Executive Summary
- Ferguson reported Q2 FY2024 net sales of $6.673 billion, a 2.2% year-over-year decline primarily driven by ~2% commodity deflation, with gross margin expanding 20 basis points to 30.4% and adjusted operating profit of $520 million (down 10.7% YoY). EPS declined 12.7% YoY to $1.58 on an adjusted basis. Over the last three fiscal years, the company has delivered strong earnings progression despite cyclical pressures, underscoring a durable cash-generative model and disciplined cost management.
- The U.S. market remained challenged across end markets, with Residential trade plumbing down 2% and non-residential (commercial/civil infrastructure) flat. Waterworks was flat, while industrial/fabrication and related segments posted a modest decline. Management attributed the softness to difficult comps and selective weather-related disruptions but emphasized an improving trend in bidding activity and open orders into the second half. February organic growth was flat, suggesting early H2 acceleration as comparisons ease.
- Ferguson highlighted the resilience of its mix, geographic diversification (including Canada), and a flexible cost base. The company is accelerating its capital allocation strategy (CapEx of about $192 million in H1, 3 multifunction distribution centers opened with productivity gains of 20-30%), while maintaining an accretive M&A program expected to contribute roughly $600 million in revenue in FY2024. Net debt to adjusted EBITDA stood at 1.1x, and free cash flow for the half-year was robust (~$700 million).
- Management maintains unchanged FY2024 guidance: revenue broadly flat for the year with end markets down mid-single digits, outperformance of ~300-400 basis points versus that market, and adjusted operating margins in a 9.2%–9.8% range. The near-term macro backdrop remains the primary risk factor, with commodity prices and FX (notably/Canada) potential to swing outcomes. Investors should monitor open orders, bidding activity in Waterworks and nonresidential pipelines, M&A integration progress, and MDC productivity as the principal levers of H2 performance.
Key Performance Indicators
QoQ: -13.43% | YoY:-2.23%
QoQ: -12.96% | YoY:-1.60%
QoQ: -35.45% | YoY:-13.11%
QoQ: -37.96% | YoY:-13.90%
QoQ: -38.04% | YoY:-12.71%
Key Insights
Revenue: 6.673B (Q2 2024) | YoY -2.23% | QoQ -13.43%
Gross Profit: 2.029B | Gross Margin 30.4% (up 20bp YoY)
Operating Income: 477M | Margin 7.15%
Net Income: 322M | Net Margin 4.83%
EPS (Diluted): 1.58 | YoY -12.7% | QoQ -38.0%
Adjusted EBITDA: 560M | EBITDA Margin 8.39%
Free Cash Flow (H1): ~$205M | Operating Cash Flow: 306M | CapEx: 101M in Q2; 192M H1
Net Debt / Adjusted EBITDA: 1.1x
Cash at End of Period: 704M | Net cash from operations: 306M
Liquidity/Shareholder Return: Dividend $0.79 per...
Financial Highlights
Revenue: 6.673B (Q2 2024) | YoY -2.23% | QoQ -13.43%
Gross Profit: 2.029B | Gross Margin 30.4% (up 20bp YoY)
Operating Income: 477M | Margin 7.15%
Net Income: 322M | Net Margin 4.83%
EPS (Diluted): 1.58 | YoY -12.7% | QoQ -38.0%
Adjusted EBITDA: 560M | EBITDA Margin 8.39%
Free Cash Flow (H1): ~$205M | Operating Cash Flow: 306M | CapEx: 101M in Q2; 192M H1
Net Debt / Adjusted EBITDA: 1.1x
Cash at End of Period: 704M | Net cash from operations: 306M
Liquidity/Shareholder Return: Dividend $0.79 per share (up 5% YoY); YTD share repurchases ~$142M; ended period with $285M remaining on the repurchase authorization
Open Orders/Backlog: Open order trends and sales-per-day improvements in Feb suggest H2 acceleration vs H1
M&A Activity: FY2024 acquisitions expected to contribute just over $600M in revenue; four deals completed YTD; strong pipeline and reinvestment in HVAC/Waterworks capabilities
Income Statement
| Metric |
Value |
YoY Change |
QoQ Change |
| Revenue |
6.67B |
-2.23% |
-13.43% |
| Gross Profit |
2.03B |
-1.60% |
-12.96% |
| Operating Income |
477.00M |
-13.11% |
-35.45% |
| Net Income |
322.00M |
-13.90% |
-37.96% |
| EPS |
1.58 |
-12.71% |
-38.04% |
Key Financial Ratios
operatingProfitMargin
7.15%
operatingCashFlowPerShare
$1.5
freeCashFlowPerShare
$1.01
dividendPayoutRatio
48.2%
Management Commentary
Key management takeaways from the Q2 earnings call:
- Strategy and outlook: Ferguson remains confident in its balanced exposure to residential and nonresidential end markets, with an agile cost base and a cash-generative model that supports organic growth, acquisitions, and shareholder returns. Kevin Murphy emphasized the company’s market diversification and a cadence of meaningful growth as the second half unfolds.
- Operating performance: Bill Brundage highlighted gross margin expansion to 30.4% (up 20 bps YoY) aided by pricing discipline and product strategy, while SG&A declined by more than $40M from Q1, reflecting targeted cost control and productivity efforts. He noted Q2 adjusted operating profit of $520M, down 10.7% YoY, largely on a softer top line despite margin discipline.
- End-market dynamics: U.S. end markets remained soft with residential plumbing down 2% and nonresidential down about 1% in Q2, yet Waterworks flat and commercial/industrial demand showing resilience behind mega projects and data-center activity. Management underscored improving open-order momentum and sales-per-day trends, forecasting stronger performance in H2.
- Balance sheet and capital allocation: Ferguson reaffirmed a strong balance sheet with net debt/adjusted EBITDA of 1.1x. Capex reached $192M in H1; the company returned capital via a $0.79 quarterly dividend (5% year over year increase) and repurchased around $142M of shares in Q2, with $285M remaining under the program. The MDC rollout (3 open in the US; planned Canada and Nashville openings this year) is delivering 20–30% productivity improvements, enhancing service levels and fill rates.
- Guidance and risk: Management kept FY2024 guidance unchanged, expecting revenue to be broadly flat with mid-single-digit market declines and outperformance of 300–400 bps. They cautioned about commodity price volatility, FX headwinds, and the timing of large nonresidential projects as key hazards to the outlook.
"In the quarter, we saw a modest revenue decline of 2.2%, largely driven by 2% deflation in a challenging market. We delivered solid gross margins and appropriately managed costs while preparing for our seasonally stronger second-half."
— Kevin Murphy, Chief Executive Officer
"Our balance sheet remains strong at 1.1 times net debt to adjusted EBITDA."
— Bill Brundage, Chief Financial Officer
Forward Guidance
- Forecast: Revenue broadly flat for FY2024 with end markets expected to decline mid-single digits; Ferguson projects to outgrow the market by ~300–400 basis points. One additional sales day is expected in Q3 from acquisitions, contributing approximately $600 million in revenue for the year.
- Margin and pricing: The company targets adjusted operating margins of 9.2%–9.8% for FY2024. Finished goods pricing is anticipated to be broadly neutral overall for the year, with commodity deflation moderating in H2 as inflation/deflation bases turn favorable for finished goods.
- Capital allocation: CapEx guidance remains at $400–$450 million for the full year; expect interest expense of $190–$210 million; dividend policy remains intact (5% annualized growth through base). The pipeline remains healthy for bolt-on acquisitions to enhance Waterworks, HVAC, meters/metering technology, and stormwater/green infrastructure capabilities.
- What to monitor: Open orders and customer bidding activity (especially in Waterworks and major capital projects), MDC productivity and rollout progress, integration of recent acquisitions, and the evolution of commodity prices (PVC/steel) which could impact price realization and margin trajectory in H2.