Ferguson plc Confident in Strategies for Growth Despite Mixed Financial Results | FERG Q4 2023 Earnings Call Transcript

1. Ferguson plc (FERG) reported strong FY2023 financial results with revenue up 4.1% YoY, solid gross margins and diligent cost management. FERG outperformed its residential and non-residential end markets and took share across both. FERG made more than 50 acquisitions over the past five years, bringing approximately $800 million of annualized revenue to the company. There are significant opportunities as FERG looks to service the needs of dual trade plumbing and HVAC professionals.

2. The company reported a decline in net sales for Q4 2022, but gross margin was up. Despite challenges in the Canadian market and a difficult macro environment, the company had a strong finish to the year, with net sales for the entire year up driven by organic growth and acquisitions. The company's balance sheet remains strong, and it is investing capital in organic growth, consolidating markets through acquisitions, returning surplus capital to shareholders, and growing the ordinary dividend. Looking ahead to fiscal year 2024, the company expects flat revenue against strong prior year comparables but remains confident in its strategy for growth.

3. The company is investing capital in organic growth, consolidating markets through acquisitions, and growing its ordinary dividend. Looking ahead to fiscal year 2024, the company expects flat revenue against prior year comparables. The company's focus areas for investment include acquiring HVAC capabilities and Waterworks business diversification. The pipeline is still full, healthy, and mostly in the $30 million to $300 million revenue range.

4. The company expects a low-single-digit decline in non-res revenue due to softness in traditional commercial areas and a generational opportunity with megaprojects that will take several years to complete. The team has done a good job controlling expenses but faces wage inflation and anticipates pressure on SG&A in the first half of 2024. The operating margin guidance ranges from 9.2% to 9.8%, depending on market and commodity pressures.

5. The company have normalized their supply chain and inventory levels, but commodities are moving at different velocities. The residential market is expected to decline mid to high-single digits, and there's movement from replace to repair in HVAC and break-fix service. Lastly, they're confident in their capital deployment priorities, including investing for organic growth, growing their dividend, bolt-on M&A, and managing their debt.