Ferguson Enterprises Inc. (NYSE:FERG) reported quarterly results on August 10 for the period ended June 30, showing the company is still expanding despite a weak housing backdrop. Sales rose 4.6% to $8.8 billion, and management lifted its outlook for the full year.
The main growth engine was the non-residential business. In the US, revenue in that segment climbed 8% on market share gains, even as management described the broader market as mixed. The company also pointed to growing open order volumes and strong bidding activity tied to large capital projects, suggesting a solid pipeline beyond the current quarter.
Residential markets, which account for roughly half of revenue, remain the softer part of the business. Even so, US residential sales still increased 2% despite weak new construction and softer repair demand. That suggests Ferguson is outperforming the markets it serves rather than simply benefiting from them.
Acquisitions were the second pillar of growth. Ferguson completed five deals during the quarter and, on July 13, announced an agreement to acquire FWI Holdings, known as FloWorks, an industrial distributor of valves and flow-control products. That transaction is expected to close in the third quarter. The eight deals announced this year represent about $1.4 billion in annualized revenue.
Management said the balance sheet remains strong, with net debt at 1.3 times adjusted EBITDA. The company also returned capital to shareholders by repurchasing $202 million of stock during the quarter and declaring a $0.89 dividend payable on October 7 to shareholders of record on August 21. Ferguson raised its full-year sales outlook to mid-single-digit growth, excluding FloWorks.
Profit growth lagged revenue
While revenue moved higher, profitability was more restrained. Adjusted operating profit increased 2.9%, trailing the 4.6% gain in sales. Gross margin fell 20 basis points to 31.0%. Ferguson said last year’s gross margin had been temporarily boosted by the timing of supplier price increases, but the overall direction was still lower.
Reported earnings per share rose 6.9% to $3.43, while adjusted EPS of $3.39 increased 5.3%. Canada remained one of the weaker areas: sales there slipped 1.9% as a business divestment outweighed organic growth. Management described the Canadian market as challenging, particularly in residential.
The company also said the economic backdrop remains uncertain. Against that backdrop, the margin component of the guidance increase was limited: the low end of the adjusted operating margin range was lifted from 9.4% to 9.5%, while the top end remained unchanged at 9.8%. The updated guidance also does not yet include FloWorks.
Investor positioning remains steady
Ferguson was held by 85 hedge funds in the latest quarter, unchanged from the previous period. That suggests major investors are neither aggressively adding to positions nor rushing for the exit.
Short interest stands at 3.21% of the float, a relatively low level that points to limited organized skepticism toward the stock. As of September 18, the shares were trading at 17.06 times forward earnings, implying that investors still expect profit growth to continue even as margins soften.
Overall, Ferguson has shown it can keep growing when housing is not providing much support. The key question for investors now is whether that revenue growth, together with acquisitions, can translate into faster profit growth while margins remain under pressure.
