Q1 2024 Ferguson PLC Earnings Call
Speaker 1: Please refer to our earnings presentation and announcement on our website for additional information regarding those non-Gab measures, including reconciliation to their most directly comparable GAB financial measure.
Presentation and announcement on our website for additional information regarding those non-GAAP measures, including reconciliations to the most directly comparable GAAP financial measures.
Speaker 1: with me on the call today, or Kevin Murphy, or CEO , and Bill Brunnage, or CFO . I will now turn the...
With me on the call today are Kevin Murphy, our CEO and Bill Brundage our CFO.
I'll now turn the call over to Kevin.
Speaker 1: Thank you, Brian , and welcome everyone to Ferguson's first quarter results conference call. On the call today, I'll cover highlights from our first quarter performance and I'll also provide a more detailed view of our performance by end market and by customer group before turning the call over to Bill for the financial.
Thank you, Brian and welcome everyone to <unk> first quarter results conference call on the call today I'll cover highlights from our first quarter performance and I'll also provide a more detailed view of our performance by end market and by customer group before turning the call over to bill for the financials.
Speaker 1: I'll then come back at the end to give some closing comments before Bill and I take your question.
I'll then come back at the end to give some closing comments before bill and I take your questions.
Speaker 1: Booking on the first quarter, our associates delivered solid results that were in line with our expectations as we laughed strong comparable.
Focusing on the first quarter, our associates delivered solid results that were in line with our expectations as we lapped strong comparables.
Speaker 1: Our dedicated associates have remained focused on execution, continuing to go above and beyond to serve our customers, helping to make their projects more simple, successful, and sustainable.
Our dedicated associates remain focused on execution continuing to go above and beyond to serve our customers helping to make their projects more simple successful and sustainable.
Speaker 1: As expected, we saw modest revenue decline of 2.8% in the quarter in a challenging market.
As expected we saw a modest revenue decline of two 8% in the quarter in a challenging market.
Speaker 1: delivered solid gross margins and were diligent in managing costs, delivering adjusted operating profit of $773 million, down 10.5%, but delivering an adjusted operating margin of 10% and adjusted deluded earnings per share of $2.65.
We delivered.
Solid gross margins and we are diligently managing costs delivering adjusted operating profit of $773 million.
Down 10, 5%, but delivering an adjusted operating margin of 10% and adjusted diluted earnings per share of $2 65.
Speaker 1: Over the three years since fiscal 2021, this represents sales growth of 43%.
Over the three years since fiscal 2021 this represents sales growth of 43%.
Speaker 1: Adjusted operating profit growth of 60%, and adjusted diluted earnings per share growth of 74% for the first quarter.
Adjusted operating profit growth of 60%.
And adjusted diluted earnings per share growth of 74% for the first quarter.
Speaker 1: Our views on fiscal 2024 guidance are unchanged and Bill will walk you through this in more detail shortly.
Our views on fiscal 2024 guidance are unchanged and Bill will walk you through this in more detail shortly.
Speaker 1: We're confident in the strength of our business model as we go forward.
We're confident in the strength of our business model as we go forward.
Speaker 1: And turning to the performance by end market in the US, net sales were down 2.7% as we left strong comparables and markets remain challenged.
And turning to the performance by end market in the U S.
Net sales were down two 7% as we lap strong comparables and markets remain challenged.
Residential trends have remained broadly consistent with the prior quarter with markets impacted by the slowdown in new residential construction and in areas serving the project minded consumer.
Speaker 1: Residential trends have remained broadly consistent with the prior quarter, with markets impacted by the slowdown in new residential construction and in areas serving the project-minded consumer.
Speaker 1: Repair maintenance and improvement has seen greater resilience, particularly with our core trade professionals and in high-end remodel. But the markets worked down in the first-
Repair maintenance and improvement has seen greater resilience, particularly with our core trade professionals and in high end remodel.
But the markets were down in the first quarter as expected.
Our residential revenues, which comprised just over half of U S revenue declined 7% in the quarter.
Speaker 1: Our residential revenues, which comprise just over half of U.S. revenue, declined 7% in the quarter.
Speaker 1: Non-residential markets outperform residential due to commercial and industrial activity.
Nonresidential markets outperformed residential due to commercial and industrial activity areas.
Speaker 1: areas such as data centers and manufacturing had held up much better than other areas such as office and retail.
Areas, such as data centers and manufacturing had held up much better than other areas such as office and retail.
Overall net sales in nonresidential grew by 2% during the quarter.
Speaker 1: Overall, net sales and non-residential grew by 2% during the quarter.
While we expect growth rates will fluctuate over time, our intentional balanced end market exposure positions us well.
Shifting now to revenue growth across our customer groups in the U S.
Speaker 1: Chifting out a revenue growth across our customer groups in the US.
Speaker 1: Residential trade plumbing declined by 12% against a 15% prior year comparable growth as subdued new residential construction activity weighed on performance.
Residential trade plumbing declined by 12% against a 15% prior year comparable growth is subdued new residential construction activity weighed on performance.
Speaker 1: Leading indicators such as new residential permits and starts have stabilized but remain below prior years.
Leading indicators such as new residential permits and starts have stabilized but remain below prior year.
Speaker 1: HVAC grew by 4% with a two-year stat growth rate of 22% driven by the execution of our HVAC growth strategy.
HVAC grew by 4% with a two year stacked growth rate of 22% driven by the execution of our Hvac's growth strategy.
Speaker 1: Residential building and remodel revenues decline 3% against a 21% prior year comparable.
Residential building in remodel revenues declined 3% against a 21% prior year comparable.
Speaker 1: residents of digital commerce declined by 14% as weaker consumer demand has persisted
Residential digital commerce declined by 14% as weaker consumer demand is persistent.
Speaker 1: Waterworks revenues were down 1% against a prior year growth comparable of 27%.
Waterworks revenues were down 1% against the prior year growth comparable of 27%.
Speaker 1: Demand and bidding activity remain healthy, and we benefit from a broadly diversified business mix, including residential, commercial, public works, municipal, meters in metering technology, water and wastewater treatment plant, soil stabilization, and urban green infrastructure.
Demand and bidding activity remains healthy and we benefit from our broadly diversified business mix, including residential commercial public works municipal meters and metering technology water and wastewater treatment plant soil stabilization and urban green infrastructure.
Speaker 1: Commercial Mechanical Customer Group grew by 6% in our industrial, fire and fabrications, and facility supply businesses delivered a combined flat sales performance in the quarter against a 25% growth comparable. Driven by the continuation of broader non-residential trends such as ensuring of manufacturing, plant turnaround work, and general industrial productivity.
Commercial mechanical customer group grew by 6% and our industrial fire and fabrications and facility supply businesses delivered a combined flat sales performance in the quarter against a 25% growth comparable.
Driven by the continuation of broader nonresidential trends, such as onshoring of manufacturing plant turnaround work and general industrial activity.
Speaker 1: Outbreast of customer group allows us to bring value to the total project, while also maintaining a broad and balanced end market exposure.
Our breadth of customer groups allows us to bring value to the total project, while also maintaining a broad and balanced end market exposure.
Speaker 1: Now let me pass you over to Phil to cover the financial results in more detail. Thank you, Kay.
Now, let me pass you over to Bill to cover the financial results in more detail.
Thank you, Kevin and good morning, everyone.
Speaker 1: First quarter net sales were 2.8% below last year. Organic revenue declined 4.9% with foreign exchange rates having a 0.1% adverse impact. Parsley offset by acquisition revenue of 2.2%.
First quarter net sales were two 8% below last year organic revenue declined four 9% with foreign exchange rates, having a 0.1% adverse impact partially offset by acquisition revenue of two 2%.
Speaker 1: As expected, pricing stepped down further from 1% inflation in Q4 to approximately 2% deflation in Q1. This was principally driven by weakness in certain commodity categories as we lap strong comparable.
As expected pricing step down further from 1% inflation in Q4 to approximately 2% deflation in Q1.
This was principally driven by weakness in certain commodity categories as we lapped strong comparable.
Speaker 1: Rose Margin of 30.2% was down 30 basis points over the prior year, also impacted by certain commodity cuttings.
Gross margin of 32% was down 30 basis points over the prior year also impacted by certain commodity categories.
Speaker 1: Cost base has been well contained with total cost flat compared to the prior year. Enabling us to deliver a 10% adjusted operating margin down 90 basis points over last year.
Cost base has been well contained with total cost flat compared to the prior year.
Enabling us to deliver a 10% adjusted operating margin down 90 basis points over last year.
Speaker 1: Adjusted operating profit of $773 million was down $91 million or 10.5% lower compared to the prior year.
Adjusted operating profit of $773 million was down $91 million or 10, 5% lower compared to the prior year.
Adjusted diluted earnings per share was 10, 2% lower than the prior year with the reduction due to lower adjusted operating profit, partially offset by the impact of our share repurchase program.
Speaker 2: Guasted deluded earnings per share was 10.2% lower than the prior year, with the reduction due to lower adjusted operating profit partially offset by the impact of our share repurchase program.
Speaker 2: And our balance sheet remains strong at one time's net depth to adjust it even.
And our balance sheet remains strong at one times net debt to adjusted EBITDA.
Speaker 2: Moving to our segment results, the US business delivered another solid quarterly performance against strong comparables. The year before its yields decline Ehm.
Moving to our segment results the U S business delivered another solid quarterly performance against strong Comparables.
Net sales declined by two 7%.
Speaker 2: Organic revenue declined 5% on top of a 13% prior year comparable growth rate.
Organic revenue declined 5% on top of a 13% prior year comparable growth rate.
Speaker 2: was partially offset by a 2.3% contribution from acquisition.
This was partially offset by a two 3% contribution from acquisitions.
Speaker 2: We generated a adjusted operating profit of $766 million, delivering a 10.4% adjusted operating
We generated adjusted operating profit of $766 million, delivering a 10, 4% adjusted operating margin.
Speaker 2: Turning to our Canadian segment, markets were soft and for an exchange rate also weighed on results.
Turning to our Canadian segment markets were soft and foreign exchange rates also weighed on results.
Speaker 2: Net sales declined 5%. Organic revenue declined 3.3% and foreign exchange rates reduced revenue by a further 1.7%.
Net sales declined 5%.
Organic revenue declined three 3% and foreign exchange rates reduced revenue by a further one 7%.
Speaker 2: We have seen similar market trends in Canada to those in the US, with non-residential end markets proving more resilient than residents.
We have seen similar market trends in Canada to those in the U S. With nonresidential end market is proving more resilient than residential.
Speaker 2: Guested operating profit of $23 million with $10 million below last year.
Adjusted operating profit of $23 million with $10 million below last year.
Speaker 2: Thus, at Operating Marginz of 6.1%, we're down from 8.3% in the prior year, but improves sequentially from 5.4% in Q4.
Operating margins of six 1% were down from eight 3% in the prior year, but improved sequentially from five 4% in Q4.
Speaker 2: The business continues to generate strong cash flow. As we exited last fiscal year, our inventory levels were more normalized as supply chain constraints had eased.
The business continues to generate strong cash flow.
As we exited last fiscal year, our inventory levels were more normalized at supply chain constraints had eased.
Speaker 2: Working capital investments of $219 million during the first quarter were in line with a historical seasonal trend.
Working capital investments of $219 million during the first quarter were in line with historical seasonal trends.
Speaker 2: Interest and tax outflows were as expected, and we continue to invest in organic growth through CAFAC.
Interest and tax outflows were as expected and we continue to invest in organic growth through capex.
Speaker 2: Fessing $91 million during the quarter, similar levels to last year.
$91 million during the quarter similar levels to last year.
Speaker 2: As a result, free cash flow was $473 million, a $65 million increase over the prior year.
As a result free cash flow was $473 million at $65 million increase over the prior year.
Speaker 2: Our balance sheet position is strong with net depth to adjust the EBITDAB one time.
Our balance sheet position is strong with net debt to adjusted EBITDA of one times.
Speaker 2: We target a net leverage range of one to two times, and we intend to operate towards the low end of the range through cycle to ensure that we have the capacity to take advantage of growth opportunities, as well as to maintain a resilient balance sheet. We allocate capital
We target a net leverage range of one to two times and we intend to operate towards the low end of the range through cycle to ensure that we have the capacity to take advantage of growth opportunities as well as to maintain a resilient balance sheet.
We allocate capital across four clear priorities.
Speaker 2: First, we're investing in the business to drive above market organic growth.
First we're investing in the business to drive above market organic growth.
Speaker 2: Previously mentioned, we invested $219 million in working capital and $91 million into CAPEX during the quarter. principally focused on our market distribution centers, branch network and technology.
Previously mentioned, we invested $219 million in working capital and $91 million into Capex during the quarter, principally focused on our market distribution centers branch network and technology programs.
Speaker 2: Second, we continue to sustainably grow our ordinary dividend.
Second we continued to sustainably grow our ordinary dividend.
Speaker 2: Our board declared a 79 cent per share quarterly dividend, a 5 percent increase over the prior year, reflecting our confidence in the business and cash generation.
Our board declared a <unk> 79 per share quarterly dividend, a 5% increase over the prior year, reflecting our confidence in the business and cash generation.
Speaker 2: Third, we're consolidating our fragment and markets through bolt-on geographic and capability act.
Third we're consolidating our fragmented markets through bolt on geographic and capability acquisitions.
Speaker 2: We are pleased to have welcomed associates from secure vision of America during the quarter. A leading distributor of waterworks metering solutions in tech.
We are pleased to have welcomed associates from secure vision of America during the quarter, a leading distributor of waterworks metering solutions in Texas.
Speaker 2: Our deal pipeline remains healthy, allowing us to continue to execute our consolidation stress.
Our deal pipeline remains healthy, allowing us to continue to execute our consolidation strategy.
Speaker 2: And finally, we are committed to returning surplus capital to shareholders when we are below the low end of our target leverage range.
And finally, we are committed to returning surplus capital to shareholders. When we are below the low end of our target leverage range.
Speaker 2: We returned $108 million to shareholders via share repurchases during the quarter. Using our share count by approximately $700,000 and we ended the period with $429 million outstanding under the current share repurchase proof.
We returned $108 million to shareholders via share repurchases during the quarter.
Using our share count by approximately 700000, and we ended the period with $429 million outstanding under the current share repurchase program.
Speaker 2: Turning last to our view of fiscal 2024 guidance, which is unchanged.
Turning last to our view of fiscal 2024 guidance, which is unchanged.
Speaker 2: We believe revenue will be broadly flat for the year, reflecting a challenging market particularly in the first half of our fiscal year against strong prior year comparable.
We believe revenue will be broadly flat for the year, reflecting a challenging market, particularly in the first half of our fiscal year against strong prior year Comparables.
Speaker 2: For the year, we assume end markets decline in the mid single digit range.
For the year, we assume end markets declined in the mid single digit range.
Speaker 2: We outperform these markets by approximately three to 400 basis.
We outperformed these markets by approximately three to 400 basis points.
Speaker 2: We have a tail from completed acquisitions, which we expect to generate just over $500 million in revenue and the benefit of one additional sales day landing in the third quarter.
We have a tail from completed acquisitions, which we expect to generate just over $500 million in revenue and the benefit of one additional sales day landing in the third quarter.
Speaker 2: Overall, while we saw expected modest deflation in Q1, we are assuming a broadly neutral pricing environment for the full year.
Overall, while we saw expected modest deflation in Q1, we are assuming a broadly neutral pricing environment for the full year.
Speaker 2: We continue to provide a range for a just-at-operity margin between 9.2 to 9.8% with a midpoint reflecting modest continued normalization, largely driven by strong first half compare.
We continue to provide a range for adjusted operating margin between nine two to nine 8% with the midpoint, reflecting modest continued normalization largely driven by strong first half comparable.
Speaker 2: We expect interest expense of approximately 190 to 210 million dollars.
We expect interest expense of approximately $190 million to $210 million.
Speaker 2: Our adjusted effective tax rate should stay broadly consistent at approximately 25%. And we expect to invest between 400 to 450 million dollars in CAPEX, similar levels to enforcement facilities, and
Our adjusted effective tax rate should stay broadly consistent at approximately 25%.
And we expect to invest between $400 million to $450 million in capex similar levels to fiscal 'twenty three.
Speaker 2: So to summarize, we had a solid first quarter performance in line with our expectations and our views on fiscal 2024 guidance are unchanged.
So to summarize we had a solid first quarter performance in line with our expectations and our views on fiscal 2024 guidance are unchanged.
Speaker 2: We remain focused on execution and believe the combination of our strong balance sheet, flexible business model, and balance end market exposure positions as well. Thank you.
We remain focused on execution and believe the combination of our strong balance sheet flexible business model and balanced end market exposure positions us well.
Thank you and I'll now pass back to Kevin.
Speaker 1: Thank you Bill. Let me again thank our associates for their unwavering dedication to serving our customers.
Thank you Bill let.
Let me again, thank our associates for their unwavering dedication to serving our customers.
Speaker 1: The year has started in line with our expectations and we're pleased with execution in the first quarter.
The year has started in line with our expectations and we're pleased with execution in the first quarter.
Speaker 1: Bill set out our fiscal 2024 guidance is unchanged.
As Bill set out our fiscal 2024 guidance is unchanged.
Speaker 1: As you will have seen in the release this morning, the board is evaluating the domicilliation of Ferguson's ultimate parent company in the United States.
As you will have seen in our release. This morning. The board is evaluating the Domiciliation of Ferguson's Ultimate parent company in the United States.
Speaker 1: a logical next step to enable full alignment of the company's headquarters and governance with the geography of our operations.
So the logical next step to enable full alignment of the Companys headquarters and governance with.
With the geography of our operations and leadership team.
Speaker 1: As we look forward, despite the current challenging macroeconomic environment, we're well positioned with a balanced business mix between residential and non-residential. New construction and repair
As we look forward. Despite the current challenging macroeconomic environment, we are well positioned with our balanced business mix between residential and nonresidential, new construction and repair maintenance and improvement.
Speaker 1: We have an agile business model and a flexible cost space that allows us to adapt to changing market conditions.
We have an agile business model and a flexible cost base that allows us to adapt to changing market conditions.
Speaker 1: Our cash-generative model allows us to continue to invest for organic growth.
Our cash generative model allows us to continue to invest for organic growth.
Speaker 1: Solidate our fragmented markets to requisitions and return capital to shareholders.
Consolidate our fragmented markets through acquisitions and return capital to shareholders.
Speaker 1: and tend to do this while maintaining a strong balance operating at the low end of our target leverage ring.
We intend to do this while maintaining a strong balance sheet operating at the low end of our target leverage range.
Speaker 1: consistently executed on these priorities for many years and this is supported a long-term track record of outperformance and discipline deployment of capital
Consistently executed on these priorities for many years and this has supported our long term track record of outperformance and disciplined deployment of capital.
Speaker 1: Over the 10 years to end of fiscal 2023, our revenue compounded annual growth rate has been 10%, with a 14% adjusted off.
Over the 10 years to end of fiscal 2023, our revenue compounded annual growth rate has been nine 6%.
With a 14% adjusted operating profit CAGR.
Speaker 1: while also returning $11 billion to shareholders in the form of dividends and buybacks.
While also returning $11 billion to shareholders in the form of dividends and buybacks.
Speaker 1: we consolidate our markets. We've reliably delivered organic market out performance of 300 to 400 basis points while bringing in approximately 50 acquisitions in the past five years alone.
As we consolidate our markets we have reliably delivered organic market outperformance of 300 to 400 basis points, while bringing in approximately 50 acquisition in the past five years alone.
Speaker 1: Our scale and breadth allows us to leverage our competitive position across our customer groups in order to benefit from emerging multi-year tailwinds in our end market.
Our scale and breadth allows us to leverage our competitive position across our customer groups in order to benefit from emerging multiyear tailwind in our end markets.
Speaker 1: and the strength of our markets over the medium and longer term and expect to capitalize on these growth offers.
We remain confident in the strength of our markets over the medium and longer term and expect to capitalize on these growth opportunities.
Speaker 1: Thank you for your time today. Bill and I are now happy to take your questions, operator. I'll hand the call back over to you.
Thank you for your time today, Bill and I are now happy to take your questions operator, I'll hand, the call back over to you.
Speaker 3: Thank you. For Q&A, if you'd like to ask a question, please press star one on your telephone keypad now. Let's star one.
Thank you.
Q&A, if you'd like to ask a question. Please press star one on your telephone keypad now.
Thats Star one on your telephone keypad now.
Speaker 3: If you do change your mind, please press star followed by two. And when preparing to ask a question, please ensure your device is in me.
If you do change your mind. Please press star followed by two and when preparing to ask a question. Please ensure your devices and muted.
Speaker 3: Okay, we do have our first question comes from Phil and G from Jeffries. Phil, your line's not open.
We do have our first question comes from Phil <unk> from Jefferies Phil.
Your line is now open.
Speaker 4: Hey guys, congrats on another solid quarter in a choppy environment. You know, I appreciate you one, Q's your toughest comp quarter. The Keras how did pricing track the quenchedly in one Q? And then have you seen prices stabilized, especially on the commodity side. And your flat pricing guidance for the full year, is that predicated on price increases on your finished goods categories and have your suppliers announce any price increases for calendar year, 1224?
Hey, guys congrats on another solid quarter and a choppy environment.
I appreciate you <unk> your toughest comp quarter, but curious how did pricing track sequentially in <unk> and have you seen prices stabilize and especially on the commodity side and your flat pricing guidance for the full year is that predicated on price increases on your finished goods categories and have your suppliers announced any price increases for calendar year 'twenty 'twenty four.
Speaker 2: yeah good morning Phil it's bill i'll start with that in uh... i'm sure Kevin will will add to it uh... in in terms of uh... pricing throughout the quarter it was it was relatively stable sequentially from q4 to q1 pretty stable prices uh... in terms of through the
Yes, good morning, Phil It's Bill I'll start with that and I'm sure Kevin will add to it in terms of pricing throughout the quarter. It was it was relatively stable sequentially. So from Q4 two.
Q1 pretty stable prices.
In terms of through the months commodity stepped down a touch as the comparable we're very difficult stepping through Q1 of last year, but relatively consistent not a lot of movement.
Speaker 2: Commodity stepped down a touch as the comparables were very difficult stepping through Q1 of last year But but relatively consistent not a lot of movement and then as we as we stepped into the second quarter here Again, not not a lot of additional move
And then as we as we stepped into the second quarter here.
Again, not a lot of additional movement and Phil. Thank you for the question. When you think about the different commodity based products that we sell through.
Speaker 1: And Phil, thank you for the question. When you think about the different commodity based products that we sell through, they, as expected, aren't moving in the same direction at the same velocity at the same time. And so we've seen differences in what that, deflationary pressure looks like. We have seen signs of stabilization though. You look at products like steel that have seen some degree of stabilization and in fact some increase.
As expected arent moving in the same direction at the same velocity at the same time and so we've seen differences and what that.
Deflationary pressure looks like we have seen signs of stabilization, though you look at products like steel that are seeing some degree of stabilization and in fact, some increase as you play that through into finished goods now is not the time that we would typically see those annual finished goods price increases, but we do expect them they have been forecast.
Speaker 1: As you play that through into finished goods, now is not the time that we would typically see those annual finished goods price increases, but we do expect them. They have been forecast in terms of seeing that modest increase.
In terms of seeing that modest increase when it gets back to a more normalized annual cadence and as you look at that normalized annual cadence that gets into that low single digit place and whether that is offensive or defensive in terms of what those price increases look like we do believe that it.
Speaker 1: And it gets back to a more normalized annual cadence. And as you look at that normalized annual cadence, that gets into that low single digit place. And whether that is offensive or defensive in terms of what those price increases look like, we do believe that it provides some degree of a floor under that finished good side of the businesses. We approach calendar year 20.
<unk> some degree of a floor under that finished goods side of the business as we approach calendar year 'twenty four.
Speaker 4: Okay, that's helpful. On the non-reside, the business continues to hold up, hold up really well, show pretty good resiliency, appreciating once again your very diversified here. How do you see trends kind of shaping up the course of year? I'm just trying to gauge how do you see the full impact of the slowdown from office and retail, and you called out bidding activity, picking up in mega projects, and how do you kind of see that rippling through your business? So, respectively, are you anticipating top line potential accelerating in the government course?
Okay. That's helpful on the non Reg side, the business continues to hold up hold up really well show pretty good resiliency.
<unk> once again youre very diversified.
How do you see trends kind of shaping up over the course of the year I'm just trying to gauge how do you seen like the full impact of a slowdown from office and retail and you called out bidding activity picking up in Mega projects. How do you kind of see that rippling through your business. So effectively are you anticipating.
Top line potentially accelerating in the coming quarters.
Speaker 1: So it's really been as expected and we have seen that drop off in typical knock on commercial activity like office and retail and that's create a pressure environment in the non-red space.
Yeah.
So it's really been as expected and we have seen that drop off in typical knock on commercial activity like office and retail and Thats create a pressure environment and the non res space. What we've also seen though is as you have seen a drop off in say distribution center or warehouse activity, you've seen a fairly strong.
Speaker 1: What we've also seen though is, as you've seen to drop off in say, distribution center or warehouse activity, you've seen a fairly strong pick up and continuation of data center activity, especially with what's happening in the AI space. And these projects are very good for us across multiple customer groups, underground water, wastewater through commercial mechanical, fire suppression, and the like. As you think about the mega project landscape,
Up and continuation of datacenter activity, especially with what's happening in the AI space and these projects are very good for us across multiple customer groups from underground water wastewater through commercial mechanical fire suppression and the like as you think about the Mega project landscape as we are.
Speaker 1: As we've discussed, these are going to be longer projects. The bidding activity continues to be quite strong.
<unk> discussed these are going to be longer project bidding activity continues to be quite strong.
Speaker 1: open order volumes that we're seeing continue to pick up. And we're actually seeing and experiencing revenue growth inside of those mega projects. They're just taking a great deal longer. And that was really as expected for us. It's as much a catalyst for how we want to operate across multiple customer groups on the whole of the project as well as being a good support mechanism inside that non-residential space. you
The open order volumes that we're seeing continue to pick up and we're actually seeing and experiencing revenue growth inside of those mega projects, they're just taking a great deal longer and that was really as expected for us it's as much a catalyst for how we want to operate across multiple.
Our groups on the whole of the project as well as being a good support mechanism inside that nonresidential space.
Okay I appreciate all the great color. Thanks, a lot guys.
Thanks, Joe.
Yes.
Speaker 3: Rion, your line is now open.
Our next question comes from Ryan Merkel from William Blair Bryan. Your line is now open.
Speaker 4: Hey, good morning and thanks for taking the questions. First off, can you just comment on quarter-to-date trends? And the reason I ask is it seems that the broader macro has slowed a little bit. I'm just curious if you guys have seen it.
Hey, good morning, Thanks for taking the questions first off can you just comment on quarter to date trends and the reason I ask is it seems that the broader macro slowed a little bit I'm. Just curious if you guys have seen anything.
Speaker 2: Yeah Ryan, we've actually, as expected, we've seen our growth rates improve a bit as we've stepped into the second quarter. So down about 5% organic decline in Q1, that has stepped up a bit. We're down in the low single digit range. And that's how we expected the year to start to play through as those comparable start to ease as we move through the second quarter and really get into the second half. So we've seen a little bit of improvement in those growth trends actually.
Yes, Brian we've actually as expected we've seen our growth rates improve a bit as we've stepped into the second quarter. So down about 5% organic decline in Q1 that has stepped up a bit we're down in the low single digit range.
And that's how we expected the year to start to play through as those comparable start to ease as we move through the second quarter and really get into the second half. So we've seen a little bit of improvement in those growth trends actually.
Speaker 4: Got it, it's great to hear. And then my second question is just on the HVAC segment, standout performer, what is your outlook over the next two years for pricing, just given the regulations? What have you heard from supplier?
Got it that's great to hear and then my second question is just on the HVAC segment standout performer.
What is your outlook over the next two years for pricing just given the regulations what have you heard from suppliers.
Speaker 1: so we knew that pricing was going to be supportive as you went through the regulatory changes and you know whether that's going to be in that high single digit uh... you know peace uh... will see how it plays out but if you look at our business we really look at what is that mix going to be in terms of part
So we knew that pricing was going to be supportive as you went through the regulatory changes and whether that's going to be in that high single digit.
Piece.
We'll see how it plays out but if you look at our business. We really look at what is that mix going to be in terms of parts.
Speaker 1: equipment and supplies and then what's that mix going to be for us in terms of what ducklist looks like versus Unitary so there are a lot of variables inside of that but clearly price is going to be supportive as we go through regulatory changes and we look at what is a bit of more challenging environment from a volume perspective.
Equipment and supplies and then what's that mix going to be for us in terms of what ductless looks like versus unitary. So there are a lot of variables inside of that but clearly prices going to be supportive as we go through regulatory changes and we look at what is a bit of more challenging environment from a volume perspective.
<unk>.
Got it thank you pass it on.
Speaker 3: Our next question comes from John LeVolo from UBS. John , your line's now open.
Our next question comes from John Lovallo from UBS, John Your line is now open.
Speaker 5: Good morning guys, this is actually Matt Johnson, on for John . I appreciate you taking my questions. So first off, you guys talk about some of the pros and cons with the redom assiling. And you talk about any potential financial implications here whether it's for corporate costs or your tax expense.
Hey, Good morning, guys. This is actually Matt Johnson on for John I. Appreciate you taking my questions.
So first off could you guys talk about some of the pros and cons with re domicile.
Can you talk about any potential financial implications here, whether it's for corporate costs or your tax expense.
Speaker 1: Thanks Matt. In terms of pros and cons, if I take a step back and think about our journey that we've been on for the last several years.
Thanks, Matt.
In terms of pros and cons, if I take a step back and think about our journey that we've been on for the last several years.
Speaker 1: We're really pleased with the methodical way that we've approached the entire process.
Really pleased with the methodical way that we've approached the entire process the standing up of the secondary listing in New York. The movement of the primary listing to New York out of London, What's happened in terms of the shift in sell side coverage whats happened in terms of the shift of indexation and for US. This is really viewed.
Speaker 1: standing up of a secondary listing in New York, the movement of the primary listing to New York out of London, what's happened in terms of the shift in cell side coverage, what's happened in terms of the shift of indexation. And for us, this is really viewed as a natural next step in terms of moving the...
It is a natural next step in terms of moving the governance moving what our headquarters is in line with our geographic location of our markets. This is a north American company, principally in the U S and where our leadership sits and so for US it's more of just a natural next step.
Speaker 1: Moving what our headquarters is in line with our geographic location of our markets. This is a North American company principally in the US.
Speaker 1: and where our leadership sits. And so for us, it's more of just a natural next step. And we're early days in terms of what that journey looks like.
And we're early days in terms of what that journey looks like.
Speaker 2: Yeah, and in terms of the financial impact, we're in the process of evaluating that, but sitting here today, we expect the overall financial impact to be relatively immaterial with a move to a US corporate headquarters. But more to come on that as we fully develop our process and the approach.
Yeah and in terms of the financial impact we're in the process of evaluating that but sitting here today, we expect the overall financial impact to be relatively immaterial with our move to a U S corporate headquarters, but more to come on that as we.
Fully develop our process and the approach.
Speaker 5: I appreciate that. And then just one more, I guess your guys outlook is unchanged, but interest rates have obviously come in meaningfully over the past month. I guess could you guys just provide any thoughts on and market recovery if rates did just say, stay where they are from here?
Alright, I appreciate that.
And then just one more I guess your guys' outlook is unchanged, but interest rates have obviously come in meaningfully over the past months I guess you guys could provide any thoughts on end market recovery if rates.
They stay where they are from here.
Sure.
Speaker 1: For our end-markage, they really are playing out very much as expected and as you think about it, the rate environment.
For our end markets. They really are playing out very much as expected.
And as you think about the rate environment. The biggest impact that we saw obviously was on the new residential construction side just half of just over half of our business is on the residential side of the world with the lightest portion of that being new Red we saw that play through but we're seeing stabilization inside of what permit and start activity looks like and although it's not.
Speaker 1: The biggest impact that we saw obviously was on the new residential construction side. Just over half of our businesses on the residential side of the world with the lightest portion of that being new res. We saw that playthrough, but we're seeing stabilization inside of what permit and start activity looks like. And although it's not north of that 1.5 million starts a year that we need as a country, we are seeing some degree of stabilization there. As you think about what the rate environment is doing on the non-res side.
North of that one 5 million starts a year that we need as a country. We are seeing some degree of stabilization there.
Think about what the rate environment is doing on the non res side, yes.
Speaker 1: Yeah, we have pressure and there's some, gonna be some fits and starts, maybe some pauses, even on the mega project side, but generally speaking, we see that continuing to play out very much as expected with knock on commercial being pressured, but data center activity, mega projects continuing to press on in light of the interest rate environment that we're in today.
We have pressure and there's going to be some fits and starts maybe some pauses even on the Mega project side, but generally speaking, we see that continuing to play out very much as expected with knock on commercial being pressured but data center activity Mega projects continuing to press on in light of the interest rate environment that we're in today.
Thanks, guys.
Thanks, Matt.
Speaker 3: Our next question comes from Mike Dull from RBC Capital Markets. Mike, your lines know.
Our next question comes from Mike Dahl from RBC capital markets. Mike. Your line is now open.
Speaker 6: I actually, Chris, call it off from Mike. Just shifting over to margins. I was hoping to get your latest thoughts on the trajectory for margins this year, first half versus second half, realizing the guidance has done change, but just your latest views on dynamics there.
Hi, This is actually Chris kalata on for Mike.
Just shifting over to margins I was hoping to get your latest thoughts on the trajectory for margins. This year first half versus second half realizing the guidance is unchanged.
Latest views on.
On dynamics there.
Speaker 2: Yeah, really no change in that as we look at the full year, Chris, you know, expecting that operating margin to land in that 9, 2, to 9, 8 range. As we talked about on our fourth quarter call, as we set that guidance out, we're expecting that midpoint, expect some modest continued normalization. And most of that.
Yes, really no change in that as we look at the full year.
Chris expecting operating margin to land in that 90% to 98 range as we talked about on our fourth quarter call as we set that guidance out we're expecting that mid point.
Expect some modest continued normalization and most of that coming.
Speaker 2: in the first half of this year. As you just saw, the 10% operating margin down from last year, and that was very much as expected. We expect, as we go through the second quarter, to have a bit of continued pressure, given the really strong second quarter we had last year, and then some improvement as we step into the second half, as growth stabilizes, to Kevin's point that he just walked through, and as we return back to growth and we get back to broadly flat revenue for the year.
In the first half of this year.
As you just saw the 10% operating margin down from last year.
That was very much as expected we expect as we go through the second quarter to have continued a bit of continued pressure given the really strong second quarter, we had last year.
And then some improvement as we step into the second half as growth stabilizes.
Kevin's point that you just walked through.
And as we returned back to growth and get back to a broadly flat revenue for the year.
Speaker 6: Got it. Got it. Yeah, appreciate that color. And then just shifting over to cap allocation with share repurchases, kind of stepping down to quench the lead this quarter. I just want to get you really as felt on.
Got it got it I appreciate that color and then just shifting over to capital allocation with share repurchases kind of stepping down sequentially. This quarter just want to get your latest thoughts on.
Speaker 6: you know, capital allocation priorities and how the M&A landscape is looking today.
Our capital allocation priorities and how the M&A.
The landscape is looking today.
Speaker 2: Yeah, really no change in terms of how we're executing that. Our intention is to operate towards the low end of our leverage range one to two times. We're sitting right at the bottom end of that range right now. And so, as you saw from an acquisition perspective, one small acquisition completed in the quarter. But the deal pipeline is pretty healthy. So, we're maintaining some capacity there to continue to consolidate our market.
Yeah really no change in terms of how we're executing that our intention is to operate towards the low end of our leverage range. One to two times, we're sitting right at the bottom end of that range right now.
And so as you saw from an acquisition perspective, one small acquisition completed in the quarter, but the deal pipeline is pretty healthy.
So were maintaining some some capacity there to continue to consolidate our our markets, but you should expect us to operate towards the low end of that range and continue to execute our capital priorities across that four step priority order.
Speaker 2: But you should expect us to operate towards the low end of that range and continue to execute our capital priorities across that four-step priority order.
Understood best of luck.
Speaker 3: Our next question comes from Will Jones from Redburn Atlantic. Will your lines go up?
Our next question comes from will Jones from Redburn Atlantic.
Your line is now open.
Speaker 7: Thank you. Just a couple for me, please. I think on the gross margin, perhaps you could just help us better understand that first half or first quarter gross margin, the 30.2. Would you be willing to draw out what the commodity impacts were against that?
Thank you.
For me please.
Gross margin, perhaps you could just help us better understand the.
Okay.
First half first quarter gross margin of 30.2 would you be willing to talk about what the commodity impacts were against that.
Speaker 7: what was working in your favour to still deliver that good gross margin despite the commodity effects.
What was working your favorite to still deliver that good gross margin. Despite the commodity effects and then secondly, just when we think about gross margins with regard to Mega projects. Just you go through the bidding process.
Speaker 7: And then secondly just when we think about gross margins with regards to mega projects, just you go through the bidding process there any more insights into.
Any more insights into whether those megaprojects might be gross margin accretive or not relative to normal non res projects. Thanks.
Speaker 7: whether those mega projects might be gross margin, are accretive or not relative to normal non-res projects. Thanks.
Speaker 2: Yeah, well, we were pleased with the team's execution on gross margins in the first quarter, staying above that 30%, delivering 30.2%.
Yes, well, we were pleased with the team's execution on gross margins in the first quarter staying above that 30% delivering 32%.
Speaker 2: And we had expected a little bit of a step down coming out of Q4.
We had expected a little bit of a step down coming out of Q4.
Speaker 2: You may recall in Q4, we were at 30.6 percent, but we talked about some one-time inventory gains as we sold through some older inventory.
I recall in Q4, we were at 36%, but we talked about some some some onetime inventory gains as we sold through some older inventory.
Speaker 2: As I think about that 30.2%. Yeah, there's a little bit of pressure from a commodity perspective, but the team's really executing well with own brand sales. That continues to be about 10% of our revenue, and that's, as you know, gross margin accretive. And then really good pricing discipline in the field as we're managing through what is a tricky time from a commodity perspective. So really good execution.
As I think about that 32%, yes, there is a little bit of pressure from a commodity perspective, but the team is really executing well with own brand sales.
That continues to be about 10% of our revenue.
And Thats as you know gross margin accretive and then really good pricing discipline in the field.
We're managing through what is a tricky time from a commodity perspective, so really good execution.
Speaker 1: yeah building on that will the team did a great job from an execution perspective in gross margin pressure was less so of an impact in gross profit dollar uh... was as you think about deflation in the commodity market to lower gross profit dollar on the gross margin is relatively consistent uh... when you think about the mega project landscape and and the approach
Building on that will the team did a great job from an execution perspective, and gross margin pressure was less so of an impact on gross profit dollar.
As you think about deflation in the commodity markets and lower gross profit dollars on a gross margin that's relatively consistent when you think about the Mega project landscape and the approach that group is doing a very good job of selling value added services selling our product strategy to make sure that our gross margin is relatively.
Speaker 1: The group is doing a very good job of selling value-added services, selling our product strategy to make sure that our gross margin is relatively consistent as we approach that
Consistent as we approach that megaproject landscape and in fact, if you look at our nonresidential business today I mean, what is clearly evident in the numbers there are more commodity based product impacts on the nonresidential side and yet.
Speaker 1: mega project landscape and in fact if you look at our non-residential business today and would clearly evident numbers there are more uh... commodity based product impacts on the non-residential side and yet uh... that businesses in a growth territory and so volume growth inside of the non-residential space is something we're pretty proud of as we're sat here today
Business is in a growth territory and so volume growth inside of the nonresidential space is something we're pretty proud of those we're sat here today.
Thank you.
Thank you thanks Ralph.
Speaker 3: Our next question comes from Patrick Belman from JP Morgan. Patrick, your line's not open.
Our next question comes from Patrick Baumann from Jpmorgan.
Your line is now open.
Speaker 8: Well, thank you. Good morning. Thanks for taking my questions. First one, I may be diving into the customer groups a little bit. The commercial and mechanical growth improved nicely. I thought a versus the fourth quarter there, anything particular to call out in terms of drivers? Was it more RMI focus or any particular articles within that, that true of that? And then I'll leave that one there. I'll go to the next one.
Thank you good morning, Thanks for taking my questions.
First one maybe dive into the customer groups a little bit.
Commercial mechanical growth.
Improved nicely I thought versus the fourth quarter, there anything particular to call out in terms of drivers.
More rmi, okay, Sir or any particular verticals within that that drove that and then.
Ill leave that one there okay excellent.
Speaker 1: Patrick, thanks for the question and from a commercial mechanical perspective, you're right. We were pleased with what that growth looks like. If I go back to the previous question, it really is in line with that portion of the discussion. Non-residential activity and markets are a bit challenged. Our business mix is got a good split between repair maintenance and improvement and new construction.
Yes, Patrick Thanks for the question and from a commercial mechanical perspective, you're right. We were pleased with what that growth looks like if I go back to the previous question. It really is in line with that portion of the discussion nonresidential activity in markets a bit challenged our business mix has got a good split between repair maintenance and improvement.
Speaker 1: We have seen good activity levels in places like Data Center work, as well as the mega-project landscape, and how that commercial mechanical space feeds in quite well with our industrial business.
And new construction.
We have seen good activity levels in places like data center work as well as the megaproject landscape and how that commercial mechanical space feeds in quite well with our industrial business.
Speaker 1: for that on-suring of manufacturing activity, electric vehicle production, sustainability buildouts and the like. And so it really was that balanced, non-reservantial exposure that was strong for us. And then like I say, to be in a volume growth territory.
Or that onshoring of manufacturing activity electric vehicle production sustainability build outs and the like and so it really was that balanced nonresidential exposure that was strong for us and then like I say to be in a volume growth territory.
Speaker 1: and that be able to hold gross margins relatively consistent as we move through a deflationary space on commodity-based products, we feel pretty good about where that is. So again, the balanced nature of the business serves us well and our ability to sell through into these different growth areas of non-residential is very pleasing.
And to be able to hold gross margins relatively consistent as we move through a deflationary space.
On commodity based products, we feel pretty good about where that is so again the balanced nature of the business serves us well and our ability to sell through into these different growth areas of nonresidential is very pleasing for us.
Speaker 8: Yeah, helpful. And then maybe a follow up on the gross margin question. Do you look at that low 30s number now as being normalized at this stage for, I guess pricing, deflation, et cetera? I'm just wondering if that's how you can hold in that range now going forward and start to kind of grow from there.
Yes helpful.
Then maybe a follow up on the gross margin question.
Do you look at that low <unk> number now has been.
Normalized at this stage four.
Hi.
For I guess pricing deflation et cetera.
Just wondering.
Okay.
Can hold in that range now going forward and start to kind of grow from there.
Speaker 2: Yeah, Pat, our belief has been over the last several quarters that good gross margins would normalize around that 30% mark.
Yeah, Pat our belief has been over the last several quarters that gross margins will normalize around that 30% Mark.
Speaker 2: And so we're again pleased with the execution to date. You know, certainly we're not expecting significant additional deflation. That could put some pressure further pressure on that gross margin in any particular quarter. But we very much feel like that 30% range is a good normalized point from which we can build on into the future as we get back to some market growth and then continue to take share and executing our strategy.
And so we're again pleased with the execution to date.
Certainly we're not expecting significant additional deflation that could put some pressure further pressure on that gross margin and.
Any particular quarter, but we very much feel like that 30% range is a good normalized point from which we can build on into the future as we get back to some market growth and then continuing to take share in executing our strategy and as that commodity deflationary environment stabilizes.
Speaker 1: And as that commodity deflationary environment stabilizes,
Speaker 1: and we operate from a more normalized environment.
And we operate form a more normalized environment.
Speaker 1: We then intend to build on that gross margin steadily and durably over time, but not only implementing our product strategy and driving those things that are important to our company, but also in continuing to build out value added services that allow us to see that value reflected in the gross margin of our business. So that's not a floor for us. We'll continue to build from there over time just like we have historically. We'll continue to build our product strategy and drive those things that are important to our company.
We then intend to build on that gross margin steadily and durably over time.
Not only implementing our product strategy and driving those things that are important to our company, but also in continuing to build out value added services that allow us to see that value reflected in the gross margin of our business. So that's not a floor for us will continue to build from there over time, just like we have historically.
Great. Thanks, Thanks for the color really appreciate it.
Speaker 3: Our next question comes from Catherine Thompson, from Thompson Research. Catherine, the line's not open.
Our next question comes from Kathryn Thompson from Thompson Research Catherine Your line is now open.
Speaker 2: Hey, good morning. This is actually Brian Byruss on for Katherine. Thank you for taking my questions. I guess to start, can you touch on a little bit more on the mega project beating in today's environment, and kind of how Ferguson wins here and how you differentiate versus your peers? I know in the past you've talked about kind of getting closer to the engineer or the GC or the owner to kind of be involved in the process to get the right products there, but any more color in the coronavirus, then we help.
Hey, Good morning. This is actually Brian Biros on for Catherine. Thank you for taking my questions just.
To start can you touch a little bit more on the Mega project bidding in today's environment and kind of how.
<unk> wins here and how you differentiate versus your peers I know in the past you've talked about kind of getting closer to the engineer the GC or the owner to kind of be involved in the <unk>.
Process to get the right product there, but any more color in the current environment would be helpful.
Speaker 1: The mega project landscape actually is playing out very much as we expected. We knew this was going to be a slower landscape in terms of what bidding activity looks like and how that bidding activity flows into open orders. And how open orders flow into actual revenue and construction. So it really is playing out as expected. We're pleased with what that ramp up looks like. We won't see the full impact of this structural tailwind until we get into the coming years. blockchain Rashsss.
The megaproject landscape actually is playing out very much as we expected. We knew this was going to be a slower landscape in terms of what bidding activity looks like and how that bidding activity flows into open orders and how open orders flow into actual revenue in construction.
So it really is playing out as expected we're pleased with what that ramp up looks like we won't see the full impact of this structural tailwind until we get into the coming years that said.
Speaker 1: As we've discussed in past quarters, for us, this is a catalyst for how we want to operate in the future. These mega projects are large construction projects where scale is beneficial. And bringing the scale of our supply chain and our capabilities to bear inside this market is helpful. We also are getting closer to the engineering community, the ownership of the general contracting level, to make sure that we're solving problems for them across multiple customer groups.
As we've discussed in past quarters for US. This is a catalyst for how we want to operate in the future. These mega projects or large construction projects where scale is beneficial.
Bringing the scale of our supply chain and our capabilities to bear inside this market is helpful. We also are getting closer to the engineering community the ownership and the general contracting level to make sure that we're solving problems for them across multiple customer groups.
Speaker 1: And then lastly, although we stay very true to the individual trade that's doing the work, whether that's the Waterworks contractor, the fire protection contractor, the commercial mechanical contractor, or the industrial contractor, we do add value by bringing those customer groups together on the site.
And then lastly, although we stay very true to the individual trade that's doing the work whether thats the waterworks contractor the fire protection contract to the commercial mechanical contractor or the industrial contractor, we do add value by bringing those customer groups together on the site, especially when theres such scale and complexity.
Speaker 1: especially when there's such scale and complexity on some of these projects. And so that's playing out as we had hoped and we continue to work and invest in what those capabilities look.
<unk> on some of these projects and so that's playing out.
As we had hoped and we continue to work and invest in what those capabilities look like.
Speaker 9: I'm going to follow up on the WaterWorks acquisition announced. Can you give us any more color on kind of the acquisition there, the WaterWorks metering distributor in Texas, just kind of how that fits into the larger M&A strategy, guys, for you, either on a product basis or a geography basis?
Got it and then a follow up on the Waterworks acquisition announced can you any more color on kind of the acquisition the waterworks metering distributor in Texas to kind of how that fits into the larger.
Sure and as you guys for you either on a product basis or a geography basis.
Speaker 1: So if you look at our core waterworks business on core products and pipe valve and fitting for residential, commercial, and municipal applications, it's been well built out across the whole of the United States, and we maintain a very strong position inside that business.
So if you look at our core waterworks business on core products and pipe valve and fitting for residential commercial and municipal applications. That's been well built out across the whole of the United States and we maintain a very strong position inside that business. We have in the past many years been working to build.
Speaker 1: We have been the past many years been working to build out water and wastewater treatment plant capability.
Out water and wastewater treatment plant capabilities metering and metering technology capabilities and so what <unk>, what you've seen with this acquisition is meters and metering technology capabilities in the state of Texas. So that we can not only service that market, but also get closer to that municipal customer because that relationship serves us well.
Speaker 1: metering and metering technology capabilities. And so what you've seen with this acquisition is meters in metering technology capabilities in the state of Texas so that we can not only service that market, but also get closer to that municipal customer.
Speaker 1: because that relationship serves us well across the whole of our business. And you'll see us continue to work to build out meters and metering technology, urban green infrastructure and soil stabilization. It's been a key part of our acquisition strategy.
Well across the whole of our business and Youll see us continue to work to build out meters and metering technology urban green infrastructure and soil stabilization. It's been a key part of our acquisition strategy as we complement what's already a strong business across the whole of the United States.
Speaker 1: we complement what's already a strong business across the whole of the United States.
Got it thank you.
Speaker 3: Our next question comes from Sam Darkott from Raymond James. Sam, your line's not open. Good morning, Kevin.
Our next question comes from Sam <unk>.
From Raymond James.
Your line is now open.
Good morning, Kevin Good morning, Bill how are you.
Morning, Sam doing well.
Speaker 10: Two questions and these are both kind of follow-ups to a certain degree. Bill, you mentioned that you expect the debt leverage to remain at the low end of the range for the foreseeable future, but yeah, as you can't always control when really attractive things come to market, I was just curious as to what the organization's
Two questions and these are both kind of follow ups.
Certain degree Bill.
You mentioned that you expect.
Net leverage to remain at the low end of the range.
For the foreseeable future but.
Obviously, you can't always control when really attractive things come to market I was just curious as to what the organizations bandwidth appetite is and making larger scale M&A right now perhaps away from the core business.
Speaker 10: bandwidth and appetite is in making larger-scale M&A right now, perhaps away from the core business. And I ask this in light of the fact that, obviously, there's a major energy PVF player that's ostensibly looking into a sale, and you're seemingly one of the only strategic players with the balance sheet to comfortably ingest such a transaction.
This in light of the fact that obviously there is a major.
Energy PBF player, that's ostensibly looking into a sale and youre seemingly one of the only strategic players with the balance sheet to comfortably in just such a transaction. So I'm just curious as to.
Speaker 10: Somebody's curious as to the interest, maybe not with that particular situation in particular, but in general for larger scale M&A, right now with the organization, thanks.
The interest maybe not with that particular situation in particular, but in general for larger scale M&A right now with the organization. Thanks.
Speaker 2: Yes, Emma, I'll start to talk a little bit about how we view leverage and capacity from an acquisition standpoint. I think Kevin will probably weigh in on the strategy side of how we're thinking about customer groups in large scale M&A. To your point, operating at the low end of our range gives us quite a bit of flexibility. If you think about roughly a $3 billion, you bit up business.
Yes, Sam I'll start talk a little bit about how we view leverage and capacity from an acquisition standpoint, and I think Kevin will probably weigh in on the strategy side of how we're thinking about.
Customer groups and large scale M&A, yes to your point operating at the low end of our range gives us quite a bit of flexibility. If you think about roughly a $3 billion EBITDA business.
Speaker 2: You know, a 1-2 turn leverage range gives us roughly $3 billion of capacity. Where are we to scale all the way up to two times?
Wanted to turn leverage range gives us roughly $3 billion of capacity, where we to scale all the way up to two times.
Speaker 2: We intend to operate towards the low end to give ourselves the capacity to scale up.
We intend to operate towards the low end to give ourselves the capacity to scale up in general what <unk> seen out of us and what our industry lends itself to our 10000, plus small to medium sized competitors and so to Kevin's point earlier in the day, we've done over 50 acquisitions in the last five years, mostly in that small to.
Speaker 2: In general, what you've seen out of us and what our industry lens itself to are 10,000 plus small to medium size competitors. And so, Pekevin's point earlier in the day, we've done over 50 acquisitions in the last five years, mostly in that small to medium size range. Sometimes those are a bit lumpy and they come together. You saw only one this quarter. Sometimes we'll do three, four, five, six in a quarter. So we want to maintain that.
Medium size range, sometimes those are a bit lumpy and they come together you saw only one this quarter, sometimes we'll do 3456 and a quarter. So we want to maintain that capacity.
Speaker 1: And to Bill's point, the Bolton acquisition strategy, both capabilities as well as geographic, has served us well, and quite frankly, the industry built out that way. When you think about a platform acquisition or larger scale acquisition, we will, in fact, look at that as we look at customer group expansion.
To Bill's point, the bolt on acquisition strategy, both capabilities as well as geographic has served us well and quite frankly, the industry built out that way when you think about.
Platform acquisition or larger scale acquisition, we will in fact look at that as we look at customer group expansion.
Speaker 1: We very much look at the customer that we need to serve and the capabilities that we need to bring to serve that customer and then as importantly, or maybe more importantly, how does that fit into the project as a whole?
We very much look at the customer that we need to serve and the capabilities that we need to bring to serve that customer and then as importantly, or maybe more importantly, how does that fit into the project as a whole.
Speaker 1: and what our relevance is on that project. And you've highlighted energy transition and maybe even sustainability as a catalyst for what we would look at. And so it's fair to say that we continue to look at how our individual customers today, especially in a multi-trade environment.
And what our relevance is on that project and you've highlighted energy transition and maybe even sustainability as a catalyst for what we would look at and so it's fair to say that we continue to look at how our individual customers today, especially in a multi trade environment.
Speaker 1: are operating both residential and non-residentially and how do we best serve them?
Our operating both residential and nonresidential and how do we best serve them.
Speaker 1: And so it's always in our mind as to what that next customer group might look like, but today...
And so it's always in our mind as to what that next customer group might look like but today.
Speaker 1: We're fairly well focused on that bolt on strategy and how that can complement our business from an organic perspective. So thank you.
We're fairly well focused on that bolt on strategy and how that can complement our business from an organic perspective. So thank you very much for the question Sam.
Speaker 10: Fair enough and if I'm allowed to follow up Kevin the you mentioned the normalization
Got it fair enough and if im allowed us follow up Kevin.
You mentioned the normalization.
Speaker 10: in inventory and supply change at this point. Are you seeing any increase in pressure from the independence and regional competitors now that at least relative inventory availability is not as much a lever point in the business. And where within your business verticals might that occur if it would?
In inventory and supply chain at this point are you seeing any increase in pressure from the independence and regional competitors now that at least.
Relative inventory availability is not as much.
A lever point in the business.
Within your business verticals might that occur if it would.
Speaker 1: normalization of supply chains, you know, for the, with maybe one or two small exceptions, we have a normalized supply chain across our business and across our customer groups. We were very fortunate during the period of supply chain chaos to use the strengths that we have and the vendor relationships and the size and scale that we have to out gain from a share perspective with our traditional three to four hundred basis points work. That's normalized and we expected that to normalize.
We've seen normalization of supply chain.
With maybe one or two small exceptions, we have a normalized supply chain across our business and across our customer groups. We were very fortunate during the period of supply chain chaos to use the strengths that we have in the vendor relationships.
The size and scale that we have.
The gain from a share perspective, what our traditional three to 400 basis points work, that's normalized and we expected that to normalize.
Speaker 1: do we see any further pressure both from the pricing perspective as well as from a market perspective uh... now that supply chain said normalize no we don't affect the majority of the deflationary activity as we discussed talk as we talked about earlier really came from commodity based input
Do we see any further pressure both from a pricing perspective as well as from a market perspective, now that supply chain said normalized no. We don't in fact, the majority of the deflationary activity as we discussed talk as we talked about earlier really came from commodity based input.
Speaker 1: as opposed to what's happening in the overall market. So we don't see any abnormal pressure that we wouldn't normally see inside of these markets.
As opposed to what's happening in the overall market. So we don't see any abnormal pressure that we wouldnt normally see inside of these markets.
Very helpful. Thank you.
Thank you Sam.
Speaker 3: We currently have no further questions, so I'd like to hand the call back to Kevin Murphy for closing remarks.
We currently have no further questions. So I'd like to hand, the call back to Kevin Murphy for closing remarks. Please go ahead.
Speaker 1: Yeah, thank you operator and thank you all for your time today to take part in the call. We really appreciate that time.
Yes. Thank you operator, and thank you all for your time today to take part in the call. We really appreciate that Todd and as I close really close as we began and that is things are really playing out as we expected and we're extremely pleased with the execution of our teams and taking care of our cut.
Speaker 1: And as I close, really close as we began, and that is things are really playing out as we expected, and we're extremely pleased with the execution of our teams and taking care of our customers and making their projects more simple, successful, and sustainable. We're confident in the medium and long-term of these markets, both residential and non-residentially, and some of the structural tailwinds that we're seeing develop.
<unk> and making their projects more simple successful and sustainable we're confident in the medium and long term of these markets, both residential and nonresidential and some of the structural tailwind that we're seeing develop the strength of our business model will continue on and we've got great confidence in it. So thank you very much please take care and we'll talk soon.
Speaker 1: The strength of our business model will continue on and we've got great confidence in it. So thank you very much. Please take care and we'll talk soon. Thank you.
Thank you.
Speaker 3: Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines. Thank you.
Ladies and gentlemen. This concludes today's call. Thank you for joining you may now disconnect your lines.
Thank you.
Speaker 11: The.
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