Exchange: NYSE | Sector: Industrials | Industry: Industrial Distribution
Q4 2024
Published: Sep 25, 2024
Earnings Highlights
Revenue of $7.95B up 1.4% year-over-year
EPS of $2.23 decreased by 22.4% from previous year
Gross margin of 31.0%
Net income of 451.00M
"We deliver scale locally through our vast network of facilities and our fleet of vehicles for final mile delivery. This extensive network places us within 60 miles of 95% of our customers in North America." - Kevin Murphy
Ferguson plc (FERG) QQ4 2024 Results: Resilient Margin Expansion Amid Deflation Headwinds and Strategic Consolidation in Industrial Distribution
Executive Summary
Ferguson reported a solid fourth quarter of fiscal 2024 (QQ4) with revenue of $7.946 billion, up 1.4% year over year despite ongoing deflation and a modest organic volume backdrop. Adjusted operating profit rose 5.3% to $857 million, delivering an adjusted operating margin of 10.8%. GAAP metrics remained strong, while the reported gross margin firmed to about 31% amid lower inventory reserves. For the full year, Ferguson generated $29.6 billion in revenue (roughly flat YoY) with a gross margin of 30.5% and an adjusted operating margin of 9.5%, supported by disciplined cost management and a resilient end-market mix. Full-year adjusted EPS was $9.69, and net income totaled $451 million for the fourth quarter. Operating cash flow was $1.9 billion for the year, with free cash flow of about $1.5 billion. Ferguson returned $1.4 billion to shareholders through dividends and share repurchases, completed 10 acquisitions adding approximately $400 million of incremental annualized revenue, and ended the year with net debt to Adjusted EBITDA around 1.1x, signaling a solid balance sheet to fund growth. Management reaffirmed a constructive medium-term outlook anchored in scale, a diversified end-market exposure, and a strategic push into large-cap projects and dual-trade plumbing/HVAC opportunities. For fiscal 2025, Ferguson guides to low-single-digit revenue growth, 9.0%–9.5% adjusted operating margin, capex of $400–$450 million, an adjusted effective tax rate of ~26%, and maintaining leverage at the low end of a 1x–2x range, underscoring a prudent but growth-oriented plan to capitalize on underbuilt US housing, aging infrastructure, and multi-year non-residential opportunities.
US end-market performance: Residential revenue flat; Non-residential up mid-single digits; Waterworks +5%; Commercial/Mechanical +6%; Residential Trade Plumbing +1%; HVAC +9%; Residential Digital Commerce -12%; end-market mix remains balanced with a tilt toward large-cap projects.
Quarterly trend: Organic growth in QQ4 was muted by ~0.2% YoY volume decline and roughly -1% FX impact, offset by a ~1.7% acquisitions contribution; price deflation about 2% in fiscal 2024, with expectations for deflation to ease in early 2025.
"Full-year 2024 highlights (USD):
Fourth quarter 2024 highlights (USD):
- Revenue: $7.946 billion; gross profit: $2.461 billion; gross margin: 31.0%; operating income: $811 million; depreciation & amortization: $87 million; interest expense: $47 million; total other income/expenses: -$52 million; income before tax: $759 million; net income: $451 million; diluted EPS: $2.23 (GAAP); adjusted diluted EPS: $2.98; EBITDA: $893 million; adjusted EBITDA margin: ~11.2%.
- Net debt to adjusted EBITDA: 1.1x.
- US end-market performance: Residential revenue flat; Non-residential up mid-single digits; Waterworks +5%; Commercial/Mechanical +6%; Residential Trade Plumbing +1%; HVAC +9%; Residential Digital Commerce -12%; end-market mix remains balanced with a tilt toward large-cap projects.
- Quarterly trend: Organic growth in QQ4 was muted by ~0.2% YoY volume decline and roughly -1% FX impact, offset by a ~1.7% acquisitions contribution; price deflation about 2% in fiscal 2024, with expectations for deflation to ease in early 2025.
"Full-year 2024 highlights (USD):
- Revenue: $29.6 billion (flat vs. 2023); gross margin: 30.5%; operating profit: $2.8 billion; adjusted operating margin: 9.5%; adjusted diluted EPS: $9.69; net cash provided by operating activities: $1.9 billion; capex: $372 million; free cash flow: $1.5 billion; ROIC: ~31%.
- Capital allocation: Dividends up 5% to $3.16 annual; $1.4 billion returned to shareholders via buybacks and dividends; 10 bolt-on acquisitions adding approximately $400 million in incremental annualized revenue; net debt/EBITDA remained at 1.1x.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
7.95B
1.38%
8.73%
Gross Profit
2.46B
2.46%
14.63%
Operating Income
811.00M
3.71%
27.32%
Net Income
451.00M
-22.77%
1.81%
EPS
2.22
-22.38%
1.37%
Key Financial Ratios
currentRatio
1.8
grossProfitMargin
31%
operatingProfitMargin
10.2%
netProfitMargin
5.68%
returnOnAssets
2.72%
returnOnEquity
8.03%
debtEquityRatio
0.98
operatingCashFlowPerShare
$1.8
freeCashFlowPerShare
$1.27
dividendPayoutRatio
70.7%
priceToBookRatio
8.04
priceEarningsRatio
25.04
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Key management takeaways from the QQ4 earnings call:
- Strategy and scale: Ferguson emphasizes the benefit of a large, locally driven network and supply chain scale, noting that the network places Ferguson within 60 miles of 95% of customers in North America, supported by ongoing automation and facility investments.
- Dual-trade growth thesis: Management highlighted the significant opportunity in combining plumbing and HVAC capabilities, estimating the combined HVAC and residential trade plumbing market at roughly $100 billion, with about $30 billion served by over 65,000 dual-trade professionals, signaling durable, multi-year value creation from cross-selling and enhanced service offerings.
- Large-cap non-residential tailwinds: The company framed non-residential large projects as a multi-year structural tailwind, with a total addressable market around $50 billion through 2030, anchored by data centers, on-shoring, infrastructure aging, and energy projects.
- Capital allocation discipline: Ferguson reiterated a strong cash-generation profile and a disciplined, four-pillar capital allocation framework (organic growth via capex, dividend growth, bolt-on acquisitions, and buybacks) while targeting leverage at the low end of the 1x–2x range to maintain optionality.
- Near-term margin and deflation dynamics: The executives acknowledged ongoing price deflation in certain commodity categories (~2% for fiscal 2024) and signaled that early 2025 could see continued deflation pressure, with SG&A leverage likely to be a key margin driver in the near term.
- Q4 and FY22-FY24 trend implications: The call underscored the margin resilience (gross margin at ~31% in Q4, +40 bps YoY) and the continued progress against a deflationary backdrop, with expectations for cash generation to finance growth and consolidation.
We deliver scale locally through our vast network of facilities and our fleet of vehicles for final mile delivery. This extensive network places us within 60 miles of 95% of our customers in North America.
— Kevin Murphy
We estimate that the combined HVAC and residential trade plumbing markets to be approximately $100 billion, of which we estimate nearly $30 billion of the market is serviced by more than 65,000 dual trade plumbing and HVAC professionals.
— Kevin Murphy
Forward Guidance
Management guidance for fiscal 2025 includes:
- Revenue: low single-digit growth (end markets expected to decline in the low single digits with modest pricing pressure from commodity deflation)
- Operating margin: 9.0%–9.5% adjusted
- Interest expense: $180–$200 million; adjusted effective tax rate: ~26%
- Capital expenditures: $400–$450 million
- Net leverage target: low end of 1x–2x
- Growth drivers: continued scale benefits from automation and network expansion; expansion of HVAC presence to complement plumbing through dual-trade offerings; continued participation in large non-residential projects (estimated TAM of $50 billion through 2030) via a multi-customer group approach; bolt-on acquisitions expected to contribute roughly $250 million in revenue from acquisitions in the year (net of one fewer sales day in Q3)
- Confidence and risks: Ferguson emphasizes that near-term headwinds include ongoing deflation and slower early-year activity, but expects improvements as rates ease and housing repair/remodel activity stabilizes; investors should monitor: (1) deflation trajectory in commodity/product categories, (2) momentum in large-cap non-residential projects, (3) integration progress and value creation from acquisitions, and (4) the evolution of the HVAC expansion across core geographies.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
FERG Focus
30.97%
10.20%
8.03%
25.04%
DXPE
31.50%
8.34%
5.05%
15.17%
AIT
29.60%
12.50%
6.13%
17.73%
GIC
33.80%
4.80%
3.81%
22.18%
MSM
41.00%
9.54%
4.00%
20.70%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Ferguson’s QQ4 2024 results underscore a mature, cash-generative platform with a resilient margin profile and an attractive multi-year growth thesis centered on scale, dual-trade leadership, and a substantial pipeline of non-residential large-cap projects. The company is proceeding with disciplined capital allocation (capex, dividends, buybacks, and ten bolt-on acquisitions delivering roughly $400M in incremental annual revenue) and maintains leverage at the low end of its 1x–2x target range, signaling readiness to capitalize on growth opportunities while preserving flexibility in uncertain macro environments. The near-term headwinds are largely deflation-related and housing-market cyclicality, but Ferguson’s diversified end-market mix, extensive distribution network, and upside from HVAC expansion and private-label initiatives support an constructive intermediate-term outlook. Investors should monitor: deflation trajectories in commodity and finished goods pricing, the pace of residential remodeling recovery, large-cap project bid activity, and the success/flexibility of capital deployment through M&A. Overall, the stock could trade at a premium relative to peers given the company’s scale, ROIC, and cash-flow profile, with upside if large-cap project volumes recover faster than anticipated and if price realizations stabilize.
Key Investment Factors
Growth Potential
Long-term growth anchored by (a) scale-driven efficiency in a 1,600+ branch distribution footprint, (b) the rapid expansion of dual-trade plumbing/HVAC services, (c) a $50B non-residential large-cap project TAM through 2030, and (d) accretive bolt-on acquisitions that have historically added ~$400M in annualized revenue.
- HVAC expansion: Ferguson is accelerating HVAC penetration via dual-trade branch conversions, greenfield HVAC sites, and targeted acquisitions, aiming to convert more residential trade plumbing customers into dual-trade pros and expand equipment offerings.
Profitability Risk
Key risks include (a) persistent commodity deflation prolonging gross margin pressure, (b) slower-than-expected recovery in residential new construction and RMI markets, (c) integration and synergy realization risk from ongoing bolt-on deals, (d) macro volatility and potential rate shocks impacting project bidding and access to capital, and (e) competitive dynamics within a fragmented distribution landscape that could compress margins in low-growth environments.
Financial Position
Strong balance sheet with net debt to adjusted EBITDA at 1.1x and a target leverage range of 1x–2x; robust free-cash-flow generation (~$1.5B in FY2024) supports organic investment, dividends, and bolt-on M&A. The company maintains a diversified end-market mix (Residential ~50%, Non-residential ~50%), a wide branch network, and a prudent capital-allocation framework that prioritizes enduring cash flow and resilience amid cyclicality.
SWOT Analysis
Strengths
Extensive local footprint with 60-mile service reach to 95% of North American customers, enabling high-service levels and faster order fulfillment.
Strong balance sheet and cash generation (net debt/adjusted EBITDA 1.1x; operating cash flow of $1.9B in FY2024; FCF $1.5B) supporting growth and shareholder returns.
Diversified end-market exposure with material contributions from Waterworks, HVAC/Residential Trade Plumbing, and large non-residential projects.
Leading dual-trade capability (plumbing and HVAC) with a large installed base and cross-selling opportunities.
Weaknesses
Significant exposure to cyclicality in housing, remodeling, and non-residential capex; near-term deflation raises margin compression risk, especially on SG&A.
Acquisition-driven growth requires integration discipline; potential execution risk and valuation pressure in a volatile M&A environment.
Opportunities
Structural tailwinds from large non-residential projects (estimated $50B TAM through 2030) and continued data center/power infrastructure investment.
Accelerated HVAC expansion and faster dual-trade adoption across North America.
Private-label/own-brand growth (~10% of revenue) to improve margin and differentiation.
Further bolt-on acquisitions to broaden capability set (e.g., BDC, fabrication, valve/automation) and expand addressable markets.
Threats
Sustained commodity deflation or supply-chain disruptions affecting COGS and working-capital cycles.
Interest-rate volatility and macro uncertainty influencing construction activity and bidding pipelines.
Intense competition in a fragmented distribution landscape could pressure pricing and margins.