Q4 2024 Ferguson Plc Earnings Call

September 17, 2024

[music].

Good morning, Ladies and gentlemen, my name is Lydia Adobe.

Later today.

Speaker Change: At this time I'd like to welcome you to Buck since fourth quarter Conference call.

Speaker Change: All lines have been placed on mute to prevent any interference with the presentation.

Speaker Change: At the end of the Bluebird remarks, there'll be a question and session.

Speaker Change: To ask a question at that time. Please press Star then the number one on your telephone keypad.

Speaker Change: To withdraw your question. Please press Star and then the number today.

Speaker Change: I would now like to turn the call over to Mr. Brian Lantz.

Speaker Change: Hudson VP of Investor Relations and communications.

Speaker Change: May begin your conference call.

Speaker Change: Good morning, everyone and welcome to <unk> fourth quarter earnings conference call and webcast hopefully you've had a chance to review the earnings announcement, we issued this morning.

Speaker Change: The announcement is available in the investors section of our corporate website and on our SEC filings webpage.

Speaker Change: This call will be made available later today.

Speaker Change: To remind everyone that some of our statements today may be forward looking and are subject to certain risks and uncertainties that could cause actual results to differ materially from those projects.

Including the various risks and uncertainties discussed in our Form 10-K available on the Sec's website.

Speaker Change: Also any forward looking statements represent the companys expectations only as of today and we disclaim any obligation to update these statements.

Speaker Change: In addition on today's call. We will also discuss certain non-GAAP financial measures.

Speaker Change: Please refer to our earnings 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 Change: With me on the call today are Kevin Murphy, our CEO and Bill <unk> our CFO.

Kevin Murphy: I'll now turn the call over to Kevin.

Kevin Murphy: Thank you, Brian and welcome everyone to <unk> fourth quarter results Conference call.

Kevin Murphy: On today's call I'll cover highlights of both our fourth quarter and our full year performance our performance against our markets in fiscal 'twenty four.

Speaker Change: Track record of growth and improvement over the longer term.

Speaker Change: I'll, then turn the call over to Bill for financials before I come back to expand on how we're deploying our scale locally.

Bill: We will then have time to take your questions at the end.

Bill: Starting with the fourth quarter.

Once again, our expert associates executed well going above and beyond to take care of the complex project needs of our specialists professional customers.

Bill: We delivered sales of $7 9 billion.

Bill: An increase of one 4% despite deflation of approximately 2%.

Bill: Gross margins were resilient and costs were managed well we delivered adjusted operating profit of $857 million.

Bill: An increase of five 3% over prior year and resulting in an adjusted operating margin of 10, 8%.

Bill: Adjusted diluted earnings per share grew seven 6% to $2 98.

Bill: We are pleased with these results and our confidence that our balanced business mix and ability to fully scale locally position us well going forward.

Bill: Turning to our full year performance.

Our team delivered resilient results in line with our expectations, while faced with challenging markets and deflation.

Bill: Revenue of $29 6 billion.

Bill: It was broadly flat to last year.

Bill: Our teams delivered gross margins of 35% improving 10 basis points over the prior year.

Bill: We proactively managed our operating expenses delivering adjusted operating profit of $2 8 billion.

Bill: Representing a nine 5% adjusted operating margin.

Bill: Adjusted diluted earnings per share came in at $9 69, a one 5% reduction against prior year.

Bill: Cash generation continued to be strong with $1 9 billion of operating cash flow.

Bill: This cash delivery enabled us to continue investing in our business and executing against our capital allocation priorities.

Bill: We returned $1 $4 billion to shareholders via dividends and share repurchases during the year. While also welcoming associates from 10 acquisitions, continuing our strategy of consolidating our fragmented markets.

Bill: And we continued to deliver strong overall return on capital of approximately 31% for the year.

Despite market headwinds and deflation, we outperformed our markets. We returned to volume growth, we expanded gross margins and we delivered solid operating margin performance.

Bill: Next our performance against the broader end markets for the year.

Bill: Our balanced end market exposure continues to serve us well with about half of our business in residential and half in nonresidential.

Bill: We've continued to take share across both end markets.

Bill: We believe our residential end markets declined by approximately 7% due to a combination of weak new construction and softer repair maintenance and improvement markets.

Bill: We outperformed with organic revenue down 4%.

Nonresidential markets were slightly more resilient than residential, but we're down approximately 4%.

Bill: We were pleased with the performance of our nonresidential customer groups, particularly across large capital projects, where our multi customer group approach is unique in the market.

Bill: Our nonresidential revenue was flat for the year.

Bill: Taking a step back over the longer term our business model has generated consistent above market organic growth, which is the foundation of everything we do.

Speaker Change: We've complemented that organic growth with a history of growth through acquisitions as we consolidate our fragmented markets through geographic bolt on and capability deals.

Speaker Change: And the implementation of our strategy combined with disciplined execution has driven improvement in operating margins over time.

Speaker Change: If we look at more recent performance over the past five years, we've grown revenue by nearly 50% and improved our operating margins by 150 basis points growing our adjusted operating profit by 78%.

Speaker Change: And our adjusted diluted earnings per share by 92%.

Speaker Change: We believe we're well positioned to continue this long term track record of growth and improvement as we look to the future.

Speaker Change: Now, let me hand over to Bill to go through the financials.

Bill: Thank you Kevin and good morning, everyone. Let me start with some additional detail on the fourth quarter results.

Bill: Net sales were one 4% ahead of last year driven.

Bill: Driven by a <unk>, 2% organic decline and a further 0.1% decline from the adverse impacts of foreign exchange rates offset by a one 7% contribution from acquisitions.

As expected price deflation continued at approximately 2%, resulting in organic volume growth of nearly 2% in the quarter.

Bill: Gross margin was 31% and.

Bill: An increase of 40 basis points over last year, driven by the value, we provide to our customers as well as a decrease to our inventory reserves.

Bill: We are particularly pleased with this performance as our teams continue to provide services and solutions that add value to our customers projects.

Bill: The cost base has been well managed enabling us to deliver a 10, 8% adjusted operating margin.

Speaker Change: Adjusted operating profit of $857 million was up $43 million or five 3% ahead of prior year.

Speaker Change: Adjusted diluted earnings per share of $2 98.

Speaker Change: It was seven 6% ahead of last year.

Speaker Change: Driven by the increase in adjusted operating profit and the impact of share repurchases.

Speaker Change: And our balance sheet remains strong at one one times net debt to adjusted EBITDA.

Speaker Change: Turning to our fourth quarter performance by end markets in the U S.

Speaker Change: Sales grew by one 3%.

Speaker Change: The residential end markets, which comprise approximately half of U S revenue remained muted due to softness in both new residential construction and Rmi.

Overall residential revenue was flat in the fourth quarter.

Speaker Change: Nonresidential markets were slightly more resilient and we continued to perform well.

Speaker Change: Our revenue grew by 3% in the quarter with growth across commercial civil infrastructure and industrial.

Speaker Change: We've continued to see good levels of nonresidential bidding activity on large capital projects.

Speaker Change: While we expect growth rates to fluctuate over time, our intentional balanced end market exposure positions us well.

Speaker Change: Moving to our customer groups in the U S.

Speaker Change: Residential trade plumbing grew by 1% sequentially consistent with the third quarter with repair and replace outperforming new construction.

Speaker Change: <unk> grew by 9% as we continue to build on the strengths of our residential trade plumbing and HVAC customer groups in service of the growing dual trade contractor.

Speaker Change: Residential building in remodel revenues were flat.

Speaker Change: Pressure amongst local and regional builders has been somewhat offset by resilience from larger national builders.

Speaker Change: On remodel the higher end portion of the market continues to hold up better than the broader remodel market.

Speaker Change: Residential digital commerce declined by 12%.

Speaker Change: Distant with the third quarter as consumer demand continues to be weak.

Speaker Change: Waterworks revenues were up 5% with strength in public works municipal and commercial offsetting softness in residential.

Speaker Change: Our focus diversification efforts continue to drive growth in areas, such as Geo synthetics and meters and technology.

Speaker Change: The commercial mechanical customer group grew 6% driven in part by large capital projects such as data centers.

Speaker Change: Our industrial fire in fabrication and facilities supply businesses delivered a combined net sales decline of 5% heavily impacted by commodity steel pipe deflation against the 6% growth comparable.

Our breadth of customer groups positions us to maximize the value we bring to the total project, while also intentionally maintaining a broad and balanced end market exposure.

Speaker Change: Moving to our segment results net sales in the U S grew one 3% with an organic decline of <unk>, 2%.

Offset by a one 5% contribution from acquisitions.

Speaker Change: Adjusted operating profit of $844 million increased 5% over the prior year delivering an adjusted operating margin of 11, 2% 40 basis points ahead of last year.

Speaker Change: In Canada net sales were 2% ahead of last year with an organic decline of one 2%.

Speaker Change: And a two 4% adverse impact from foreign exchange rates offset by a five 6% contribution from acquisitions.

Speaker Change: Markets have been broadly similar to that of the United States.

Speaker Change: Adjusted operating profit was $22 million in the quarter flat to last year.

Speaker Change: Turning to the full year results net sales were 0.3% below last year with an organic decline of two 4% and a 0.1% adverse impact from foreign exchange rates.

Speaker Change: Offsetting this was a one 8% contribution from acquisitions and a <unk>, 4% uplift from one additional sales day.

Speaker Change: Deflation was approximately 2% for the year driven by certain commodity categories.

Speaker Change: Gross margin was 35% 10 basis points ahead of prior year as we continue to execute our strategy and provide value added solutions to our customers.

Speaker Change: During the year, we were proactive in managing both labor and non labor operating expenses to respond to the prevailing volumetric environment.

Speaker Change: As a result, adjusted operating profit of $2 8 billion.

Speaker Change: With a nine 5% adjusted operating margin was in line with expectations, we set out at the beginning of the fiscal year.

Speaker Change: And adjusted diluted earnings per share was $9 69, slightly down by one 5% for the year.

Speaker Change: We are pleased with this performance given the market headwinds and deflation we experienced during the year.

Speaker Change: Moving to our cash flow performance.

Speaker Change: After the normalization of inventory last year, which generated outsized cash flow, we returned to a more typical year of strong cash generation with operating cash flow of $1 9 billion.

Speaker Change: Interest and tax came in as we expected and we have continued to invest in organic growth through capex investing $372 million in the year.

Speaker Change: As a result free cash flow was $1 5 billion for fiscal year 'twenty four.

Speaker Change: Our balance sheet position is strong with net debt to adjusted EBITDA of one one times.

Speaker Change: We target a net leverage range of one to two times and we intend to operate towards the low end of that range through cycle to ensure we have the capacity to take advantage of growth opportunities as.

Speaker Change: As well as to maintain a resilient balance sheet.

Speaker Change: We allocate capital across four clear priorities.

Speaker Change: First we invested $372 million into capex in the business to build on our competitive advantages and drive above market organic growth.

Speaker Change: We're investing to optimize our supply chain network through a combination of automation efficiency and expansion and we continue to invest in digital tools and technology as well as our extensive branch network.

Speaker Change: Second we continued to sustainably grow our ordinary dividend.

Speaker Change: Our board declared a <unk> 79 per share quarterly dividend, bringing our full year dividend declared to $3 16.

Speaker Change: Representing a 5% increase over our fiscal 'twenty, three declared dividends, reflecting our confidence in the business and cash generation.

Speaker Change: Third we're consolidating our fragmented markets through bolt on geographic and capability acquisitions.

Speaker Change: As Kevin outlined we are pleased to have welcomed associates from 10 high quality businesses. This year.

Speaker Change: We invested $260 million, bringing in approximately $400 million of.

Speaker Change: Rental annualized revenue.

Speaker Change: Our deal pipeline remains healthy and we will continue to execute our consolidation strategy.

Speaker Change: And finally, we are committed to returning surplus capital to shareholders. When we are below the low end of our target leverage range.

Speaker Change: We returned $634 million to shareholders via share repurchases this year, reducing our share count by approximately $3 3 million.

Speaker Change: We ended the year with approximately $900 million outstanding under the current share repurchase program.

Now, let's turn our attention to the sequential revenue performance of the business, which is trending in line with our expectations.

Speaker Change: We've seen gradual improvement in organic growth trends, despite market softness and ongoing deflation.

Organic volume returned to growth in Q3 and Q4.

Speaker Change: While two year comparable will ease as we progress through fiscal 'twenty five we anticipate continued near term market challenges and headwinds from deflation, particularly in the early part of the year.

Which leads me next to our full year guidance.

Given various uncertainties of the market backdrop for a broad range of potential outcomes for the year ahead.

Speaker Change: Taking this into account we believe revenue will grow in the low single digit range for the year, reflecting an ongoing challenging near term market environment.

Speaker Change: Our assumptions are based on our end markets declining in the low single digit range inclusive of pricing being down slightly for the year driven by continued commodity deflation, particularly as we enter the year.

Speaker Change: We assume continued market outperformance of approximately three to 400 basis points.

Speaker Change: A tail from already completed acquisitions, which we expect to generate approximately $250 million in revenue offset.

Speaker Change: <unk> offset in part by one fewer sales day in the third quarter.

Speaker Change: We have provided a range for adjusted operating margin between 9.0 to nine 5%.

Speaker Change: We expect interest to remain broadly consistent between $180 million to $200 million.

Speaker Change: And as previously noted our adjusted effective tax rate will be approximately 26%.

Speaker Change: And we expect to invest between $400 million to $450 million in Capex.

Speaker Change: After a year of strong execution delivering resilient results, we continue to invest in the business to support our ongoing market outperformance.

Speaker Change: We believe the combination of our strong balance sheet flexible business model and balanced end market exposure positions us well as we move into fiscal 'twenty five.

Speaker Change: Thank you and I'll now pass back to Kevin.

Bill: Thanks Bill.

Speaker Change: Wanted to take some time to expand on a few key areas that Bill mentioned as he discussed our performance that we believe differentiate us in the market.

Speaker Change: First our scale and global supply chain set us apart.

Kevin Murphy: Quite simply we are driving the best breadth and depth of inventory, where and when our customers need it.

We aimed to connect the entire supply chain from the point of manufacturing to the point of install.

Kevin Murphy: We deliver scale locally through our vast network of facilities in our fleet of vehicles for final mile delivery.

Kevin Murphy: This extensive network places us within 60 miles of 95% of our customers in North America.

Kevin Murphy: Building on this competitive advantage, we are further optimizing our network through a combination of automation.

Kevin Murphy: <unk> and expansion.

Kevin Murphy: We continue to invest in our distribution facilities and implementing technology solutions.

Kevin Murphy: The combination of our supply chain capabilities and our expert associates allow us to deliver the best local service in the industry.

Kevin Murphy: Next we continue to focus on the significant dual trade opportunities in plumbing and HVAC.

Speaker Change: Our ability to bring together market leading capabilities in both plumbing and HVAC provide us with a competitive advantage for serving these professionals and capturing growth from this market for years to come.

Speaker Change: We estimate that the combined <unk> and residential trade plumbing markets to be approximately 100 billion.

Speaker Change: Of which we estimate nearly $30 billion of the market is serviced by more than 65000 dual trade plumbing and HVAC professionals.

Speaker Change: In this segment of the market is growing.

Speaker Change: We are expanding our <unk> offering to match the density of our plumbing presence executing this expansion through a combination of dual trade branch conversions geographic branch expansion and acquisitions.

Speaker Change: We're further building our capabilities to provide a single point of service to those professionals.

Speaker Change: While further differentiating our services as we simplify processes.

Speaker Change: Harmonized pricing and coordinate pickups and deliveries.

Speaker Change: Turning to nonresidential markets and our view of the opportunities ahead with large capital projects.

Speaker Change: Data continues to point towards the structural tailwind from large construction projects over the next several years supported by data centers onshoring activity legislative acts and the aging infrastructure.

Speaker Change: When we leverage our core strengths products and services across our customer groups.

Speaker Change: We add value and have the ability to sell from the ground up solutions focusing on the entire project.

Speaker Change: Just selling products.

Speaker Change: We estimate our total addressable market for these projects to be in the region of $50 billion.

Speaker Change: Through fiscal 2013.

Speaker Change: In the short term this type of activity has helped to offset traditional nonresidential weakness as we continue to see solid bidding activity, which gives us confidence in this multi year structural tailwind.

Speaker Change: We believe our scale and multi customer group approach strongly positions us to capture meaningful growth from these significant and complex projects over the medium term.

To close let me again, thank our associates for their dedication to serving our specialist professional customers.

Speaker Change: We are pleased with our team's execution in the quarter and for the year as a whole.

Speaker Change: Despite market headwinds and deflation during the year, we continued to consolidate our markets. We returned to volume growth, we expanded gross margins and we delivered solid operating margin performance.

Speaker Change: Our fiscal 'twenty five guidance reflects modest full year growth and an ongoing challenging near term market environment.

Speaker Change: Our cash generative model allows us to continue to invest for organic growth.

Speaker Change: Consolidate our fragmented markets through acquisitions and return capital to shareholders.

Speaker Change: We intend to do this while maintaining a strong balance sheet operating at the low end of our target leverage range.

Speaker Change: We will continue to invest in scale and capabilities to take advantage of multi year structural tailwind such as under built U S housing nonresidential large capital projects and our opportunity with the dual trade Columbia, an HVAC contractor.

Speaker Change: 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 Change: Thank you.

Speaker Change: Please press star followed by the number one if you'd like to ask a question Julia devices, I mean, you could likely when it shorts anticipate it.

Speaker Change: Can you change your mind. Your question has already been on stage you can withdraw your question by pressing star followed by the number today.

Speaker Change: Our first question today comes from John Lovallo with UBS.

Speaker Change: Please go ahead your line is open.

Speaker Change: Good morning, guys. Thanks for taking my questions the.

John Lovallo: The first one is just maybe a little bit more color on deflation I mean, what is deflation looked like so far in August and September for finished goods and commodities and it sounds like the expectation might be for an inflection to positive inflection at some point in the second half of the year can you confirm if that is what you guys are thinking and specifically when that might occur in your view.

Bill: Yes, Thanks, John Good morning. Thanks for the question. This is bill I'll start with that one. So if you go back to fiscal 'twenty four as we talked about deflation overall for the year was driven by commodity based products.

Speaker Change: Which drove an overall deflation of about 2% for the year.

As we exited the year and entered fiscal 'twenty five that was pretty consistent.

Speaker Change: We do expect as we move through the year.

Speaker Change: As we rollover those comparable deflation.

Speaker Change: Number from last year, and commodities that that could ease somewhat but as we sit here today, we don't have a crystal ball and calling the price on commodities is pretty difficult.

Speaker Change: So we do expect deflation, particularly in the first part of the year, we would expect today that to ease somewhat as we move throughout the year, but that's driving the overall.

Speaker Change: <unk> slightly down for the full year call that we have included within our guidance.

Speaker Change: Understood. Okay, and then in the quarter what was the gross margin benefit from the decrease in inventory reserve and then in terms of your full year outlook for operating margin of 9% to 95, how do you sort of thinking about the upper and lower end of the range and what May drive each of those.

Speaker Change: Yes, sure. So first off we were very pleased with the overall gross margin performance, both in the fourth quarter, but as well as the fiscal year.

Speaker Change: 31% gross margin in the fourth quarter at a very strong underlying gross margin performance as our teams continue to deliver value in the marketplace and provide great service to our customers.

Speaker Change: Did have on $4 billion of inventory as we true up our normal inventory reserve process, we had a little bit of a pick up there at the end of the year that had a bit of an outsized impact on the quarter.

Speaker Change: As I take a step back.

Speaker Change: I would think about both the gross margin and the operating margin in Q4 as pretty flat to prior year absent those inventory reserve adjustments.

Speaker Change: And then in terms of the guidance our guidance from an operating margin perspective of 9% to 95 reflects.

Speaker Change: Continued modest pressure on operating margins, particularly in the short term as our markets remain challenged.

Speaker Change: And as we step into the year with that continued deflation that I just spoke about so that's going to put a bit of pressure on SG&A leverage in the short term.

Speaker Change: Pretty similar to what we saw this past year in terms of deflation driving some SG&A.

Speaker Change: Leverage pressure in terms of the upside and the downside on that.

Speaker Change: Operating margin certainly from an upside perspective, if we get supportive price and price inflation, particularly on finished goods as we go throughout the year and.

Speaker Change: And commodities stabilization as we go throughout the year that could benefit the top line.

Speaker Change: Certainly if we get a bit of a faster recovery on <unk>, new and Rmi that could also benefit a bit of the topline, which would flow through and drive a bit of a higher operating margin and the downside is really that in reverse commodity pressure last longer.

Speaker Change: Our markets are slower to recover than we are anticipating overall for the year.

Could get some more additional short term pressure in that operating margin and John as we come into this year clearly, we're still battling some near term macroeconomic pressure still battling some deflation, but we continue to invest in the business because as we look to the medium term, both residential and nonresidential both new construction.

Speaker Change: <unk> and <unk> markets are pretty attractive and you look at the under build housing in the U S. A three to 4 million units you look at what's happening with the aging housing stock at 40 years, the nonresidential investment that were seeing and were taking part.

Speaker Change: And a lot of the key infrastructure projects in the United States not just infrastructure in the form of water wastewater and storm water, but also as we look at the investments in artificial intelligence and what we're seeing with data center, what we're seeing with power generation.

Speaker Change: To continue to invest because as we look at our markets recovering we need to accelerate as those markets recover and really walk in with that tailwind.

Speaker Change: Great. Thanks, very much guys.

Thanks, Sean.

Speaker Change: <unk>.

Speaker Change: Our next question comes from Matthew Bouley with Barclays. Please go ahead.

Matthew Bouley: Good morning, everyone. Thank you for taking the questions.

Speaker Change: Maybe I'll kind of follow up there around the kind of growth expectations for next year.

Speaker Change: From an end market perspective, I think you spoke about some challenges persisting even as the two year stack eases, a little bit I guess, specifically within each end market. What are the building blocks around that low single digit decline for FY 'twenty five and also curious if you can update us on how the year.

Speaker Change: <unk> has started from an organic growth perspective quarter to date.

Speaker Change: Yeah sure Matt So from an overall perspective for the full year, we're expecting our markets to be down in the low single digit range.

Can you split that between resi and non resi as best we can see it today, we expect <unk> to be down in the low to mid single digit range.

Speaker Change: And non ready to be roughly flat, maybe maybe slightly down but roughly flat.

Speaker Change: On the resi side, we've seen on the on the new residue side, which again for US is call it less than 18% of our total business with <unk>, making up the lion's share of the rest of the 50% of our business.

Speaker Change: On the <unk> side, we certainly seen starts and permits weakening over the last five or six months.

Speaker Change: We've started to see some of that bleed through in our revenue.

Speaker Change: Certainly we do.

Speaker Change: The majority of our revenue trails starts and permits a little bit as we get further into the start so we think theres going to be some pressure on that new resi side as we step throughout the year until we get a bit of easing and hopefully some some turnaround towards the second part of the year and on the Rmi side certainly the consumer continues to be pressured.

Speaker Change: As we said in our prepared remarks remarks, we're really pleased with our residential building in remodel business, which is.

Speaker Change: Performed relatively flat to the prior year in a challenging market. The high end portion of that market continues to hold up better, but we've seen some continued softness so again until until we get back to some additional existing home turnover.

Speaker Change: Markets are likely to be a bit challenged particularly through the first half of our fiscal year on.

Speaker Change: On the non resi side, our expectation of call it flattish for the year.

Speaker Change: We've seen and we've delivered really good results when it comes to those large capital projects that Kevin was outlining and talking about and you see that reflected in our commercial and mechanical business performance this past quarter.

Speaker Change: But certainly the underlying non res side.

Speaker Change: The business just look at indicators like the Abi continued to be pressured and weak so.

Speaker Change: So we think there'll be a little bit of pressure there as we as we step throughout the year.

Speaker Change: In terms of how the year started.

Speaker Change: Look August has been pretty similar to Q4, a bit soft with organic growth still slightly down and as mentioned on John's question earlier, we're still.

Speaker Change: Working through some of that deflation so no real change as we stepped into the fiscal year a bit of pressure, which we would expect in the early part of the year, Yes, Matt just a bit of caution as we enter this fiscal year you talk about new construction on the production side of the world still good single family production its pace.

Speaker Change: <unk> itself out when you look at something like spec homes for the regional or local builder, that's pretty much moved to the side and so that activity has a bit of caution embedded in it even as you look at the repair replace side of the world. We've talked about the HVAC business and what that means is it looks too.

Speaker Change: Replace moving to more repair and so youll see in our HVAC business, we have parts and supply growth that is outpacing unitary equipment growth and thats pretty standard for where we sit today inside the environment and then on the non res side as Bill indicated we're seeing good large capital project work, but thats offsetting a bit of the.

Speaker Change: The slowdown as we look at big box distribution warehouse hospitality and some more traditional non res work.

Speaker Change: Got it okay. Thank you for that Kevin is very helpful.

Speaker Change: So I guess, just kind of picking up on some of the views around 25.

Speaker Change:

Speaker Change: As you mentioned and there's clearly a lot of cross currents right. It sounds like Youre speaking to a lot of the kind of current data being relatively soft around starts and permits in.

Speaker Change: As you mentioned, but at the same time that now it seems like interest rates are moving lower.

I just wanted to confirm number one that.

Your guidance is basically assuming sort of current market conditions that youre not really assuming much improve.

Speaker Change: Improvement related to lower interest rates, that's number one and number two.

Speaker Change: In your experience when you do have lower interest rates I guess I'd be curious.

Speaker Change: Where do you see it first how does that tend to play out in your own business and what are you kind of hearing from customers.

Speaker Change: If there is any potential optimism around that thank you.

Speaker Change: Customers remain cautious, but optimistic you look at interest rate movements that were going to see and we would see that play out over time. It would start with our waterworks business is lot preparation happen and we'll see what happens as you look at different subdivision activity for example.

Speaker Change: And what that paces out to in terms of sections and portions and how how many lots are being developed at a particular given time right now we're seeing pretty steady activity pretty flat activity in terms of what that looks like and single family subdivision work on the Rmi side of the world.

Speaker Change: What we would love to see is continued employment solid data as well as existing home turnover is starting to pick up because although employment has the best data point for Rmi activity for us.

Speaker Change: Existing home turnover clearly has remodel activity associated with pre and post sale and so if we start to see some interest rate easing and we start to see a pickup in that existing home turnover, we expect to see that inside of our business and then again on the non res side, just continuing with that work around multi customer group for.

Speaker Change: Fire and fabrication industrial pipe valve and fittings commercial mechanical and waterworks, all working together on data center construction and even quite frankly on the power generation that's needed to take care of the grid.

Speaker Change: Take care of some of the power needs of this data center build out so we're looking at that as we go through and customers remain cautious but optimistic.

Speaker Change: Great. Thanks, Kevin Good luck guys.

Matt: Thanks, Matt.

Speaker Change: Our next question comes from Phil <unk> with Jefferies.

Speaker Change: Please go ahead.

Phil: Hey, guys. Congrats on a solid quarter I guess a question for Bill if I look at your pricing the last few quarters, it's been down about 2% and your gross margins. If you kind of strip out the inventory dynamics was kind of flattish right now.

It feels like Youre commodity headwind.

Speaker Change: Stabilizing here, but youre, calling for margin compression for 2025 is that more on the gross margin side or SG&A and then are you seeing commodity deflation and any pockets accelerate.

Speaker Change: In the first half because it sounds like you're a little more cautious on margins to start the first half and perhaps <unk>.

Speaker Change: Further price degradation from here.

Yes, Thanks, Phil and to your point, we've been really pleased with the gross margin performance of the business as we've been battling and working through that deflation.

Speaker Change: Keep in mind, obviously that deflation is year over year deflation, where you sometimes see pressure on the gross margin is when you get shorter faster movements in the short term on deflation, where you've got higher cost of goods sold inventory that you have to sell through but we haven't seen that it's been more steady deflation throughout the past year.

Speaker Change: We do expect that to continue as we step into the year.

Speaker Change: And the majority again of that operating margin.

Speaker Change: Moderation that we expect next year is going to be pressure on that SG&A side of the equation. In fact, if you look if you look back at fiscal 'twenty. Four we grew our gross margin by 10 basis points for the year, our SG&A de Levered, roughly 40 basis points and our operating margins were down 30 basis points.

Speaker Change: That SG&A deleveraging.

Speaker Change: Really driven by that 2% deflation on the topline just take 2% of our revenue for last year, it's worth about $600 million worth of revenue.

Speaker Change: It came off because of that price deflation.

Speaker Change: You did the math around that your SG&A as a percentage of sales will be roughly flat fiscal 'twenty four to fiscal 'twenty three so again as we step into fiscal 'twenty five.

We're going to expect a bit more of that SG&A pressure, both from deflation as well as just the fact that our markets are still negative as we step into the year that puts a bit more pressure.

Speaker Change: The short term, we would expect that pressure to be more difficult in the first part of the year.

And he's a little bit as we step through the year and Phil If you look at the commodity basket, it's worth remembering that that roughly 15% of our revenue that we would consider commodity based products would be everything from polyethylene PVC cast iron ductile iron steel copper to pipe and fittings.

Speaker Change: And they don't all move in the same direction at the same time, they don't all move with the same velocity at the same time in fact in the copper tubing side of the world. We've seen some movement in an upward direction. So they are moving at different places, but generally speaking that commodity based product pressure is what drove.

Speaker Change: The two points that bill referenced.

Speaker Change: So we should assume gross margins holding up relatively well the margin compression is largely estimate driven.

Speaker Change: In the first half.

Speaker Change: Hearing you guys right.

Speaker Change: Yes, I think thats reasonable I mean look our gross margins. If you look over the last two years have been relatively consistent at roughly 34 last year to $30. Five this year certainly in any given quarter that gross margin is not going to be a dead Mans heartbeat, theyre going to be factors that move that up or down, but but broadly we have been.

Speaker Change: Pretty consistent on gross margin, we would expect a bit more pressure in a low growth environment with our market is still slightly negative and deflation on the SG&A leverage side of the world.

Speaker Change: Okay, and then just pivoting on your non res business.

Speaker Change: Obviously the.

Speaker Change: Divestments and you are pivoting to these mega projects and capital projects has been a good guy.

Speaker Change: Its like Youre seeing continued momentum there what about your traditional commercial side of things the light commercial side of things. Kevin Bill are you guys seeing any stabilization any green shoots there seems like the heavier side of things the capital side of things you are seeing continued momentum there some of the companies. We cover have called out project delays ahead of the election.

Speaker Change: Contractors holding.

Speaker Change: Back on some of this stuff ahead of rate cuts.

Speaker Change: Sounds like Youre seeing any of that but any color would be helpful.

Speaker Change #100: So we are seeing that if you look at the traditional nonresidential portion of the business. The traditional commercial buildout that has been pressured probably the biggest impact if you remember back a year or two ago, we would talk a great deal about building out a big box distribution warehouses to service customers based on.

Speaker Change #100: E Commerce expansion in every market every working week.

Speaker Change #101: It has largely been mitigated even as you look at some of the more traditional beyond office space into hospitality area, but the good news about our business as our customers as well as our customer groups have been able to pivot to those large capital projects to offset that.

Speaker Change #102: C six plus percent growth in our commercial mechanical business, 5% growth in our waterworks business.

Speaker Change #102: You see our fire business performing as it does even in the face.

Speaker Change #102: Of strong steel pipe deflation.

Speaker Change #103: It has been quite encouraging as they work together, but at the same time, making sure that they are focused on the unique needs of that customer on that large capital work, that's been encouraging to offset traditional non res.

Speaker Change #103: Okay I appreciate the color guys.

Speaker Change #103: Our next question comes from Anthony Pettinari with Citi. Your.

Speaker Change #104: Your line is open. Please go ahead.

Anthony Pettinari: Good morning.

Speaker Change #106: Can you talk about.

Speaker Change #107: Can you talk about progress on owned brands or private label in fiscal 'twenty, four and maybe what you are.

Speaker Change #108: Targeting in 'twenty five in terms of end markets, where that could product categories, where that could move the needle.

He kind of rough way to think about sort of rule of thumb on margin benefits.

Speaker Change #109: Yes. Thanks for the question if you look at our own brand. It is just shy of about 10% of our revenue.

Speaker Change #110: I would think about own brand in the context of our broader product strategy as we look to help customers navigate their project, we want to make sure that we're working with them on what the appropriate product is for the application.

And guiding them to a product that's going to not only service their project needs. But then also be beneficial to our company and our vendor partners as we look to grow our business over the long haul and so not only do we have owned brand growth, but we have growth within our branded partners.

Speaker Change #110: We've been able to grow faster than market and be their best path to market and so I would think about own brand in the broader context, it's important.

Speaker Change #110: Faster growing inside of our residential business today than non res, but really is across all aspects and all customer groups inside the company.

Speaker Change #111: Okay. That's very helpful. And then just sorry, if I missed this but on the fiscal 'twenty guide the tax rate I think a point above what you did in 'twenty four.

Speaker Change #111: Driver, there or anything you'd call out.

Speaker Change #112: Yes, actually if I go back to where we were kind of in the middle part of this past fiscal year, and we were evaluating our corporate structure.

Speaker Change #113: We had flagged when we made the decision to move to the U S that we were going to experience an increase in both U K corporate tax rates as well as Swiss corporate tax rates and that are our effective tax rate was going to go up marginally to about 26%.

Speaker Change #114: When we solidified the move to the U S through our merger transaction and now that we're a U S. Domiciled Corporation, 26% is about what you should expect given today's current corporate rate of 21% plus our state rate of call. It five 5% so.

Speaker Change #114: So 26% should be a good rate for this year absent any any changes certainly in the in their federal government space on rates.

Speaker Change #114: Got it got it thank you I'll turn it over.

Our next question comes from Sean Lee with Wells Fargo. Your line is open.

Speaker Change #115: Awesome. Thanks, so much.

Speaker Change #116: And then to touch again on pricing here I appreciate all the commentary on the commodity side of the business.

Speaker Change #117: That's what I wanted to talk about the other part of your business. Your finished goods pricing any sort of notable category callouts, we should be mindful of.

Speaker Change #117: Any potential outliers, either above or below expectation on finished goods.

Speaker Change #118: Yes, sure. If you look at finished goods for us, which again to your point is the lion's share of our revenue just over 85% are finished goods over the past year fiscal 'twenty for us broadly flat, maybe slightly up for the fiscal year.

Speaker Change #119: That's a little bit below what we see and what I would call a typical year normally we have.

Low single digit price inflation on finished goods as.

Speaker Change #120: As we flagged throughout the last few quarters, we had seen those finished goods price increases being a little bit more spotty, then we would traditionally see.

Speaker Change #120: And that continued through this calendar year. So as we sit here today, we would expect a bit more normalized price increases for calendar 'twenty five is typically happened at the beginning of the calendar year.

Speaker Change #120: But again, we don't we don't have a crystal ball on that and so we'll monitor that closely.

Speaker Change #121: As we work with our suppliers and understand what their price increase plans are for calendar 'twenty five yes, as bill said.

Speaker Change #122: When broadly flat and as you look at the different customer groups product categories. It's been very surgical in terms of where price increases have happened as you can imagine labor costs for our manufacturing.

Our supplier partners has just gone up but theyre input cost potentially have gone down as commodities have deflated.

Speaker Change #123: So they've been very surgical in their approach and different areas as opposed to broad price increases across their different product categories and we expect much of the same as we go through this calendar this fiscal year.

Speaker Change #123: That's helpful. And then maybe switching gears talking SG&A and you're just looking at the growth in SG&A on an absolute basis. It looks like it was.

Speaker Change #124: Up maybe a percent during the quarter and thats a bit of an improvement versus last quarter, maybe just talk through some of those efficiencies that you are generating on the SG&A line, and perhaps bucket out SG&A kind of including and excluding acquisitions. Thanks.

Speaker Change #125: Yes, I would first say acquisitions.

Speaker Change #126: Put a little bit of pressure, but overall not a large impact from acquisitions given the size of our expense base.

Speaker Change #126: To your point, we were pleased with the performance as we came through the fourth quarter.

Speaker Change #126: Probably a little bit better from an SG&A leverage perspective.

Speaker Change #126: And then maybe what we had anticipated, but I kind of take a step back from that and look at the full year as a whole again, because we can have some quarterly movements in any given quarter, both on gross margin and on SG&A.

Speaker Change #126: And so when you look at that full year again, we had a little bit of deleveraging again, largely driven by that deflationary pressure.

Speaker Change #126: And then when you look at our cost base as a whole.

Speaker Change #126: We're nearly 60% of our cost base is labor.

Speaker Change #126: Labor and our associates are the intellectual capacity and give us the capability to win in the marketplace to hold all of our relationships. So we're pretty precise when we think about managing labor. The way we've done that this past year is to manage against the volumetric trends that we've seen in the marketplace and as we talked about we've seen volume.

Speaker Change #126: Growth return in Q3 and Q4, if you look at our head count our fulltime equivalents, that's been managed pretty closely in line with that.

Speaker Change #126: So as we step into the fiscal year.

Speaker Change #127: Our head count is up a little bit we certainly have a little bit of wage inflation that will be on top of that and that combined with again, a lower growth environment, particularly in the first part of the year, we'll put a little bit of short term pressure, but I go back to what Kevin said in terms of the fact that we are really focused on investing in the business and positioning ourselves.

Speaker Change #127: For when the markets return to growth.

Speaker Change #128: To Echo what Bill said, we're really pleased with the way the teams have managed the expense base, especially in the field organization in the face of deflation.

Speaker Change #129: And if you look at what we're investing in technology and facilities and building out our supply chain capabilities.

We're really pleased with the SG&A.

Speaker Change #130: Position that we have and then as we look forward investing in building out our counter locations.

Speaker Change #130: Especially in the area of dual trade plumbing and HVAC as.

Speaker Change #131: As we look to expand from a greenfield perspective, what our position looks like in the HVAC business across the United States to take advantage of the growth in that business. So we're really looking at preserving that good work that the organization is doing today, and then continuing that investment level to take care of those tailwind.

Speaker Change #131: For when the markets begin to recover and normalize.

Speaker Change #131: Thanks, So much guys I'll pass it on.

Thanks Sam.

Speaker Change #131: Our next question comes from Mike Dahl with RBC capital markets. Please go ahead.

Mike Dahl: Great. Thanks for taking my questions first one I wanted to ask about kind of free cash flow and capital allocation.

Speaker Change #133: Fiscal 'twenty five how should we be thinking about kind of free cash conversion.

Speaker Change #134: Any moving pieces in working cap, we should be thinking about and then from a capital allocation standpoint.

Speaker Change #135: We continue to produce healthy cash flow the balance sheet is in good shape.

Speaker Change #135: Different outcomes.

Speaker Change #135: When we think about macro for this next year, but if were.

Speaker Change #135: If we end up kind of skirting through in a healthier way it's just.

Speaker Change #135: The timing of the cycle that you.

Speaker Change #136: Look to kind of lean in from an M&A standpoint, how would you.

Speaker Change #136: Characterize your pipeline and your.

Your willingness.

Speaker Change #136: Desire to kind of push.

Speaker Change #136: Push more M&A through the system in the coming years, just any commentary.

Speaker Change #136: How are you thinking about how this shapes up.

Speaker Change #137: Yes, so first off Mike from a cash flow perspective, really pleased with the $1 9 billion in operating cash flow.

Speaker Change #138: Our capex guidance came in in the middle of our range at about $370 million. So that gave us that $1 5 billion and free cash flow, we aim to deliver about 100% of operating cash to net income year end year out.

Speaker Change #139: We were pretty much right in line with that maybe slightly slightly above that this past fiscal year and I would expect that again as we step through next fiscal year. So we will be in a good cash generative position for.

Speaker Change #140: For fiscal 'twenty five likewise to your point our balance sheet is in great shape, and we have worked really hard to maintain that strength of balance sheet. It's core to what we do.

Speaker Change #141: We do that not only to have some resilience in case of a market downturn, but also to your point to be able to take advantage of growth opportunities.

Speaker Change #142: You will see us be very consistent with our capital allocation priorities looking at organic growth opportunities growing that dividend sustainably over time, absolutely looking at great M&A opportunities as we consolidate our markets and then flexing that buyback depending on where we are at the low end of that leverage range.

Speaker Change #143: Which we sit at right now at one one times. So we have a fair amount of capacity to take advantage of them.

Speaker Change #142: Market.

Regardless of what the market backdrop is yes, Mike and as you can imagine the pipeline is still healthy.

Speaker Change #144: As you can also imagine we are mindful evaluations and what seller expectations look like and making sure that we can drive the right synergy case as we bring those acquisitions onboard you saw US do 10 deals. This past year, we're really proud of what that looks like as you look to going forward pretty balanced approach in both the residential side and nonresidential side.

Speaker Change #142: It's worth.

Speaker Change #145: Mining everyone. This is an organic growth first company.

Speaker Change #146: Then complement that growth with M&A and as we look at the residential side, we're going to continue to look at what M&A opportunities are available on the HVAC side of the world, making sure that we're a great succession planning opportunity for those small to medium size independent wholesalers and then on the nonresidential side, we're looking a lot of capability deals.

Speaker Change #147: Deals that can help us with areas like VDC virtual design fabrication valve in automation things that can help us across multiple customer groups.

Especially in light of that continued growth in large capital projects and what makes us effective for the project as a whole.

Speaker Change #147: That's great thanks for that.

Speaker Change #148: Just the second question picking up on the HVAC comment HVAC has remained a nice source of growth and a good vertical for you. Obviously you are trying to do a lot of things both organically and via M&A.

Speaker Change #147: Sure.

Speaker Change #147: May have missed this but.

Speaker Change #149: In the 9% growth in <unk> can you help us understand kind of what was organic and then when you're thinking about.

Speaker Change #150: Fiscal 'twenty five in that setup, there is some tailwind from the HVAC market potentially.

Speaker Change #151: You've got your growth initiatives, you've obviously got some additional carryover M&A there help us frame up kind of what.

Speaker Change #152: What type of contribution you would expect from HVAC in the coming year.

Speaker Change #152: Yes, we are.

Speaker Change #153: Really pleased with that HVAC performance, both in the quarter and for the year. So if you look at the 9%. The vast majority of that was organic there are a couple of points from acquisitions in there, but a really strong organic performance.

Speaker Change #153: Both from the from the teams in the field and as we rollout our expansion strategy.

Speaker Change #154: And simply put like as you look at what we're going to do going forward, we're going to continue to build out our counter locations to make sure they've got the best representation of plumbing products as well as HVAC products. We've done over 200 counter renovation. So far we're on track to do North of 650 as we go through the next couple of years. We're also going to then do.

Speaker Change #154: Greenfield expansion to make sure that we can grow both equipment lines as well as expertise.

Speaker Change #155: In markets, where we don't currently have HVAC, we called that Hvac's everywhere, where our plumbing, which is a read through to everywhere in the United States and then as you look at rolling that together with M&A.

Speaker Change #156: You know, sometimes you need to do M&A in order to get at some of the unitary equipment lines as well as great local relationships that we can bring together.

Speaker Change #157: With our company to leverage the strengths of scale in that local market. So I would look at as a three pronged approach to growth in HVAC in the coming year.

Speaker Change #157: Great. Thanks, Kevin Thanks Bill.

Speaker Change #157: Our next question comes from David Manthey with Baird.

Speaker Change #159: Please go ahead.

Speaker Change #160: Thank you.

David Manthey: Morning, Kevin and Bill Thanks for taking the time here.

Speaker Change #162: First off I assume you have a macro backdrop when you are developing your fiscal year budget.

Speaker Change #163: For the next year could you discuss really rough base case assumptions for general economic conditions and interest rates.

Speaker Change #163: <unk> as we look to the.

Speaker Change #164: The new fiscal year here.

Speaker Change #164: Yes, David I kind of go back to what we said earlier as we think about our budgets and planning for the year yes.

Speaker Change #165: Yes, we look at things like GDP projections, but but we're really trying to look at those leading indicators on both the resi new <unk> and then non res side of the business. So go back to those things we talked about starts and permits certainly.

Speaker Change #166: As well as projections of starts and permits and embedded in those from the third party sources that we look at there is some expectation of some level of rate cuts.

Speaker Change #167: <unk> not precisely trying to model rate cuts to the nearest quarter percent and build that into our models, but certainly there is an expectation that rates will come down as we move throughout the year and I think thats built into our expectation that.

Speaker Change #168: The <unk> side of the market while challenged in the first half and while it will still be down for the full year should improve throughout the year and then on the non res side I'll go back to some of those things that we talked about earlier on that Kevin highlighted around that traditional non res business and some of the indicators like Abi that are still pointing to softness.

Speaker Change #169: We then look at our ability to win and outperformed the market, particularly areas like non res large capital projects and try to build that into both our budgets internally, but also our guidance expectations.

Speaker Change #169: Got it that makes sense.

Speaker Change #170: And then peeling back the onion here on your <unk>.

Speaker Change #171: Low single digit revenue guidance for fiscal 'twenty five it sounds like you're assuming market down low single digit deflation maybe.

Speaker Change #170: Point <unk>.

Speaker Change #172: <unk> from acquisitions, probably a plus one.

Speaker Change #172: And then share gain maybe that typical three to 400 basis points, just correct me if im wrong at any of that and then I guess secondarily.

Speaker Change #173: Secondarily if market growth.

Speaker Change #174: Picks up through fiscal year, 'twenty, five and if deflation kind of flattens out maybe cost inflation.

Speaker Change #174: With that condition to take you.

Speaker Change #175: Love the range here for your base case, where does that kind of trajectory, what you're factoring into your full year guidance.

Speaker Change #176: Yes, given the fact that we're kind of framing the market around low single digits. So first off I think you have the numbers right.

Speaker Change #177: Only thing you didn't mention that we highlighted is we're going to lose a sales day, which isn't overly material, but it drives about <unk> four.

Speaker Change #178: 4% impact on the full year in terms of our last sales day in Q3.

Speaker Change #178: But given the fact that we've tried to frame the markets down in the low single digit range.

Speaker Change #178: Certainly there is some range around that.

Speaker Change #179: And then some range around our outperformance.

Speaker Change #180: Getting us to that low single digit increase we think thats. The book ends of a reasonable range sitting here today.

Speaker Change #180: If rate cuts come through and if the markets pick up faster than that is there a possibility for us to get above that range sure, but the flip side is there as well. So we think it's a pretty reasonable range as best we can read it today.

Speaker Change #180: Sitting here today trying to re call it 12 months out.

Speaker Change #181: Yes, David as we've said in the opening remarks, if you look back over the last five years, we've had quite a step up in operating performance.

Speaker Change #182: If you look at the guidance for the year and another down market with continued deflation.

Speaker Change #183: Broadly flat profit actually starts to look like a pretty good result that we can build from and should markets accelerate a bit faster should we start to see price stabilization in deflation turn to potentially inflation I think you could see that acceleration happened faster on our business until.

Speaker Change #183: That all sounds good thanks, a lot guys.

Speaker Change #184: Thanks, Ed.

Speaker Change #184: And our final question today comes from James with Wedbush.

Speaker Change #185: Please go ahead.

Speaker Change #185: Yeah.

Speaker Change #186: Thanks, Tony.

Speaker Change #187: A couple from me please.

Tony: Maybe on the large capital projects I had in mind, a couple of years ago, you talked about addressable market around $30 billion.

Speaker Change #188: 50 today am I right.

Or projects, it's kind of kicked off since that point in terms of the increase.

Speaker Change #190: Judgment of how far through the <unk>, we say we are.

Speaker Change #191: Yes, well you're exactly right. When we first started talking about large capital projects looking at third party data as best we could quantify it.

Speaker Change #191: I can't remember the exact top line $1 eight trillion in total projects 30 billion was our addressable market expectation.

Speaker Change #191: And look as we continue to look at that project set looking at data like Dodge analytics.

Speaker Change #191: The pipeline the portfolio continues to build.

Speaker Change #191: We're now looking out through 2030 with that data and there is a lot of potential activity out there for us so.

Speaker Change #191: It is a new way of working for us across a multi customer group approach and we think we have a great ability to take advantage of that.

Speaker Change #191: Still say, we're in relatively early innings in terms of that capital being deployed across the U S. And if you look at how that's progressed and there was a lot of concern that certain projects would be either shelved or postponed indefinitely and yes. There has been some shift as you look at electric vehicle manufacturing for example.

Speaker Change #192: That has moved probably our optimism towards data center and power generation projects that have grown in scale and again added to that pipeline that bill alluded to and originally our focus in that area was because we knew that traditional knock on commercial in nonresidential activity was going to be pressured but we saw.

Speaker Change #193: Good growth in those projects that were north of $400 million and overall construction value. That's good to have it offset traditional knock on commercial but maybe even more importantly for us as we look at a multi customer group approach.

Speaker Change #194: And the fact that those complex projects require a great deal of service and care it sets up quite well for the services that our company offers and the profile of our company as a whole. So we're pleased with how that's progressed, we still think we're in early days of that these projects are taking longer and again, we're seeing growth as <unk>.

Speaker Change #193: <unk> are added to that pipeline.

Speaker Change #193: Thanks.

Speaker Change #195: One hopefully just a quick one on <unk> when you look across the landscape do you think there are many.

Speaker Change #195: Many distributors that are either below or even trying to do similar to you on that front. What do you think youll youll can lead to that.

Speaker Change #196: Yes speak to us more specifically, because obviously, we have a very fragmented industry.

Speaker Change #197: That is also quite local if you look at our business. We're a nationwide player. We've been a strong player inside of traditional residential trade plumbing for quite some time, we have grown our HVAC presence and really ramped up that growth rate across HVAC and so as you look at call. It the 65000.

Speaker Change #197: Niche build trade companies.

Speaker Change #198: Our approach is going to be to make sure that we are the best provider for the individual technician hvac's or plumbing, but then offering a best in class tied together, but that service and as you look at consolidation of the trade professional and roll up of contractors, we think we offer a U.

Speaker Change #199: <unk> solution and.

Speaker Change #199: And a nationwide landscape for plumbing and HVAC.

As best in class service for the technician and Thats really the strategy and that's what we're trying to continue to build out.

Speaker Change #199: Thank you.

Speaker Change #200: Thank you. This concludes today's Q&A session I will now hand back over to Kevin Murphy for any closing remarks.

Speaker Change #201: Thank you operator, and thank you again for the time today, we appreciate it more than you know.

Kevin Murphy: And the way we began and that is we're really thankful to our associates for their dedication in serving that specialists professional customer that is core to our business.

Kevin Murphy: We're quite pleased with the performance both on the fourth quarter as well as in the full year.

Speaker Change #202: Second we returned to volume growth, we expanded gross margins and we delivered a solid operating profit performance and the cash generative model that we have really allows us with a strong balance sheet to continue to invest for growth because our markets are attractive over the medium term, both residential nonresidential, new construction and repair and maintenance and.

Speaker Change #203: Movement, and we're going to capitalize on that under built housing infrastructure that we have capitalized on the aging infrastructure of homes in the U S as well as.

Speaker Change #204: The dual trade contractor growth overall, HVAC and this country's investment in nonresidential infrastructure. So thank you again for your time, we look forward to talking with you very soon.

Speaker Change #205: This concludes the <unk> fourth quarter and year end results conference call. Thank you for your participation you may now disconnect your line.

Speaker Change #204: Yeah.

Speaker Change #204: [music].