healthy non-residential large capital projects. As a result, the market is more focused on potential growth acceleration in the coming quarters than on the relatively weak FY25 guidance. However, after a +40% surge in FERG shares from November to April on the prospect of lower rates, these tailwinds may already be priced in, potentially limiting significant near-term appreciation.
