Q4 2025 Ferguson Enterprises Inc Earnings Call

It results presentation. My name is not yet and I'll be coordinating the call today if.

If he would like to ask a question at the end of the presentation. Please press star followed by one on your telephone keypad.

I'll now hand over to Brian Lantz, Vice President of Investor Relations and communications to begin.

Please go ahead.

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.

The announcement is available in the investors section of our corporate website and on our SEC filings webpage, a recording of this call will be made available later today I want 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 projected.

Speaker #1: Hello everyone, and welcome to the Ferguson 4th quarter and year-end results. We'll now hand over to your host, Brian Lantz, Vice President of Investor Relations and Communications, to begin.

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

Speaker #1: Brian, please go ahead.

Also any forward looking statements represent the companys expectations only as of today and we disclaim any obligation to update. These statements. In addition on today's call. We will also discuss certain non-GAAP financial measures.

Speaker #2: Good morning, everyone, and welcome to Ferguson's fourth quarter earnings conference call and webcast. Hopefully, you've had a chance to review the earnings announcement we issued this morning.

Speaker #2: The announcement is available in the Investors section of our corporate website and on our SEC filings webpage. A recording of this call will be made available later today.

Therefore, all references to operating profit operating margin diluted earnings per share.

<unk> tax rate and earnings before interest taxes, depreciation and amortization reflects certain non U.

Speaker #2: I want 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 projected.

Yes.

Please refer to our earnings presentation and announcement on our website for additional information regarding those non-GAAP measures, including reconciliations to their most directly comparable GAAP financial measures with me on the call today are Kevin Murphy, our CEO and Bill Brundage our CFO.

Speaker #2: Including the various risks and uncertainties discussed in our Form 10-K available on the SEC's website. Also, any forward-looking statements represent the company's expectations only as of today, and we disclaim any obligation to update these statements.

I will now turn the call over to Kevin. Thank.

Speaker #2: In addition, on today's call, we will also discuss certain non-GAAP financial measures. Therefore, all references to operating profit, operating margin, diluted earnings per share, effective tax rate, and earnings before interest, taxes, depreciation, and amortization reflect certain non-GAAP adjustments.

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

On today's call will cover highlights of our fourth quarter and full year performance and our market performance for fiscal year, 'twenty five including additional details on our customer groups and growth focus areas.

Then we'll turn the call over to Bill to review financials, the change in our fiscal year, and our new calendar year financial outlook before I wrap up with a few final comments, we will have time to take your questions at the end.

Speaker #2: Please refer to our earnings presentation and announcement on our website for additional information regarding those non-GAAP measures, including reconciliations to their most directly comparable GAAP financial measures.

In the fourth quarter once again, our expert associates drove market outperformance and strong growth as they continued to serve our customers in a challenging market environment.

Speaker #2: With me on the call today are Kevin Murphy, our CEO, and William Brundage, our CFO. I will now turn the call over to Kevin.

Sales of $8 5 billion increased six 9% over prior year, driven by organic growth of five 8% and acquisition growth of one 1%.

Speaker #3: Thank you, Brian, and welcome to the Ferguson's 4th Quarter Results Conference Call. On today's call, we'll cover highlights of our 4th Quarter and full-year performance.

Speaker #3: And our market performance for fiscal year 2025, including additional details on our customer groups and growth focus areas. Then we'll turn the call over to Bill to review financials, the change in our fiscal year, and our new calendar year financial outlook before I wrap up with a few final comments.

Gross margin of 31, 7% increased 70 basis points over the prior year.

We remain disciplined on costs and generated $972 million of operating profit, which grew 13, 4% over last year.

Speaker #3: We'll have time to take your questions at the end. In the 4th Quarter, once again, our expert associates drove market outperformance and strong growth as they continued to serve our customers in a challenging market environment.

Diluted earnings per share increased 16, 8% over prior year to $3 48.

We continue to execute our capital priorities deploying $483 million this quarter.

Speaker #3: Sales of $8.5 billion increased 6.9% over the prior year, driven by organic growth of 5.8% and acquisition growth of 1.1%. Gross margin of 31.7% increased 70 basis points over the prior year.

Our investments in key growth areas Hvac's expansion waterworks diversification long.

<unk> capital projects and Ferguson home yielded solid results.

We also announced four acquisitions in the quarter and one subsequent to the quarter, which focused primarily on HVA and waterworks diversification.

Speaker #3: We remain disciplined on cost and generated $972 million of operating profit, which grew 13.4% over last year. Diluted earnings per share increased 16.8% over the prior year, to $3.48.

We will provide more details on these growth areas and the recent acquisitions later on the call.

We're pleased to have returned $354 million to shareholders through share repurchases and dividends.

And our balance sheet remains strong with net debt to EBITDA of one one times.

Speaker #3: We continued to execute our capital priorities, deploying $483 million this quarter. Our investments in key growth areas—HVAC expansion, Waterworks diversification, and large capital projects in Ferguson Home—yielded solid results.

While we continue to operate in an uncertain environment, we remain confident in our markets over the medium term leveraging multiyear tailwind in both residential and nonresidential markets as we invest to support the complex project needs of the water and air specialized professional.

Speaker #3: We also announced four acquisitions in the quarter and one subsequent to the quarter, which focused primarily on HVAC and Waterworks diversification. We'll provide more details on these growth areas and the recent acquisitions later on the call.

Turning to our performance by U S end market in the fourth quarter.

Net sales increased seven 1% driven by our strong growth in nonresidential markets.

Speaker #3: We're pleased to return $354 million to shareholders through share repurchases and dividends, and our balance sheet remains strong with net debt to EBITDA of 1.1 times.

The residential end market, which makes up about half of our U S. Revenue has remained subdued due to weak and new construction starts and permit activity as well as soft demand in repair maintenance and improvement.

Speaker #3: While we continued to operate in an uncertain environment, we remain confident in our markets over the medium term, leveraging multi-year tailwinds in both residential and non-residential markets as we invest to support the complex project needs of the water and air specialized professional.

Residential revenue.

Speaker #3: Turning to our performance by U.S. and market in the 4th Quarter. Net sales increased 7.1%, driven by our strong growth in non-residential markets. The residential end market, which makes up about half of our U.S. revenue, has remained subdued due to weakened new construction starts and permit activity, as well as soft demand in repair, maintenance, and improvement.

Speaker #3: Residential revenue was flat in the quarter. Non-residential end markets, representing the other half of U.S. revenue, showed continued resilience, with increased activity on large capital projects.

Speaker #3: We continue to grow share, with non-residential revenue growth of approximately 15%. We delivered 17% and 13% growth across the commercial and civil infrastructure end markets, respectively, while industrial grew 5%.

Speaker #3: Our intentional balanced end-market exposure and focus on key growth initiatives continue to position us well, both in the current environment and into the future.

Speaker #3: Moving to our U.S. performance by customer group for the quarter. HVAC revenue was slightly down due to softer market conditions, impacted by the industry's transition to new efficiency standards and weak new residential construction activity.

Speaker #3: Despite these conditions, we were pleased with market outperformance during the quarter, particularly given the strong prior-year comparable. Residential trade plumbing revenues decreased 2%, and the business continues to face headwinds in new construction and ongoing PVC price deflation, while repair, maintenance, and improvement are performing better.

Speaker #3: As we previously shared, we've merged our residential building and remodel, and our residential digital commerce customer groups into a unified brand called Ferguson Home.

Speaker #3: This customer group accounts for approximately 19% of U.S. sales and focuses on the higher-end project market, which delivered Ferguson Home revenue growth of 3% in the fourth quarter.

Speaker #3: Both Waterworks and Commercial Mechanical continued to drive strong activity on large capital projects. Commercial Mechanical revenue grew 21%, and Waterworks revenues increased 15%, both on top of prior year growth comparables.

Speaker #3: Our industrial, fire and fabrication, and facility supply customer groups delivered a combined net sales growth of 5%. Our multi-customer group approach uniquely positions us to solve complex project requirements and drive market outperformance.

Speaker #3: Turning to our full-year performance. Our teams delivered solid results while faced with challenging markets and periods of deflation. Revenue of $30.8 billion was 3.8% ahead of last year.

Speaker #3: The actions we took to streamline our business and manage costs more diligently resulted in an operating profit of $2.84 billion, up 0.6%, representing a 9.2% operating margin for the year.

Speaker #3: Diluted earnings per share came in at $9.94, a 2.6% increase over last year. Cash generation was strong, with $1.9 billion of operating cash flow, which allowed us to continue investing in our growth areas and executing our capital allocation priorities.

Speaker #3: We returned $1.4 billion to shareholders via dividends and share repurchases during the year, while also welcoming associates from nine acquisitions, continuing our strategy of consolidating our fragmented markets.

Speaker #3: And we continued to deliver strong overall returns on capital of approximately 29.4% for the year. Despite the challenging environment, we outperformed our markets, delivered solid volume growth, and drove profit expansion in fiscal 2025.

Speaker #3: Next, our performance against the broader end markets for the year. Our residential end markets declined approximately 3%, due to a combination of weak new construction and softer RMI markets.

Speaker #3: We outperformed, with organic revenue up 1%. Non-residential markets were approximately flat, as large capital project activity offset the weaker traditional non-res activity, like warehouse and office space.

Speaker #3: As we discussed in the past, many of our scale, our size, and our multi-customer group approach uniquely position us to provide value on large capital projects.

Speaker #3: We delivered 6% organic growth in the year, outperforming our typical 300 to 400 basis points of market outperformance. Our balanced end market exposure continues to serve us well, and we've continued to take share across both end markets.

Speaker #3: Now, let me highlight our four key growth areas that continue to show ongoing returns from our multi-year investments. Our HVAC revenue increased 8% for the year, driven primarily by organic growth of approximately 1% and from acquisitions.

Speaker #3: By leveraging the synergy between our residential trade plumbing and HVAC customer groups, we continued to outperform the market. Dual trade counter conversions, geographic expansion of our HVAC network, and strategic acquisitions make up the multi-pronged approach of our HVAC Everywhere strategy.

Speaker #3: We've completed over 600 counterconversions, nearing our goal of 650, which we expect to achieve in early 2026. Our dual trade counters are uniquely positioned to serve approximately 65,000 dual trade contractors, which continue to make up a growing share of the HVAC and plumbing markets.

Speaker #3: Our recent acquisitions of a manufactured duct and supply company out of Atlanta in the 4th Quarter, and more supply out of Chicago, which was subsequent to year-end, further strengthen our HVAC strategy by expanding our footprint and continuing to support this dual trade professional.

Speaker #3: For Waterworks, our revenue grew 10% in fiscal year 2025, driven by our diversification efforts as we expanded our capabilities to deliver a more integrated solution and address the nation's aging infrastructure.

<unk> was flat in the quarter.

Nonresidential end markets, representing the other half of U S. Revenue showed continued resilience with increased activity on large capital projects.

We continue to grow share with non residential revenue growth of approximately 15%.

We delivered 17% and 13% growth across commercial and civil infrastructure end markets, respectively, while industrial grew 5%.

Our intentional balanced end market exposure and focus on key growth initiatives continue to position us well both in the current environment and into the future.

Moving to our U S performance by customer group for the quarter.

HVAC revenue was slightly down due to softer market conditions impacted by the industry's transition to new efficiency standards and weak new residential construction activity.

Despite these conditions, we were pleased with market outperformance during the quarter, particularly given the strong prior year comparable.

Residential trade plumbing revenues decreased 2% the business continues to face headwinds in new construction and ongoing PVC price deflation, while repair maintenance and improvement is performing better.

As we previously shared we have merged our residential building in remodel and our residential digital commerce customer groups into a unified brand called Ferguson home.

This customer group accounts for approximately 19% of U S sales and focuses on the higher end project market, which delivered Ferguson home revenue growth of 3% in the fourth quarter.

Both waterworks and commercial mechanical continued to drive strong activity on large capital projects.

Mechanical revenue grew 21% and waterworks revenues increased 15% both on top of prior year growth comparable.

Our industrial fire and fabrication facility supply customer groups delivered a combined net sales growth of 5%.

Our multi customer group approach uniquely positions us to solve complex project requirements and drive market outperformance.

Turning to our full year performance.

Our teams delivered solid results, while faced with challenging markets and periods of deflation.

Revenue of $30 8 billion was three 8% ahead of last year.

The actions, we took to streamline our business and manage costs more diligently resulted in operating profit of $2 84 billion.

<unk>, 6% and representing a nine 2% operating margin for the year.

Diluted earnings per share came in at $9 94.

A two 6% increase over last year.

Cash generation was strong with $1 9 billion of operating cash flow, which allowed us to continue investing in our growth areas and executing our capital allocation priorities.

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

And we continued to deliver strong overall returns on capital of approximately 29, 4% for the year.

Despite the challenging environment, we outperformed our markets delivered solid volume growth and drove profit expansion in fiscal 'twenty five.

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

Our residential end market declined approximately 3%.

A combination of weak new construction and softer Rmi markets.

We outperformed with organic revenue up 1%.

Nonresidential markets were approximately flat as large capital project activity offset the weaker traditional non res activity like warehouse and office space.

As we discussed in the past, we believe our scale our size and our multi customer group approach uniquely position us to provide value on large capital projects.

We delivered 6% organic growth in the year outperforming our typical 300 to 400 basis point market outperformance.

And our balanced end market exposure continues to serve us well and we've continued to take share across both end markets.

Now let me highlight our four key growth areas that continue to show ongoing returns from our multi year investments.

Our HVAC revenue increased 8% for the year, driven primarily by organic growth and approximately 1% from acquisitions.

By leveraging the synergy between our residential trade plumbing and HVAC customer groups, we continue to outperform the market.

Dual trade counter conversions geographic expansion of our HVAC network and strategic acquisitions make up the multi pronged approach of our Hvac's everywhere strategy.

We've completed over 600 counter conversions nearing our goal of 650, which we expect to achieve in early 2026.

Our dual trade counters are uniquely positioned to serve approximately 65000 dual trade contractors, which continue to make up a growing share of the HVAC and plumbing markets.

Our recent acquisitions of manufacturer duct and supply company out of Atlanta in the fourth quarter and more supply out of Chicago, which was subsequent to year end further strengthen our hvac's strategy by expanding our footprint and continuing to support this dual trade professional.

For Waterworks, our revenue grew 10% in fiscal year 'twenty five driven by our diversification efforts as we expanded our capabilities to deliver a more integrated solution and address the nation's aging infrastructure.

We've expanded our role as a strategic partner by collaborating with engineers and construction professionals. During initial project stages and broadened our product offerings to include process equipment solutions.

Specifically, our recent acquisitions of Templeton and Richie environmental strengthen our expertise in water and wastewater treatment plant design.

This adds to the existing breadth of solutions, we already provide for water wastewater and Green storm water management as well as erosion control treatment plant construction and metering technology.

Our unique approach to large capital projects and a rise in number of projects helped drive 7% total nonresidential growth for the year.

We're pleased to be a trusted partner in managing these complex projects that require expertise scale operational agility and value added solutions.

By bringing together the capabilities of underground waterworks infrastructure commercial and industrial Pvs and fire protection created compelling solution, particularly for data centers large manufacturing operations life science and health care facilities.

Onshoring and Resourcing initiatives aimed at growing domestic production are further driving activity of large capital projects.

We believe our early alignment with owners engineers and general contractors combined with our deep contractor relationships, our scale and our ability to offer a suite of value added solutions will continue to position us for success with these projects.

Ferguson home began its rollout in February and is a key milestone in delivering a seamless customer experience across all touch points, including online and in person.

It represents another compelling example of the value our multi customer group approach brings to the market.

In addition to enhancing the experience for residential customers Ferguson home is supported by a network of dedicated outside sales and showroom consultants, who serve our specialized professional customers.

These associates bring deep product expertise and personalized service to builders designers and other trade professionals, helping meet their unique project needs with precision and care.

Bringing together residential building in remodel and residential digital commerce reinforces ferguson's role as a trusted partner for the professional.

We're pleased with the ongoing success of these growth areas and will continue to investing in them to leverage the unique advantages, we can bring to the market that drive outperformance.

I'll now pass the Bill who will discuss the financial results in more detail.

Thank you Kevin and good morning, everyone. Let me start by covering our fourth quarter financial results in a bit more detail.

Net sales of $8 5 billion or six 9% ahead of last year.

Organic revenue increased five 8% with an additional one 1% coming from acquisitions.

During the quarter, we saw return to mild inflation with pricing contributing approximately 2%.

We saw improvement in finished goods pricing, while commodity related categories were down low single digits.

Gross margin of 31, 7% increased 70 basis points over last year, driven by our associates strong execution, and the timing and extent of supplier price increases.

We tightly managed operating expenses benefiting from the streamlining actions, we took earlier in the year, while we continued to invest in core capabilities for future growth.

As a result operating profit of $972 million was up 13, 4% on the prior year delivering an 11, 4% operating margin was 60 basis points of expansion over prior year.

Diluted earnings per share of $3 48.

Was 16, 8% above last year, driven by operating profit growth and the impact of share repurchases.

And our balance sheet remained strong at one one times net debt to EBITDA.

Moving to our segment results net sales in the U S grew seven 1% with an organic increase of six 1% and a 1% contribution from acquisitions.

Operating profit of $962 million increased $118 million over the prior year delivering an operating margin of 11, 9%.

In Canada net sales were four 8% above last year with organic growth of <unk>, 3% and a four 9% contribution from acquisitions, partially offset by a <unk>, 4% adverse impact from foreign exchange rates.

Residential activity has continued to be softer than nonresidential, where the market has remained more resilient.

While we continue to operate in an uncertain environment, we believe our markets remain attractive over the medium term. We continue to invest in our experts, associates, and our value-added capabilities to drive growth.

While we continue to operate in an uncertain environment, we believe our markets remain attractive over the medium term. We continue to invest in our experts, associates, and our value-added capabilities to drive growth.

Operating profit of $24 million in the quarter was $2 million above the prior year.

Turning to our full year results, our associates delivered growth amid a challenging market backdrop net sales were three 8% above last year with organic growth of three 2% and an acquisition contribution of 1%, partially offset by a <unk>, 4% adverse impact of one fewer sales.

We're committed to supporting the project needs of our water and specialized professional customers by delivering scale locally and providing exceptional customer service.

We're committed to supporting the project needs of our water and specialized professional customers by delivering scale locally and providing exceptional customer service.

Thank you for your time today, Bill. We are now happy to take your questions. Operator, I'll hand the call back over to you.

Thank you for your time today, Bill. I am now happy to take your questions. Operator, I'll hand the call back over to you.

Thank you. If you would like to ask a question, please press star followed by 1 on your telephone keypad.

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<unk>.

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Pricing for the year was slightly down as a result of deflation in certain commodity related categories, particularly early in the year.

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Gross margin of 37% was up 20 basis points.

And the first question goes to Matthew from Barclays. Matthew, please go ahead.

And the first question goes to Matthew, Buley of Barkley's. Matthew, please, go ahead.

Operating profit of $2 $8 billion grew <unk>, 6% over the prior year delivering a nine 2% operating margin.

And diluted earnings per share of $9 94.

It was up two 6% on the prior year.

Next our cash flow performance.

EBITDA of approximately $3 1 billion.

Was up $44 million on the prior year.

Working capital investments of approximately $300 million in interest and tax of approximately $800 million were generally in line with the prior year.

As a result operating cash flow was $1 9 billion up $35 million on the prior year.

Uh, morning everyone, thank you for taking the questions. Um, so uh, kind of a broad question on on, on growth and and the End Market Outlook here, obviously, a lot of cross currents, um, recently around, you know, new residential HVAC, Etc. All of that. Meanwhile, you show that this, um, you know, strong non-residential results and, and inflation is improving. Um, so so really I'm asking looking ahead kind of thinking about this mid single digit growth for the total calendar year. Just trying to put all these Trends together kind of you know it would I guess it would be helpful on kind of price and volume quarter to date. So just sort of help us out there but then really what are your assumptions

We invested $305 million in Capex and generated $51 million in proceeds from asset sales, resulting in free cash flow of $1 billion $654 million, an increase of $132 million over the prior year.

Uh, morning everyone, thank you for taking the questions. Um, so uh, kind of a broad question on on growth and and the End Market Outlook here, obviously, a lot of cross currents, um, recently around, you know, new residential HVAC, Etc. All of that. Meanwhile, you show that this, um, you know, strong non-residential results and, and inflation is improving. Um, so so really I'm asking looking ahead kind of thinking about this mid single digit growth for the total calendar year. Just trying to put all these Trends together kind of you know it would I guess it would be helpful on kind of price and volume quarter to date. So just sort of help us out there. But then really what are your assumptions uh going forward on these kind of changing end markets here or over these next few months. Thank you.

Uh, going forward on these kinds of changing end markets here, or over these next few months. Thank you.

Turning to capital allocation as previously mentioned, we invested approximately $300 million in working capital and another $300 million in Capex to drive further above market organic growth.

Good morning, Matt, and thank you for the question. Maybe I'll take a little bit about the markets, and then let Bill fill in with a bit of color. You know, if I take a step back, if we look at when we entered fiscal year 2025, we came into the year believing that our markets would be down low single digits. We thought that the residential markets would be down low to mid.

Good morning, Matt, and thank you for the question. Maybe I’ll take a little bit about the markets, and then let Bill fill in with a bit of color. You know, if I take a step back, if we look at when we entered fiscal year 2025, we came into the year believing that our markets would be down low single digits. We thought that the residential markets would be down low to mid.

Our board declared an <unk> 83 per share quarterly dividend.

This is consistent with the third quarter and represents a 5% increase over the prior year, reflecting our confidence in the business and cash generation we.

We continue to consolidate our fragmented markets through bolt on geographic and capability acquisitions as Kevin mentioned, we completed four acquisitions during the fourth quarter.

Single digits, and we thought non-res would be roughly flat. Suffice it to say, we're pretty pleased with a Q4 of plus 7% and a year-to-date of plus 3.8%. We're probably even more pleased that our key growth areas that we wanted to focus on drove that growth, whether it's HVAC expansion.

Including Hps specialties, a manufacturer's representative of HVAC.

Plumbing and hydraulic supplier, serving commercial mechanical and industrial engineering professionals in the northeast and mid Atlantic regions.

Speaker #3: We've expanded our role as a strategic partner by collaborating with engineers and construction professionals during initial project stages, and broadened our product offerings to include process equipment solutions.

Richie Environmental solutions, our process equipment manufacturers' representative serving the water and wastewater treatment market and Virginia.

Single digits and we thought non-res would be roughly flat. And so suffice it to say we're pretty key with a Q4 Plus 7% in the year of the day plus 3.8% and probably even more at least areas that we wanted to focus on its hbac expansion in the home Waterworks diversification. And then what we were doing with, what we believe is a strong value, proposition on large capital projects and non-residential and that really did drive the growth. If, if we, then take a shift into where we are currently, and how we view, call it the back, half of calendar year, 25 or, or this stub period, of 5 months,

Ferguson home Waterworks diversification and then what we were doing with, what we believe is a strong value, proposition on large capital projects and non-residential and that really did drive the growth. If if we, then take a shift into where we are currently and how we view, call it the back, half of calendar year, 25 or, or this sub period, of 5 months,

Speaker #3: Specifically, our recent acquisitions of Templeton and Ritchie Environmental strengthen our expertise in water and wastewater treatment plant design. This adds to the existing breadth of solutions we already provide for water, wastewater, and green stormwater management, as well as erosion control, treatment plant construction, and metering technology.

Manufacturer duct and supply company, and HVAC supplies and parts distributor covering the Atlanta and southeast markets and water resources, Inc. An exclusive distributor of Neptune technology group products and water meters in the greater Chicago Metro area.

We think that growth could be a bit softer in the second half of calendar year 2025, and we really recognize that new residential construction weakness continues. We've seen a continuation of softer RMI, or repair and remodel markets.

We think that growth could be a bit softer and have to, um, of calendar year and we really recognize that new residential construction, weakness continues. Uh, we've seen continuation of softer RMI or repair remodel markets

In total we completed nine acquisitions in the fiscal year.

Speaker #3: Our unique approach to large capital projects and the rise in the number of projects help drive 7% total non-residential growth for the year. We're pleased to be a trusted partner in managing these complex projects that require expertise, scale, operational agility, and value-added solutions.

Subsequent to year end, we purchased more supply and HVAC distributor based in Chicago that serves Hvac's and dual trade professionals.

As we look forward our acquisition pipeline remains healthy.

And finally, we are committed to returning surplus capital to shareholders. When we are below the low end of our target leverage range of one to two times net debt to EBITDA.

Speaker #3: By bringing together the capabilities of underground waterworks infrastructure, commercial and industrial PVF, and fire protection, we create a compelling solution particularly for data centers, large manufacturing operations, life sciences, and healthcare facilities.

And then, candidly, when we look at some of our larger growth areas like HVAC, we have an affordability issue with a pressured consumer and a movement to more repair versus replace. Now, the non-residential markets really continue, as traditional non-residential activity isn't going to step up, or we don't see that step up happening. But the strength of large capital projects, and that being our growth area, does play out. However, we do recognize that the residential new construction market is also facing challenges.

We returned $948 million to shareholders via share repurchases this year compared to $634 million in the equivalent prior year period.

Construction and RMI market can be a bit more challenged.

Speaker #3: Onshoring and restoring initiatives aimed at growing domestic production are further driving activity in large capital projects. We believe our early alignment with owners, engineers, and general contractors, combined with our deep contractor relationships, scale, and our ability to offer a suite of value-added solutions, will continue to position us for success with these projects.

This year, we have reduced our share count by approximately $5 million and still have approximately $1 billion outstanding under the current share repurchase program.

Now, let me address the change of our fiscal year end from July 31 to December 31.

And then candidly when we look at some of our larger growth areas like HVAC, we we have an affordability issued with a pressured consumer and a movement to more repair versus replace now, the non-residential markets really continue as traditional non-residential activity isn't going to step up, or we don't see that step up happening, but the strength of large capital projects and that being our growth area does play out. But we do recognize that, that residential new construction and RMI Market can be a bit more challenged. Yeah, Matt maybe just to build on that. Um, if you, if you look at the first half calendar results that we just walked through and that we put in the slide deck, Revenue was up about 5% for the first half. Um, I would tell you July was a, was a strong month, a solid month in line, largely with what we saw in Q4. But as we stepped into August, we did see that growth come down a touch August.

This move shifts year end activities from our seasonally busiest time of the year to our slowest, allowing our associates to remain focused on our customers during their peak season.

Speaker #3: Ferguson Home began its rollout in February and is a key milestone in delivering a seamless customer experience across all touchpoints, including online and in person.

A five month transition period will span from August one through December 31, 2025.

Speaker #3: It represents another compelling example of the value our multi-customer group approach brings to the market. In addition to enhancing the experience for residential customers, Ferguson Home is supported by a network of dedicated outside sales and showroom consultants who serve our specialized professional customers.

During this time, we will release earnings on December 9th covering the three month period of August <unk> through October 31.

Yeah, man. Maybe just to build on that. Um, if you, if you look at the first half calendar results that we just walked through and that we put in the slide deck, Revenue was up about 5% for the first half. Um, I would tell you July was a, was a strong month, a solid month in line, largely with what we saw in Q4. But as we stepped into August, we did see that growth come down a touch August sales per day. Were up about 5% and I say sales per day because we had 1 fewer sales day which we'll pick back up in September but it did step down to about 5% and Kevin's Point as we look into the back half of the year and we provided a full year guide of mid single digits, we would expect the overall growth rate to maybe be a touch softer in the second half.

Sales per day were up about 5%, and I say "sales per day" because we had one fewer sales day, which we'll pick back up in September. However, it did step down to about 5%. As Kevin's point indicates, as we look into the back half of the year, and we provided a full year guide of mid-single digits, we would expect the overall growth rate to maybe be a touch softer in the second half.

We plan to announce our five month transition period results in late February.

In our new fiscal year, we will begin on January one 2026.

Speaker #3: These associates bring deep product expertise and personalized service to builders, designers, and other trade professionals, helping to meet their unique project needs with precision and care.

As a result of this change we are providing guidance for the 2025 calendar year.

But before I move to the guidance, we have presented our first half performance on a calendar year basis for background.

Speaker #3: Bringing together residential building and remodel, and residential digital commerce reinforces Ferguson's role as a trusted partner for the professional. We're pleased with the ongoing success of these growth areas and will continue to invest in them to leverage the unique advantages we can bring to the market that drive outperformance.

The market dynamics that Kevin outlined are certainly the driving force of that. And then if you just look at our comparables, our volume comparables do step up as we go through Q1 and into our old fiscal Q2, which would be November and December. Um, so we feel good about the guidance that we've provided. We think we will continue to have good growth in the second half, but probably a touch softer than half one.

For the six months ended June 30 sales of $15 6 billion grew 5% over the prior year.

The market dynamics that Kevin outlined are certainly the driving force of that. If you just look at our comparables, our volume comparables do step up as we go through Q1 and into our old fiscal Q2, which would be November and December. So we feel good about the guidance that we've provided. We think we will continue to have good growth in the second half, but probably a touch softer than H1.

Operating profit of $1 5 billion increased 8%.

Resulting in an operating margin of nine 6% an improvement of 30 basis points from nine 3% in the prior year.

Speaker #3: I'll now pass to Bill, who will discuss the financial results in more detail.

Given these, uh, again clearly dynamic markets here. So, um, that leads to the second question. Um, you know, Kevin, you really touched on it—the large capital projects.

Speaker #4: Thank you, Kevin, and good morning, everyone. Let me start by covering our fourth quarter financial results in a bit more detail. Net sales of $8.5 billion, or 6.9% ahead of last year.

Further historical financial information for calendar quarters with relevant reconciliations can be found at an appendix at the end of the slide deck.

Now turning to our guidance for the 2025 calendar year.

Speaker #4: Organic revenue increased 5.8%, with an additional 1.1% coming from acquisitions. During the quarter, we saw a return to mild inflation, with pricing contributing approximately 2%.

Where we have provided the relevant comparative results from calendar 2024.

We expect mid single digit revenue growth in calendar 2025.

And we expect an operating margin range of nine two to nine 6%.

Speaker #4: We saw improvement in finished goods pricing, while commodity-related categories were down low single digits. Gross margin of 31.7% increased 70 basis points over last year, driven by our associates' strong execution and the timing and extent of supplier price increases.

An improvement of between 10, and 50 basis points over the prior year.

Interest expense is expected to be between $180 million to $200 million.

Customer group approach and kind of how that actually all comes together. And then, you know, just more specifically, anything around kind of data centers and what the pipeline going forward of these large capital projects looks like for you guys. Thank you.

Um it just seems like it, you know, all your efforts are are coming to fruition here. Um, so around this kind of multi-, customer group approach you mentioned uh Waterworks commercial PVF fire protection, Etc, with with these large projects, um, can you go into maybe just some more specifics number 1 just around. How do you, how do you go to market? You know, with these customers with the different types of contractors around actually leveraging, your multi customer group approach and and kind of how that actually all comes together and then you know just more specifically anything around kind of data center and and what the pipeline going forward of these large capital projects. Uh looks like for you guys. Thank you.

Our effective tax rate is expected to be approximately 26%.

Thank you, Matt. And, you know, we really did build the organization.

And we estimate capex will be between $300 million to $350 million.

Speaker #4: We tightly managed operating expenses, benefiting from the streamlining actions we took earlier in the year, while we continued to invest in core capabilities for future growth.

Despite the market uncertainty, we are leveraging the strength of our supply chain tailored value added solutions innovative digital tools and the expertise of our associates.

Thank you, Matt. You know, we really did build the organization to be better together. The part and a multi-customer group approach plays quite well in large capital construction projects which, as we've discussed, are really driving the day and non-residential activity.

To be better together than apart, and a multi-customer group approach, plays quite well in large capital construction projects, which, as we've discussed, are really driving the day in non-residential activity.

Speaker #4: As a result, operating profit of $972 million was up 13.4% on the prior year, delivering an 11.4% operating margin, with 60 basis points of expansion over the prior year.

We go to market.

We go to market.

<unk> realized a multiyear tailwind and drive outperformance.

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

Thank you Bill.

Speaker #4: Diluted earnings per share of $3.48 were 16.8% above last year, driven by operating profit growth and the impact of share repurchases. Our balance sheet remains strong at 1.1 times net debt to EBITDA.

Let me again, thank our expert associates, who delivered strong results to finish this challenging year by continuing to take care of our customers and execute our strategy.

Our ability to offer a scaled multi customer group approach on our project is unique and important to our key growth areas, including HVAC expansion waterworks diversification large capital projects and Ferguson home.

Speaker #4: Moving to our segment results. Net sales in the U.S. grew 7.1%, with an organic increase of 6.1% and a 1% contribution from acquisitions. Operating profit of $962 million increased $118 million over the prior year, delivering an operating margin of 11.9%.

Being best-in-class for the individual contractor or trade professional for that particular customer group, whether it be commercial mechanical, waterworks, fire protection, or industrial pipe, valve, and fitting. Making sure that we're the best provider on that job for the contractor. But we then elevate and go towards the source of funds, if you will, the engineer, the architect, the owner, to try and make sure that we are engaged from a supply chain perspective, from a design perspective, to make sure that that project can get completed on time and on budget.

Being best-in-class for the individual contractor or trade, professional for that particular customer group, whether it be commercial mechanical, waterworks, fire protection, or industrial pipe, valve, and fitting. We make sure that we're the best provider on that job for the contractor. But we then elevate and go towards the source of funds, if you will, the engineer, the architect, the owner, to try and ensure that we are engaged from a supply chain perspective and from a design perspective, to make sure that that project can get completed on time and on budget.

Our performance continues to deliver results from these multiyear investments as we help meet our customers' needs.

And so that work, UPF funnel.

And so that work, UPF funnel.

Closer to the source of funds.

Closer to the source of funds.

While we continue to operate in an uncertain environment, we believe our markets remain attractive over the medium term and we continue to invest in our expert associates and our value added capabilities to drive growth.

It allows us to be the best solution for the individual trade on the job, and it has served us well.

Speaker #4: In Canada, net sales were 4.8% above last year, with organic growth of 0.3% and a 4.9% contribution from acquisitions, partially offset by a 0.4% adverse impact from foreign exchange rates.

We're committed to supporting the project needs of our water and air specialized professional customers by delivering scale locally and providing exceptional customer service.

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 #4: Residential activity has continued to be softer than non-residential, where the market has remained more resilient. Operating profit of $24 million in the quarter was $2 million above the prior year.

Well, Ken if you would like to ask a question. Please press star followed by one on your telephone keypad.

Thank you I would like to remove your question Paul.

Speaker #4: Turning to our full-year results, our associates delivered growth amid a challenging market backdrop. Net sales were 3.8% above last year, with organic growth of 3.2% and an acquisition contribution of 1%, partially offset by a 0.4% adverse impact of one fewer sales day.

Okay.

When the parents so question payments, you're making lately.

And the first question Betty and Matthew Bouley of.

Matthew Please go ahead.

Good morning, everyone and thank you for taking the questions.

So kind of a broad question.

Growth in the end market outlook here, obviously, a lot of cross currents.

Speaker #4: Pricing for the year was slightly down as a result of deflation in certain commodity-related categories, particularly early in the year. Gross margin of 3.7% was up 20 basis points.

Lay around new residential HVAC et cetera, all of that Meanwhile, you show this.

Strong nonresidential result in inflation is improving.

Speaker #4: Operating profit of $2.8 billion grew 0.6% over the prior year, delivering a 9.2% operating margin. Diluted earnings per share of $9.94 were up 2.6% on the prior year.

So really I'm asking looking ahead kind of thinking about this mid single digit growth for the total calendar year, just trying to put all of these trends together kind of.

I guess it would be helpful on kind of price and volume quarter to date.

Speaker #4: Next, our cash flow performance. EBITDA of approximately $3.1 billion was up $44 million on the prior year. Working capital investments of approximately $300 million and interest and tax of approximately $800 million were generally in line with the prior year.

Sort of help us out there, but then really what are your assumptions going forward on these kind of changing end markets here over these next few months. Thank you.

Good morning, Matt and thank you for the question, maybe I'll take a little bit about the market and then let bill fill in with a bit of color.

Speaker #4: As a result, operating cash flow was $1.9 billion, up $35 million on the prior year. We invested $305 million in CapEx and generated $51 million in proceeds from asset sales, resulting in free cash flow of $1.654 billion.

If I take a step back if we look at when we enter fiscal year 'twenty five we came into the year, believing that our markets would be down low single digits, we thought that the residential markets would be down low to mid.

Single digits, and we thought nonresident being roughly flat and so suffice it to say, we're pretty pleased with Q4, plus 7% and a year to date plus three 8%.

Speaker #4: An increase of $132 million over the prior year. Turning to capital allocation, as previously mentioned, we invested approximately $300 million in working capital and another $300 million in CapEx to drive further above-market organic growth.

Even more pleased that our key growth areas that we wanted to focus on drove that growth, whether it's HVAC expansion.

Speaker #4: Our board declared an 83-cent per share quarterly dividend. This is consistent with Q3 and represents a 5% increase over the prior year, reflecting our confidence in the business and cash generation.

Ferguson home Waterworks diversification and then what we were doing with what we believe is a strong value proposition on large capital projects in nonresidential and that really did drive the growth.

Speaker #4: We continue to consolidate our fragmented markets through bolt-on geographic and capability acquisitions. As Kevin mentioned, we completed four acquisitions during Q4. This includes HPS Specialties, a manufacturer's representative of HVAC, plumbing, and hydraulic supplies serving commercial mechanical and industrial engineering professionals in the Northeast and Mid-Atlantic regions.

If we then take a shift into where we are currently and how we view call. It the back half of calendar year, 'twenty five or this stub period or five months.

We think that growth could be a bit softer in half two.

Calendar year.

And we really recognize that new residential construction weakness continues.

We've seen continuation of softer rmi or repair remodel markets.

Speaker #4: Ritchie Environmental Solutions, a process equipment manufacturer's representative, serves the water and wastewater treatment market in Virginia. The manufacturer, Duct and Supply Company, is an HVAC supplies and parts distributor covering the Atlanta and Southeast markets.

And then candidly when we look at some of our larger growth areas like <unk>, we have an affordability issued with a pressured consumer and movement to more repair versus replace.

Speaker #4: And Water Resources Inc., an exclusive distributor of Neptune Technology Group products and water meters in the Greater Chicago metro area, completed nine acquisitions in the fiscal year.

Nonresidential markets really continue as traditional nonresidential activity isn't going to step up, but we don't see that step up happening, but the strength of large capital projects and that being our growth area does play out, but we do recognize that that residential new construction and rmi market can be a bit more.

Speaker #4: Subsequent to year-end, we purchased more supply, an HVAC distributor based in Chicago that serves HVAC and dual trade professionals. As we look forward, our acquisition pipeline remains healthy.

<unk>, yes.

Yes, Matt maybe just to build on that.

If you look at the first half calendar results that we just walked through in that we put in the slide deck revenue was up about 5% for the first half.

Speaker #4: And finally, we are committed to returning surplus capital to shareholders when we are below the low end of our target leverage range of 1 to 2 times net debt to EBITDA.

I would tell you July.

Speaker #4: We returned $948 million to shareholders via share repurchases this year, compared to $634 million in the equivalent prior year period. This year, we have reduced our share count by approximately 5 million.

With a strong months a solid month in line largely with what we saw in Q4, but as we stepped into August we did see that growth to come down a touch.

Sales per day were up.

Up about 5%, let's say sales per day, because we had one fewer sales day, which will pick back up in September but it did step down to about 5% and Kevin's point as we look into the back half of the year and we provided our full year guide of mid single digits. We would expect the overall growth rate to maybe be a touch soft.

In the second half.

The market dynamics that Kevin outlined.

The driving force of that and then if you just look at our comparable our volume comparable do you step up as we go through Q1 and into our old fiscal Q2, which would be November December.

So we feel good about the guide that we've provided we think we will continue to have good growth in the second half, but probably a touch softer than half one.

Okay, Yes, that's all Super helpful exactly what I was looking forward given these.

Again, clearly dynamic end markets here so for.

The second question, Kevin you really touched on it the large capital projects.

It just seems like all your efforts are coming to fruition here.

So around this kind of multi customer group approach you mentioned waterworks commercial Pvs fire protection et cetera, with these large projects.

Can you go into maybe some just some more specifics number one just around how do you. How do you go to market with these customers with the different types of contractors around actually leveraging your multi customer group approach and kind of how that actually all comes together and then just more specifically anything around kind of data center.

And what the pipeline going forward of these large capital projects looks like for you guys. Thank you.

Thank you Matt.

We really did build the organization.

It would be better together than apart and multi customer group approach and it plays quite well in large capital construction projects, which as we've discussed are really driving the day in nonresidential activity.

We go to market.

Being best in class for the individual contractor or trade professional.

That particular customer group, whether it be commercial mechanical waterworks fire protection industrial pipe valve and fittings, making sure that we're the best provider on that job with a contractor, but we then elevate and go towards the source of funds. If you will the engine.

Engineered.

Architect.

Owner to try and make sure that we are engaged from a supply chain perspective from a design perspective to make sure that that project can get completed on time and on budget.

So that work up funnel.

Closer to the source of funds.

Allows us to be a best solution for the individual trade on the job and it's served us well.

As we look at waterworks being up 15 in the quarter commercial mechanical being up 21, and our industrial business and our fire protection business being up.

Paving the way for future growth.

A bit about what we see in the end markets and just like the rest of the world. We're seeing that activity from a data center construction perspective, continuing to accelerate we havent seen pauses or cancellations and that activity is stepping up and stepping up in a variety of geographies across the nation. Those are great projects for us great projects.

For us on.

Piping systems as well as <unk>.

Automation fabrication and virtual design, which was some of the other value added services that we're bringing to the market that helped us to earn that business from the local contractor as well as the trust of the owner and the engineer.

Alright, well. Thank you Kevin Thanks, Bart good luck guys.

Thanks, Matt Thanks, Matt.

The next question guys two sale of Jefferies. Please go ahead.

Hey, guys, congratulations on a really impressive quarter and tough environment Ken.

Kevin I, just wanted to drill down a little bit more on the non res piece. It sounds like the data center side of things remain really strong, but we appreciate comps do get tougher in the coming quarters, but just give us a little perspective, what are you seeing on the momentum side of things he talked about bidding activity still being strong just give us a little more color on where you're seeing the strength the bidding activity.

Within non res and how far are you bidding out in just the backlogs in general.

And the backlogs are tough to really get after and the reason that I say that is our backlogs are building and they are quite healthy across commercial mechanical across buyer protection across waterworks and across industrial pipe valve and fitting more broad base. The tougher part is as we've discussed in the past the gestation period of these projects.

They do vary and so for us it really is around what that.

Operational agility is if you will of making sure that we have the supply chain tightened up right. So the piping system and the valve project.

Are done in a timely fashion because these are incredibly large projects relative to historical standards and so making sure that <unk> got that in the right place at the right time is challenging but those backlogs are building. It's not just in the data center activity, we're seeing it in biotechnology and pharma, we're seeing it.

And some large scale hospital work as well and then we're starting to see that play out.

The water wastewater treatment plant side of our business, which again plays well to our waterworks business, but also plays well to industrial pipe valve and fittings, because those two customer groups worked very well together on the construction of water and wastewater treatment plants and you saw that play out in our results.

Also saw that play out and what our M&A strategy is as we look to get again closer to the design and specification side of the world and broaden our offering on process equipment solutions.

Packages valve offerings, and overall controls inside the water and wastewater treatment plant. So we're building out that capability very much in sequential align with our strategy.

Okay, Great color, Kevin and then from a price and margin standpoint, both really impressive pricing inflected nicely in this quarter.

Bill I guess question for you should we expect pricing to kind of build from here or this is a kind of a good run rate I know the commodity side of things were still negative are you starting to see that stabilize does that should we get avenue for that to inflect and then on the gross margin side strong nice expansion. There was there any timing nuances with like inventory profit.

So should we see some moderation or we can build off these gross margins.

Assuming obviously normal seasonality.

Yes, first just to start on price and margin. We were pleased to see price inflect positive as we've talked about over the last couple of quarters, we came into this year expecting.

Our suppliers in the industry to return to call it low single digit inflation.

Passing through annualized price increases, we saw that step up a bit with initial announcements of tariffs. We then saw that pull back a bit when the reciprocal was pulled back and pause. So we've seen a lot of noise in the system, but overall, we've seen price move back into that low single digit rate.

It's difficult to predict how that plays forward, but I would expect and we are expecting some modest level of overall inflation as we play through the calendar year.

On the commodity side as you mentioned it as we noted the commodities it as a whole.

<unk> is still in low single digit decline.

We have seen movements in the different product category.

Clearly copper tube and copper fittings are in I would call it healthy levels of inflation.

We have seen.

With steel tariffs came through we have seen steel pipe carbon steel and stainless steel move back towards flattish maybe up a little bit.

And then there is still pressure on PVC, both on the plumbing side of the world and Waterworks, which is still in deflation. So as a basket those are still in modest deflation.

And it is difficult to predict how that plays forward, but but if I take a step back from that again, our best view is that probably some modest level of inflation as we round out the calendar year on gross margins. We were really pleased with a 31, 7% gross margin delivery in the quarter.

We did see the benefits of the actions that we took earlier in the fiscal year, we talked a lot as we came out of Q2 and into Q3 that we had focused our sales teams. We have made some pricing tweaks.

And we have made some adjustments to ensure that we're properly charging for the value that we provide in the market every day and we saw that start to play through as we exited Q3.

Q2 into Q3, and then certainly through Q4, but Theres no doubt we saw some temporary benefit in the quarter.

Just on the timing and the extent of supplier price increases so when we take a step back we've been I think pretty consistent with our view that this the overall underlying ongoing normalized gross margin of this business is somewhere in that 30% to 31% range.

And we would expect that we would settle back down into that range.

As we as we move into the future and in fact, if you look at we talked about August revenue, but if you look at August gross margins, we started to see that normalization play through so we're very confident with the underlying gross margins of the business and the teams are doing a great job executing everyday for our customers.

Really appreciate the color. Thank you guys continue to good work.

Thanks Bill.

The next question go to Jon <unk> of UBS John Please go ahead.

Hey, good morning, guys. Thanks for taking my questions as well.

And you may have answered this partly with Phil's question, but sort of back of the envelope at the midpoint. It seems like the implied calendar year second half operating margin is expected at about $9 two ish percent versus nine six in the first half and that comes despite what looks to be about a 1% improvement in <unk>.

Sales half over half.

What's sort of driving that expected margin decline is the timing of the pricing that you just mentioned or is there or is there other factors as well.

Yes, it's a great question, John and I think we'll as we get more used to calendar quarters, we'll get more used to the seasonality of the business, but I would point, mostly to that seasonality. If you go back to last calendar year in the second half we delivered about an eight 8% operating margin.

Speaker #1: As we go into early 2026, you've seen us expand our geographic footprint, and we will continue to open up new stores that are dedicated to serving that dual-trade HVAC and plumbing contractor. Then you've seen it play out in the M&A side.

Speaker #2: That all sounds good. Thanks very much, guys.

Speaker #1: Thanks, Dave.

Speaker #3: The next question goes to Sam Reid of Wells Fargo. Sam, please go ahead.

And your back of the cocktail napkin math is spot on in terms of the guide for the full year at 90% to 96 implies that the second half will be somewhere in the upper 8% to call. It mid 9% range in the back half of the year. So we are expecting continued improvement year over year.

Speaker #1: There's clearly a move towards more repair versus replacement in today's world. We have sold through the majority of our 410A, and that was in place as we went through the fourth quarter. This is why, as Bill indicated, low single digits is probably the inflation number you should be thinking about.

Speaker #1: Awesome, thanks. He called out a little earlier some softness in residential remodeling, and I just wanted to unpack that a bit more because you've got a really strong presence in remodeling with higher-income consumers, and that's historically insulated you from some of the category slowness.

And I'd point, a bit more towards seasonality that the second half of the calendar year.

Speaker #1: So, are you starting to see demand crack from that higher-income consumer? And then, can you just give us a sense as to where remodel backlogs sit today versus, say, one to two quarters ago?

Speaker #1: But that will clearly move as repair shifts more towards replacement, and as we start to see that A2L play. The progress report is on the residential side of our house as we move forward.

We will be typically a touch lighter given in November and December with the holidays.

From a seasonality perspective.

Okay. That's helpful. And then last quarter I think you guys talked about 100 million of expected annual savings from restructuring actions and there wasn't expecting much impact in the fourth quarter and fiscal year fourth quarter.

Speaker #4: Yes. Sam, the remodel market is under continued pressure. We're seeing continued pressure there. We've said that the higher end of the market will continue to perform better than the rest.

Sort of thinking about the cadence of those savings as we move forward here.

Speaker #4: We're pleased with a plus three percent growth rate in Ferguson Home, especially as we brought those two channels together. If you look at our showroom business in particular, it is predominantly in the remodel space today, and it's primarily focused on the higher end of the market for remodel project work.

Nadia: Fourth quarter and year-end results presentation. My name is Nadia, and I'll be coordinating the call today. If you would like to ask a question at the end of the presentation, please press * followed by 1 on your telephone keypad. I will now hand over to your host, Brian Lantz, Vice President of Investor Relations and Communications, to begin. Brian, please go ahead.

Yes, we are pleased with the execution of those streamlining actions.

Cost savings.

Are playing and the underlying cost base of the business, but maybe more importantly, the speed and agility of decision, making has improved in the field and that was really the primary reason for some of the organizational design changes that we've made.

Speaker #4: We've seen traffic continue to be healthy, and so we'll look at that, continuing to be the driver. On the lower end of the market, we saw that pressure play through in residential trade.

Brian Lantz: Good morning, everyone, and welcome to Ferguson plc's fourth quarter earnings conference call and webcast. Hopefully, you've had a chance to review the earnings announcement we issued this morning. The announcement is available in the Investors section of our corporate website and on our SEC filings webpage. A recording of this call will be made available later today. I want 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 projected, including the various risks and uncertainties discussed in our Form 10-K available on the SEC's website. Also, any forward-looking statements represent the company's expectations only as of today, and we disclaim any obligation to update these statements. In addition, on today's call, we will also discuss certain non-GAAP financial measures.

Moving those decisions closer to the customer.

We did about $100 million of annualized cost benefits, we did see that play through in the fourth quarter and I would expect that call it roughly $25 million year over year play through over the next three quarters.

Speaker #4: And along with new construction pressure and PVC price deflation, that put that business under a little bit more pressure and down 2 percent position.

You look at the fourth quarter, and just take a step back.

Speaker #4: But generally speaking, we're pleased with the higher end of the market with Ferguson Home.

Our cost as a percentage of sales were roughly 23%, which is roughly flat to last year. So we've got good underlying cost reductions from the streamlining actions, we had a bit of cost increase driven by sales volume and a touch of cost inflation and then sorry.

Speaker #2: No, that helps. And then, just switching gears and drilling down a little bit more on waterworks. I mean, really strong results here, especially in the context of some Keurigs.

Speaker #2: Can you just talk more specifically about what you're hearing from your large home builder customers? It sounds like there was a pullback that accelerated in August.

Associates has a variable component of their pay that's linked to performance and given the strong financial performance in the second half our associates were appropriately awarded for that performance.

Speaker #2: You know, in demand for, let's call it, new residential subdivision projects. But I just want to confirm that. And then, can you just give us a rough sense as to where your residential waterworks business sits from a geographic standpoint?

Brian Lantz: Therefore, all references to operating profit, operating margin, diluted earnings per share, effective tax rate, and earnings before interest, taxes, depreciation, and amortization reflect certain non-GAAP adjustments. 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. With me on the call today are Kevin Murphy, our CEO, and Bill Brundage, our CFO. I will now turn the call over to Kevin.

So we very much believe that the cost base is positioned well as we look to the second half and would expect a bit of operating leverage assuming that the sales via <unk> environment plays out like we expect.

Speaker #2: Do you under-index, for instance, in markets like, say, Florida? Just love some additional context there.

Great. Thank you guys.

Speaker #4: Yeah, I'll start with we don't under-index in Florida. But if I take a step back and look at our business, clearly we're really pleased with a plus fifteen percent in the quarter.

Thanks, Sean.

The next question guys, Hey, David Manthey of bagged David. Please go ahead.

Thank you Kevin good morning.

Speaker #4: We're really pleased with a plus twenty percent increase on a two-year stack inside that Waterworks business. It's a testament to what the group has built over time.

First question Bill you gave some nice detail on commodities pricing.

Kevin Murphy: Thank you, Brian, and welcome to Ferguson plc's fourth quarter results conference call. On today's call, we'll cover highlights of our fourth quarter and full-year performance and our market performance for fiscal year 2025, including additional details on our customer groups and growth focus areas. We'll turn the call over to Bill to review financials, the change in our fiscal year, and our new calendar year financial outlook before I wrap up with a few final comments. We'll have time to take your questions at the end. In the fourth quarter, once again, our expert associates drove market outperformance and strong growth as they continue to serve our customers in a challenging market environment. Sales of $8.5 billion increased 6.9% over prior year, driven by organic growth of 5.8% and acquisition growth of 1.1%. Gross margin of 31.7% increased 70 basis points over the prior year.

I was wondering if you can just.

Speaker #4: And that diverse business mix that they have: residential, commercial, public works, municipal spend, water waste, water treatment plant, stormwater management, geosynthetics. And even moving closer to that engineering environment, as I referenced earlier, with pumps, valve packages, process equipment, and controls.

Give us an idea by segment sort of high end versus low end of the pricing spectrum by segment. Just so we understand how that sort of lays across your reporting segments.

And then you mentioned the kind of the.

The reversion of the gross margin of 30%, 31% and I guess that kind of implies a 100 basis points maybe of.

Speaker #4: And so that continues to play well for us. Perhaps the biggest impact that we've seen, though, is in that large capital project non-residential space, as the water piece of that business is quite impactful.

Incremental benefit.

In the in the period because of some of the inventory gains that would be temporary.

Speaker #4: And then the multi-customer group approach on non-res is playing out. If I then shift to your residential portion of the question, we have a pretty broad-based business, residentially, across the U.S.

Is that in the range I mean is there anything left over as we look to the October quarter should we expect.

Some residual benefit as well there are we pretty much worked through now.

Yes, I'll start with the commodities and pricing and if I go back to my comments earlier.

Speaker #4: We're very strong. We have strength in the Southeast and in the South, but it's pretty broad-based. If you look at what we're seeing, I'll take side conversations with the large builder.

Kevin Murphy: We remained disciplined on cost and generated $972 million of operating profit, which grew 13.4% over last year. Diluted earnings per share increased 16.8% over prior year to $3.48. We continue to execute our capital priorities, deploying $483 million this quarter. Our investments in key growth areas, HVAC expansion, Waterworks diversification, and large capital projects in Ferguson Home yielded solid results. We also announced four acquisitions in the quarter and one subsequent to the quarter, which focused primarily on HVAC and Waterworks diversification. We'll provide more details on these growth areas and the recent acquisitions later on the call. We're pleased to return $354 million to shareholders through share repurchases and dividends, and our balance sheet remains strong with net debt to EBITDA of 1.1 times.

<unk> seen a bit more inflation in copper and then steel returning towards flat to up a little bit.

Speaker #4: We've clearly seen pressure on that new residential construction space, as has the rest of the country. If you look at our bidding activity, we have not seen a significant fall-off.

You should expect that our non res business has a bit more inflation in it right now than our residential business.

Does it does vary by customer group and we generally don't provide a lot of detail by customer group.

But I would consider.

Waterworks is slightly down on price largely driven by PVC.

And with the majority of our customer groups slightly up from an overall.

Inflation standpoint, maybe a touch more inflation on commercial.

And steel.

In terms of the gross margin, we do expect again.

To land somewhere in that normalized range of 30% to 31% if I look at last year in the second half of the calendar year.

Right about the mid 30% range, 34% I believe.

Kevin Murphy: While we continue to operate in an uncertain environment, we remain confident in our markets over the medium term, leveraging multi-year tailwinds in both residential and non-residential markets as we invest to support the complex project needs of the water and air specialized professionals. Turning to our performance by U.S. end market in the fourth quarter, net sales increased 7.1%, driven by our strong growth in non-residential markets. The residential end market, which makes up about half our U.S. revenue, has remained subdued due to weakened new construction starts and permit activity, as well as soft demand in repair, maintenance, and improvement. Residential markets were flat in the quarter. Non-residential end markets, representing the other half of U.S. revenue, showed continued resilience with increased activity on large capital projects. We continue to grow share with non-residential revenue growth of approximately 15%.

So.

We would expect there to be.

Some relative performance to last year.

But we would expect again the temporary benefit that we've seen over the last quarter quarter, and a half driven by the timing and extent of supplier price increases to start to wane.

As we go through the back half.

Speaker #4: In residential bidding activity, that said, we have no idea how that work will be released. Will it be released at all? And what does that look like in terms of sections or phases, and how that plays out?

Okay. Thank you and then specifically in HVAC you didn't mention that as it relates to pricing, but maybe if you could help us understand the benefit from pricing and acquisitions in the HVAC segment.

Speaker #4: But we do anticipate that in the near term, we'll see some continued pressure on that new residential waterworks installation space.

To the number we saw.

And any comments you have regarding the.

Frigerator transition.

Speaker #2: Really appreciate the context. Thanks so much. I'll pass it on.

Do you have any <unk> systems left at the end of July.

Speaker #1: Thanks, Sam.

And then multifamily is a hot topic lately any other commentary around HVAC would be helpful.

Speaker #3: The next question goes to Ryan Merkel of William Blair. Ryan, please go ahead.

Speaker #5: Hey, everyone. Thanks for taking the question. I wanted to follow up on the new residential construction market. So, you mentioned that trends have weakened.

Yes, HVAC overall on equipment, we are going through the transition as you noted from <unk> and clearly Atol's systems have a higher price point, but we are clearly working through that transition as we went through the back half of the calendar year. So there was a bit of inflation on overall equipment.

Speaker #5: Can you just give us a little bit more color? We've heard that the Sunbelt, in particular, has weakened recently, and that lot development feels like it's slowed quite a bit.

Speaker #5: So, I'm curious if you're seeing that. And then for the guidance, are you assuming that it gets worse from sort of August to December for new residents?

But we're also seeing.

We're seeing a lot of repair replace and so not nearly as much inflation on parts and supplies.

Speaker #4: Yeah, maybe, Brian. I'll start with the guide again. We don't see anything falling off of a cliff. From where we sit today, we think that new residential will be a bit weaker.

Consider hvac's you should think about it as very low single digit overall inflation in the overall business again, a bit more on equipment a bit less on.

Speaker #4: As we move through the back half of the calendar year, we think that our growth overall for the second half of the calendar year could be a bit below the first half. The first half was clearly at 5 percent.

Supplies and parts.

So when you look at the overall market and what our business was Dave we were pleased with being call. It down one in Q4 on a plus nine.

Speaker #4: So I'd read that to be sub 5 percent. But again, I don't see that falling off dramatically, to Kevin's point. We're still seeing decent activity out there.

Year comparison.

If you look at the business overall, we continue to get after counter conversions to.

To address the dual trade contractor and be the source of supply for them. We've done about 600 of them will continue with call. It 50, plus more as we go into early 2026, you've seen us expand our geographic footprint and we will continue to open up new stores that are dedicated to <unk>.

Speaker #4: And if I go back to kind of how we saw the residential markets playing through our fiscal year, we've been pretty consistent and seen a bit more softening as we've come through.

Speaker #4: But expected those markets to be down, low to mid-single digits. Now, we expect them to be down maybe a touch more in the second half of the year.

Speaker #4: But Ryan, it's precisely why we are pleased with the balanced business mix that we have inside the organization. And the growth areas that we've got with HVAC, waterworks, diversification, large capital, and then that higher end of the remodel market of residential with Ferguson Home.

<unk> that dual trade.

And plumbing contractor and then you've seen it play out in the M&A side, there's clearly move towards.

More repair versus replace in today's world. We have sold through the majority of our <unk> and that was in place as we went through the fourth quarter, which is why as bill indicated low single digit is probably the inflation number you should be thinking about but that will clearly move.

Speaker #2: Got it. Okay, thanks for that. Then my second question, just back to the non-res market: you know, up fifteen percent, so really good number.

Speaker #2: But when I look at the details, industrial is up five. So, could you comment on why that particular market might be a little bit slower than the others?

Repair moves a bit more to.

Repair replace and as we start to see that a two well play into the system as the system of choice, but you've also got the balance between ductless unitary systems, playing through as well.

Speaker #2: You mentioned the onshoring theme, which is very real. Just curious if you expect the, you know, the industrial market to stay softer than commercial and civil.

Generally speaking.

Speaker #4: I'll give you a bit of color, and then Bill can fill in. If you look at that plus five number, that's inclusive of our fire protection business, our industrial business, and our facility supply business.

We're very pleased with the strategy, we're very pleased with the execution.

And we'll continue to have that as a major source of growth for us on the residential side of our house as we go forward.

That all sounds good thanks, very much guys.

Speaker #4: Together. If I think about the fire business and the industrial business, they still were working through periods of commodity deflation. And as Bill indicated, we haven't seen a massive ramp-up in steel pipe pricing across those markets.

Thanks, Doug.

The next question guys, Hey, Sam Reid of wildfire that says Hey, you can go ahead.

Awesome. Thank you called out a little earlier, some softness in the remodel and I just wanted to unpack that a bit more because you've got a really strong presence and remodel with higher income consumers and thats. Historically insulated you from some of the category slow net so are you starting to see.

Speaker #4: But we were very pleased with what those businesses have done in market share, and especially in our industrial business, and what they've done to work together with our Water business and our Commercial Mechanical business on the valve packages and the valve actuation and automation pieces of large capital projects.

See demand crack from.

From that higher income consumer and then can you just give us a sense as to where remodel backlog fit today versus say, one or two quarters ago.

Speaker #4: We're pleased with that, and I wouldn't read too much into the plus five against the plus twenty-one of the commercial.

Yes.

The remodel market is continued pressure and we're seeing continued pressure there we've said that at the higher end of the market will continue to perform better than the rest.

Speaker #2: All right. I'll pass it on. Thank you.

Speaker #1: Thanks, Ryan.

Speaker #3: The next question goes to Mike Dull of RBC Capital Markets. Mike, please go ahead.

We're pleased with a plus 3% growth rate in Ferguson home, especially as we brought those two channels together and if you look at our showroom business in particular, it is predominantly that remodel space today, and it's pretty modest that.

Speaker #6: Morning. Thanks for taking my questions. Just to go back on the HVAC for a minute, I wanted to dive a little bit deeper. Obviously, a lot of concern from some of the OEMs, and voicing some much sharper declines in the near term.

Speaker #6: So a similar question is: you just answered on waterworks, but when you think about what the guide embeds for the balance of the year, you know, the OEMs seem to suggest that the near term is going to be quite pressured on HVAC volumes, but then potentially even better price mix than what you've articulated.

Primarily that.

Remodel project work for the higher end of the market.

We've seen traffic continued to be healthy and so we will look at that.

<unk>.

B the driver on the lower end of the market, we saw that pressure play through in residential trade and along with new construction pressure and PVC price deflation.

Speaker #6: Just give us a little more detail on how your guide embeds kind of that HVAC growth in the second half.

Speaker #4: Mike, thank you for the question. Good morning. If you look at the HVAC business, as we looked at the fourth quarter, as Bill indicated, we would see low single-digit price embedded.

That put that.

It's under a little bit more pressure on it down to.

Percent position, but generally speaking we're pleased with that higher end of the market with Ferguson Hall.

No that helps and then just switching gears and drilling down a little bit more on waterworks, I mean really strong results here, especially in the context of you read.

Speaker #4: We clearly believe that this will increase on the equipment side as 410A moves over to A2L. We also had that mix move from replace to repair, which had muted what that overall inflationary impact is.

More specifically, what youre hearing from your large homebuilder customers.

Sounds like.

Speaker #4: But if I also look at a down one number in the quarter, it really was the tale of, call it two geographies, if you will, inside of our company.

There was a pullback.

In August.

And demand for let's call it new residential subdivision.

Want to confirm that and then can you just give us a rough sense as to where Youre resi waterworks business from a geographic standpoint.

Speaker #4: Very strong performance on the East Coast, the Mid-Atlantic, up through the Northeast and the Midwest, with some challenging weather environments and sell-through inside the Western United States.

Under index for instance in markets like say, Florida, just love some additional context there.

Speaker #4: And it really was bifurcated. We know there's going to be pressure on new residential construction. We know there's going to be pressure on affordability with the consumer as we go through the next several months.

Yeah, I'll start with we don't under index in Florida, but if I, if I take a step back and look at our business clearly, we're really pleased with the 15% in the quarter. We're really pleased with a plus 20% on a two year stack inside that waterworks business. It's a testament to what the group has.

Speaker #4: But we are pleased with what has been happening from a volume perspective, especially as we've got a lot to go after in the market and continue to expand.

Speaker #4: As I indicated, we're going to expand our counters. We're going to expand our locations, and we're going to continue to focus on that from an M&A perspective.

Over time.

Diverse business mix that they have residential commercial public works municipal spend water wastewater treatment plant storm water management and Geo synthetics.

Speaker #4: So the market's going to be a bit challenging, but we're bullish on what that looks like over the medium term. And Mike, that's effectively embedded in the guide. Again, not to be too repetitive, but the second half is expected to be down a bit from the first half.

And even moving closer to that engineering environment as I referenced earlier with pumps valve packages process equipment and controls and so that continues to play well for us perhaps the biggest impact that we've seen though is in that large capital project nonresidential space.

Speaker #4: would, would play through and our expectation is is that that's driven by that new res weakness and a bit of HVAC softness. and, and we've seen that in, in August.

The water piece of that business is quite impactful and then the multi customer group approach on non res is playing out.

Speaker #4: HVAC was down a touch in August, still low single digits. So again, don't see that falling off a cliff from our revenue perspective.

I then shift to your residential portion of the question, we have a pretty broad base business residential <unk> across the U S.

Speaker #4: But we're coming up against some pretty tough comparables in HVAC. We'll start to lap some double-digit comparables, so there will probably be some softness in the near term on HVAC.

Stroke, we have strengthened the southeast we have strength in the south but it's.

Speaker #4: All embedded in the guide, with a touch softer revenue in the second half.

Pretty broad based.

If you look at what we're seeing.

I'll take a side conversations with the large builder.

Speaker #6: Okay, thanks. That's helpful. And then shifting gears just on the balance sheet and capital allocation. You've done a good job deploying a decent amount of capital.

<unk> seen pressure on that new residential construction space as has the rest of the country. If you look at our bidding activity.

Speaker #6: That said, your balance sheet is still being pretty conservatively managed around the low end of your target range. There are obviously a lot of differing views on where we are in the cycle right now.

We have not seen a significant fall off.

In residential bidding activity, but that said we have no idea how that work will be released.

Speaker #6: But from your standpoint, what would it take for you to deploy capital even more aggressively, towards the midpoint or upper end of your leverage range?

Will it be released at all and what does that look like in terms of sections or phases, and how that plays out.

But we do anticipate that in the near term we will see some continued pressure on that new residential waterworks installation space.

Speaker #6: And is that more likely, you know, as you sit here today and look at your M&A pipeline, is that more likely to come through increased focus on M&A or a step up in buybacks?

Really appreciate the context, thanks, so much I'll pass it on.

Thanks Sam.

Speaker #4: Yeah, I'll start with: we try to be very consistent. I think we've delivered consistency when it comes to capital allocation. We like having a strong balance sheet.

The next question is she buying Mako of William Blair. Please go ahead.

Hey, everyone. Thanks for taking the question I wanted to follow up on the new residential construction market.

Speaker #4: It gives us that optionality to scale up and to go after growth investments. And so we intend to operate towards the low end of that leverage range of one to two times net debt to EBITDA on an ongoing basis.

<unk> mentioned that trends weekend can you just give us a little bit more color. We've heard the sunbelt in particular has weakened recently and then lot development it feels like that slowed quite a bit.

Speaker #4: In terms of scaling up, you would see us scale up where there were really good organic growth opportunities or maybe, more so in the near term, where there would be more M&A opportunities.

Curious if you're seeing that and then for the guide are you assuming that it gets worse from sort of August to December for new revenue.

Speaker #4: There's nothing large in the pipeline right now. But we have that balance sheet flexibility to take advantage of those opportunities should they occur.

Yes, Brian I'll start I'll start with the guide again, we don't see anything falling off of a cliff.

From where we sit today, we think that new <unk> will be a bit weaker as we move through the back half of the calendar year and therefore, we.

Speaker #6: Okay, great. Thank you.

Speaker #1: Thanks, Mike. Thanks, Mike.

Kevin Murphy: We delivered 17% and 13% growth across commercial and civil infrastructure end markets, respectively, while industrial grew 5%. Our intentional balanced end market exposure and focus on key growth initiatives continue to position us well both in the current environment and into the future. Moving to our U.S. performance by customer group for the quarter, HVAC revenue was slightly down due to softer market conditions impacted by the industry's transition to new efficiency standards and weak new residential construction activity. Despite these conditions, we were pleased with market outperformance during the quarter, particularly given the strong prior year comparable. Residential trade plumbing revenues decreased 2%. The business continues to face headwinds in new construction and ongoing PVC price deflation, while repair, maintenance, and improvement are performing better.

Speaker #3: Thank you. We'll take our last question from Anthony Petinari of City. Anthony, please go ahead.

Overall for the second half of the calendar year, it could be a bit below the first half first half was clearly at 5% So I'd read that to be sub 5%.

Speaker #5: Hi, good morning. Just following up on the last question on M&A. I think you indicated there's nothing large in the pipeline, but I'm wondering if you could talk more, maybe more generally, about what the pipeline looks like as we get closer to the end of the year.

But again don't see that falling off dramatically to Kevin's point, we're still seeing decent activity out there.

And if I go back to kind of how we saw the residential markets playing through our fiscal year, we've been pretty consistent and kind of seen a bit more softening as we've come through.

Speaker #5: And I guess specifically, you know, valuations, seller expectations, you know, whether you're seeing any increased competition for assets and water and air, maybe from new parties.

But expected those markets to be down low to mid single digits now expect them to be down maybe a touch more in the second half of the year.

But Ryan is precisely why we are pleased with the balanced business mix that we have inside the organization and the growth areas that we got with HV AC waterworks.

Speaker #5: Just is there anything that's kind of changed about the landscape and the model?

Speaker #4: Yeah, Anthony, no real significant changes in the landscape. I mean, it's been a pretty competitive environment in water and air for a, a, a, a, a number of, quarters and, and, and years quite honestly.

Of our suffocation Lora.

And then the higher end of the remodel market residential with Ferguson home.

Speaker #4: But valuations are still probably towards the upper end of our typical, we'll call it 7 to 10 net, 7 to 10 enterprise value to EBITDA range.

Kevin Murphy: As we previously shared, we've merged our residential building and remodel and our residential digital commerce customer groups into a unified brand called Ferguson Home. This customer group accounts for approximately 19% of U.S. sales and focuses on the higher-end project market, which delivered Ferguson Home revenue growth of 3% in the fourth quarter. Both Waterworks and Commercial Mechanical continued to drive strong activity on large capital projects. Commercial Mechanical revenue grew 21%, and Waterworks revenues increased 15%, both on top of prior year growth comparables. Our industrial, fire and fabrication, and facility supply customer groups delivered a combined net sales growth of 5%. Our multi-customer group approach uniquely positions us to solve complex project requirements and drive market outperformance. Turning to our full-year performance, our teams delivered solid results while faced with challenging markets and periods of deflation. Revenue of $30.8 billion was 3.8% ahead of last year.

Got it okay. Thanks for that and then my second question just back to the non resin market up 15% that really good number but when I look at the details and industrial is up five. So can you comment on why that particular market might be a little bit slower than the others. You mentioned, the onshoring theme, which is very real.

Speaker #4: We have a good actionable pipeline. As I mentioned, yet nothing really large in that pipeline. But quite frankly, that's what the industry is. The industry lends itself to ten thousand plus small to medium-sized competitors that are out there.

Just curious if you expect the industrial market to stay softer than commercial and civil.

Speaker #4: And our focus has been on consolidating those markets over time. So our strategy is very consistent. Our pipeline is pretty healthy, and we think we have a good opportunity to continue to consolidate the industry.

I'll give you a bit of color and then bill can fill in if you look at that.

That plus five number that's inclusive of our fire protection business, our industrial business and our facility supply business together.

Speaker #5: Okay. That's very helpful. And then just following up on maybe some of the earlier questions on margin, you said you expect some level of inflation over the next few quarters.

Think about the fire business in the industrial business, they still were working through.

Periods of commodity deflation and as Bill indicated we haven't seen a massive ramp up in steel pipe pricing across those markets, but we were very pleased with what those businesses have done.

Speaker #5: Does that anticipate any specific tariff-related price increases, or are we pretty much kind of level set on tariffs essentially sort of being in prices right now?

<unk> market share and especially in our industrial business and what they've done to work together with our water business and our commercial mechanical business on the valve packages in valve actuation on automation pieces of large capital projects, we're pleased with that and I wouldn't read too much into the plus five against the plus 21 of the commercial.

Speaker #4: Yeah, Anthony, as Bill said earlier, we expected earlier this year to get annual price increases. That's happened. We thought we would see some additional increases based on a variety of factors.

Kevin Murphy: The actions we took to streamline our business and manage costs more diligently resulted in operating profit of $2.84 billion, up 0.6% and representing a 9.2% operating margin for the year. Diluted earnings per share came in at $9.94, a 2.6% increase over last year. Cash generation was strong, with $1.9 billion of operating cash flow, which allowed us to continue investing in our growth areas and executing our capital allocation priorities. We returned $1.4 billion to shareholders via dividends and share repurchases during the year, while also welcoming associates from nine acquisitions, continuing our strategy of consolidating our fragmented markets. We continued to deliver strong overall returns on capital of approximately 29.4% for the year. Despite the challenging environment, we outperformed our markets, delivered solid volume growth, and drove profit expansion in fiscal 2025. Next, our performance against the broader end markets for the year.

Speaker #4: That's happened, and it was offset by continued commodity deflation, principally in PVC. And so, at 2% inflation in the quarter, that's modest.

Alright. Thank.

Thank you.

Thanks, Ron.

Speaker #4: Overall inflation, we expect that to continue. But it's a pretty uncertain environment. As Bill indicated earlier, manufacturers reacted quickly to the reciprocals. s. Then pulled back in large part.

The next question goes to Mike Dahl of RBC capital markets. Mike. Please go ahead.

Good morning, Thanks for taking my questions just to go back on the HVAC for a minute I wanted to dive a little bit deeper obviously, a lot of concern from some of the Oems voicing some much sharper declines in the near term so a similar question.

Speaker #4: And they've been slower to address those changes, taking a more wait-and-see approach. The good part for us as a business is that the cost of product pales in comparison to the cost of labor.

Speaker #4: And we wake up every day making sure that we're driving construction productivity for that water and air specialized pro. And so, yeah, we expect some degree of modest inflation, but we're going to compete every day in the market.

You just answered on waterworks, but when you think about what the guide and beds for the balance of the year.

The Oems seem to suggest that the near terms can be quite pressured on HVAC volumes, but then essentially even better pricing mix that you have.

Speaker #4: And make sure that we leverage scale. That we're sourcing product from thirty-seven thousand different suppliers. And then we're getting the right price. For the right project.

Articulated just give us a little more detail on how you are.

How your guide Embeds that HVAC growth.

Speaker #4: And getting it at the right time to get that project done. So it, it, it'll be modest inflation as we go forward, but still a lot of uncertainty out in the marketplace right now.

Can have.

Mike. Thank you for the question good morning.

If you look at the HVAC.

Kevin Murphy: Our residential end markets declined approximately 3% due to a combination of weak new construction and softer RMI markets. We outperformed with organic revenue up 1%. Non-residential markets were approximately flat, as large capital project activity offset the weaker traditional non-res activity like warehouse and office space. As we discussed in the past, we believe our scale, our size, and our multi-customer group approach uniquely position us to provide value on large capital projects. We delivered 6% organic growth in the year, outperforming our typical 300 to 400 basis point market outperformance. Our balanced end market exposure continues to serve us well, and we've continued to take share across both end markets. Now let me highlight our four key growth areas that continue to show ongoing returns from our multi-year investments. Our HVAC revenue increased 8% for the year, driven primarily by organic growth and approximately 1% from acquisitions.

Business as.

As we looked at the fourth quarter.

As Bill indicated we would see low single digit price embedded we clearly believe that that will increase on the equipment side as <unk> moves over to a two well. We also had that mix moved from replace to repair which had muted what that overall inflationary impact is.

Speaker #5: Okay. That's helpful. I'll turn it over.

Speaker #4: Thank you.

Speaker #3: Thank you. I'll now pass it back to Kevin Murphy, CEO, for closing remarks.

Speaker #4: Yeah, thank you, operator. And, and thank you all for the time today. We appreciate it more than you know. And, and again, just want to reiterate a, a thanks to our associates.

But if I also look at down one number in the quarter. It really was the tale of call. It two geographies. If you will inside of our company very strong performance on the East coast, the mid Atlantic up through the northeast and the Midwest with some challenging weather environments and sell through inside the western United.

Speaker #4: We're incredibly pleased and proud of the execution of our strategy, both in the quarter and the full year. Although near-term markets remain challenging, particularly on the residential side of our balanced business mix, we're confident in our ability to outperform over time.

Speaker #4: so please reach out with any further questions and we look forward to seeing you very soon. Thank you again.

States and it really was bifurcated.

We know theres going to be pressure on new res construction, we know theres going to be pressure on affordability with the consumer as we go through the next several months, but we are pleased with what has been happening from a volume perspective, especially as we've got a lot to go after in the market and continue to expand as I indicated.

Kevin Murphy: By leveraging the synergy between our residential trade plumbing and HVAC customer groups, we continue to outperform the market. Dual-trade counter-conversions, geographic expansion of our HVAC network, and strategic acquisitions make up the multi-pronged approach of our HVAC everywhere strategy. We've completed over 600 counter-conversions, nearing our goal of 650, which we expect to achieve in early 2026. Our dual-trade counters are uniquely positioned to serve approximately 65,000 dual-trade contractors, which continue to make up a growing share of the HVAC and plumbing markets. Our recent acquisitions of Manufactured Duct and Supply Company out of Atlanta in the fourth quarter and More Supply out of Chicago, which was subsequent to year-end, further strengthen our HVAC strategy by expanding our footprint and continuing to support this dual-trade professional.

We're going to expand our counters, we are going to expand our locations and we're going to continue to focus on that from an M&A perspective.

So the market is going to be a bit challenging, but we're we're bullish on what that looks like over the medium term.

And Mike that's effectively embedded in the guide again being not to be too repetitive, but the second half being down a bit from the first half.

Would play through in our expectation is is that that's driven by that new resi weakness and a bit of HVAC softness.

And we've seen that in August <unk> was down a touch in August still low single digit.

So again.

Adults don't see that falling off a cliff from our revenue perspective.

But we're coming up against some pretty tough comparable and hvac's are start to lap some double digit comparable so probably some softness in the near term on HVA say all embedded in the guide.

A touch softer revenue in the second half.

Kevin Murphy: For Waterworks, our revenue grew 10% in fiscal year 2025, driven by our diversification efforts as we expanded our capabilities to deliver a more integrated solution and address the nation's aging infrastructure. We've expanded our role as a strategic partner by collaborating with engineers and construction professionals during initial project stages and broadened our product offerings to include process equipment solutions. Specifically, our recent acquisitions of Templeton and Ritchie Environmental strengthen our expertise in water and wastewater treatment plant design. This adds to the existing breadth of solutions we already provide for water, wastewater, and green stormwater management, as well as erosion control, treatment plant construction, and metering technology. Our unique approach to large capital projects and the rise in number of projects helped drive 7% total non-residential growth for the year.

Okay. Thanks, that's helpful and then shifting gears just on.

On the balance sheet and capital allocation you've done okay.

Good job deploying a decent amount of capital that said your balance sheet still being pretty conservatively managed around the low end of your target range and Theres, obviously, a lot of different views on where we are in the cycle right now but from your standpoint.

Would it take for you to deploy capital even more aggressively.

Towards the midpoint or upper end of your leverage range and is that more likely as you sit here today and look at your.

M&A pipeline is that more likely to come through increased focus on M&A or a step up in buybacks.

Yes, I'll start with we try to be very consistent and I think we've delivered consistency when it comes to capital allocation, we like having a strong balance sheet. It gives us that optionality to scale up and to go after growth investments and so we intend to operate towards the low end of that.

Kevin Murphy: We're pleased to be a trusted partner in managing these complex projects that require expertise, scale, operational agility, and value-added solutions. By bringing together the capabilities of underground Waterworks infrastructure, commercial and industrial PVF, and fire protection, we create a compelling solution, particularly for data centers, large manufacturing operations, life science, and healthcare facilities. Onshoring and reshoring initiatives aimed at growing domestic production are further driving activity of large capital projects. We believe our early alignment with owners, engineers, and general contractors, combined with our deep contractor relationships, our scale, and our ability to offer a suite of value-added solutions, will continue to position us for success with these projects. Ferguson Home began its rollout in February and is a key milestone in delivering a seamless customer experience across all touchpoints, including online and in-person.

Leverage range of one to two times net debt to EBITDA on an ongoing basis in terms of scaling up.

Would see us scale up where there were really good organic growth opportunities or maybe more so in the near term where there would be more M&A opportunities.

Nothing large in the pipeline right now.

But we have that balance sheet flexibility to take advantage of those opportunities should they occur.

Okay, great. Thank you.

Thanks, Mike Thanks, Mike.

Thank you we'll take our last question is from Anthony Pettinari of.

Anthony Please go ahead.

Okay.

Just following up on the ladder.

Question on M&A.

I think you indicated there's nothing large in the pipeline, but I'm wondering if you could talk maybe more generally about what the pipeline looks like as we get closer to the end of the year and I guess specifically.

Kevin Murphy: It represents another compelling example of the value our multi-customer group approach brings to the market. In addition to enhancing the experience for residential customers, Ferguson Home is supported by a network of dedicated outside sales and showroom consultants who serve our specialized professional customers. These associates bring deep product expertise and personalized service to builders, designers, and other trade professionals, helping meet their unique project needs with precision and care. Bringing together residential building and remodel and residential digital commerce reinforces Ferguson's role as a trusted partner for the professional. We're pleased with the ongoing success of these growth areas and will continue investing in them to leverage the unique advantages we can bring to the market that drive outperformance. I'll now pass to Bill, who will discuss the financial results in more detail.

Valuations are seller expectations, whether you're seeing any increased competition.

Assets in water and air maybe for Bill.

Parties.

Is there anything thats kind of changed the landscape.

Model.

Yes, Anthony no real significant changes in the landscape I mean, it's been a pretty competitive environment in water and air for.

A number of.

At quarter's end.

In years quite honestly.

But valuations still probably towards the upper end of our typical call. It seven to 10 seven.

Seven to 10 enterprise value to EBITDA range.

We have a good actionable pipeline.

As I mentioned, yet nothing really large in that pipeline, but quite frankly, that's what the industry. The industry lends itself to 10000, plus small to medium size competitors that are out there.

Brian Lantz: Thank you, Kevin, and good morning, everyone. Let me start by covering our fourth quarter financial results in a bit more detail. Net sales of $8.5 billion were 6.9% ahead of last year. Organic revenue increased 5.8%, with an additional 1.1% coming from acquisitions. During the quarter, we saw a return to mild inflation, with pricing contributing approximately 2%. We saw improvement in finished goods pricing, while commodity-related categories were down low single digits. Gross margin of 31.7% increased 70 basis points over last year, driven by our associates' strong execution and the timing and extent of supplier price increases. We tightly managed operating expenses, benefiting from the streamlining actions we took earlier in the year, while we continued to invest in core capabilities for future growth.

And our focus has been on consolidating those markets over time. So our strategy is very consistent our pipeline is pretty healthy.

And we think we have a good opportunity to continue to consolidate the industry.

Okay, that's very helpful.

And then just following up on.

Some of the earlier questions on the margin you said you expect some level of inflation over the next few quarters is.

Does that anticipate any strategic tariff related price increases or are we pretty much kind of level set on tariffs essentially being in prices right now.

Anthony as Bill said earlier, we expected earlier this year to get annual price increases that's happened.

Thought we would see some additional increases based on a variety of factors that happened and it was offset by continued commodity deflation principally in PVC and so at 2% inflation in the quarter.

Brian Lantz: As a result, operating profit of $972 million was up 13.4% on the prior year, delivering an 11.4% operating margin with 60 basis points of expansion over prior year. Diluted earnings per share of $3.48 was 16.8% above last year, driven by operating profit growth and the impact of share repurchases. Our balance sheet remains strong at 1.1 times net debt to EBITDA. Moving to our segment results, net sales in the U.S. grew 7.1%, with an organic increase of 6.1% and a 1% contribution from acquisitions. Operating profit of $962 million increased $118 million over the prior year, delivering an operating margin of 11.9%. In Canada, net sales were 4.8% above last year, with organic growth of 0.3% and a 4.9% contribution from acquisitions, partially offset by a 0.4% adverse impact from foreign exchange rates.

Thats modest overall inflation, we expect that to continue but it's a pretty uncertain environment as bill indicated earlier manufacturers reacted quickly to the reciprocals then pulled back in large part and they've been slower to address those changes.

Taking a more wait and see.

The good part for us as a business is that.

The cost of product pales in comparison to the cost of labor and.

We wake up every day, making sure that we're driving construction productivity for that water and air specialized product and so yes, we expect some degree of modest inflation, but we're going to compete every day in the market and make sure that we leverage scale.

Source of product from 37000 different suppliers and they were getting the right price for the right project and getting it at the right time to get that project done so.

It'll be modest inflation as we go forward, but still a lot of uncertainty in the marketplace right now.

Brian Lantz: Residential activity has continued to be softer than non-residential, where the market has remained more resilient. Operating profit of $24 million in the quarter was $2 million above the prior year. Turning to our full-year results, our associates delivered growth amid a challenging market backdrop. Net sales were 3.8% above last year, with organic growth of 3.2% and an acquisition contribution of 1%, partially offset by a 0.4% adverse impact of one fewer sales day. Pricing for the year was slightly down as a result of deflation in certain commodity-related categories, particularly early in the year. Gross margin of 30.7% was up 20 basis points. Operating profit of $2.8 billion grew 0.6% over the prior year, delivering a 9.2% operating margin. Diluted earnings per share of $9.94 was up 2.6% on the prior year. Next, our cash flow performance.

Okay. That's helpful I'll turn it over.

Thank you.

Thank you I'll now pass back to kind of messy.

For closing remarks.

Okay. Thank you operator, and thank you for the time today. We appreciate it more than you know again just want to reiterate thanks to our associates, we're incredibly pleased and proud of the execution of our strategy in both the quarter and the full year.

Although near term markets remain challenging, particularly on the residential side of our balanced business mix.

And our ability to outperform overtime.

So please reach out with any further questions and we look forward to seeing you very soon thank you again.

Okay.

Please note that the Senate.

Thank.

Results Conference call I'd like to thank you for your participation you may now disconnect your lines.

Brian Lantz: EBITDA of approximately $3.1 billion was up $44 million on the prior year. Working capital investments of approximately $300 million and interest and tax of approximately $800 million were generally in line with the prior year. As a result, operating cash flow was $1.9 billion, up $35 million on the prior year. We invested $305 million in CapEx and generated $51 million in proceeds from asset sales, resulting in free cash flow of $1,654 million, an increase of $132 million over the prior year. Turning to capital allocation, as previously mentioned, we invested approximately $300 million in working capital and another $300 million in CapEx to drive further above-market organic growth. Our board declared a $0.83 per share quarterly dividend. This is consistent with the third quarter and represents a 5% increase over the prior year, reflecting our confidence in the business and cash generation.

Brian Lantz: We continue to consolidate our fragmented markets through bolt-on geographic and capability acquisitions. As Kevin Murphy mentioned, we completed four acquisitions during the fourth quarter, including HVAC Specialties, a manufacturer's representative of HVAC, plumbing and hydronic supplies serving commercial mechanical and industrial engineering professionals in the Northeast and Mid-Atlantic regions. Ritchie Environmental Solutions, a process equipment manufacturer's representative serving the water and wastewater treatment market in Virginia. Manufacturer Duct and Supply Company, an HVAC supplies and parts distributor covering the Atlanta and Southeast markets, and Water Resources Inc., an exclusive distributor of Neptune Technology Group products and water meters in the Greater Chicago metro area. In total, we completed nine acquisitions in the fiscal year. Subsequent to year-end, we purchased Moore Supply, an HVAC distributor based in Chicago that serves HVAC and dual-trade professionals. As we look forward, our acquisition pipeline remains healthy.

Brian Lantz: Finally, we are committed to returning surplus capital to shareholders when we are below the low end of our target leverage range of 1 to 2 times net debt to EBITDA. We returned $948 million to shareholders via share repurchases this year, compared to $634 million in the equivalent prior year period. This year, we have reduced our share count by approximately 5 million and still have approximately $1 billion outstanding under the current share repurchase program. Now, let me address the change of our fiscal year-end from July 31 to December 31. This move shifts year-end activities from our seasonally busiest time of the year to our slowest, allowing our associates to remain focused on our customers during their peak season. A five-month transition period will span from August 1 through December 31, 2025.

Brian Lantz: During this time, we will release earnings on December 9, covering the three-month period of August 1 through October 31. We plan to announce our five-month transition period results in late February. Our new fiscal year will begin on January 1, 2026. As a result of this change, we are providing guidance for the 2025 calendar year. Before I move to the guidance, we have presented our first half performance on a calendar year basis for background. For the six months ended June 30, sales of $15.6 billion grew 5% over the prior year. Operating profit of $1.5 billion increased 8%, resulting in an operating margin of 9.6%, an improvement of 30 basis points from 9.3% in the prior year. Further historical financial information for calendar quarters with relevant reconciliations can be found in an appendix at the end of this slide deck.

Brian Lantz: Now, turning to our guidance for the 2025 calendar year, where we have provided the relevant comparative results from calendar 2024. We expect mid-single-digit revenue growth in calendar 2025, and we expect an operating margin range of 9.2% to 9.6%, an improvement of between 10 and 50 basis points over the prior year. Interest expense is expected to be between $180 million to $200 million. Our effective tax rate is expected to be approximately 26%, and we estimate CapEx will be between $300 million to $350 million. Despite the market uncertainty, we are leveraging the strength of our supply chain, tailored value-added solutions, innovative digital tools, and the expertise of our associates, enabling us to capitalize on multi-year tailwinds and drive outperformance. Thank you, and I'll now pass you back to Kevin.

Kevin Murphy: Thank you, Bill. Let me again thank our expert associates who delivered strong results to finish this challenging year by continuing to take care of our customers and execute our strategy. Our ability to offer a scaled multi-customer group approach on a project is unique and important to our key growth areas, including HVAC expansion, Waterworks diversification, large capital projects, and Ferguson Home. Our performance continues to deliver results from these multi-year investments as we help meet our customers' needs. While we continue to operate in an uncertain environment, we believe our markets remain attractive over the medium term, and we continue to invest in our expert associates and our value-added capabilities to drive growth. We're committed to supporting the project needs of our water and air specialized professional customers by delivering scale locally and providing exceptional customer service. Thank you for your time today.

Kevin Murphy: Bill and I are now happy to take your questions. Operator, I'll hand the call back over to you.

Operator: Thank you. If you would like to ask a question, please press * followed by 1 on your telephone keypad. If you would like to remove your question, please press * followed by 2. When the parent asks your question, please ensure your phone is unmuted locally. The first question goes to Matthew Bewley of Barclays. Matthew, please go ahead.

Analyst: Morning, everyone. Thank you for taking the questions. Kind of a broad question on growth and the end market outlook here. Obviously, a lot of cross-currents recently around new residential, HVAC, etc., all of that. Meanwhile, you showed that this strong non-residential result and inflation is improving. Really, I'm asking, looking ahead, kind of thinking about this mid-single-digit growth for the total calendar year, just trying to put all these trends together. I guess it would be helpful on kind of price and volume quarter to date to sort of help us out there. What are your assumptions going forward on these kind of changing end markets here over these next few months? Thank you.

Kevin Murphy: Good morning, Matt. Thank you for the question. Maybe I'll take a little bit about the markets and then let Bill fill in with a bit of color. If I take a step back, if we look at when we entered fiscal year 2025, we came into the year believing that our markets would be down low single digits. We thought that the residential markets would be down low to mid-single digits, and we thought non-res would be roughly flat. Suffice it to say, we're pretty pleased with a Q4 plus 7% and a year to date of plus 3.8%. Probably even more pleased that our key growth areas that we wanted to focus on drove that growth, whether it's HVAC expansion, Ferguson Home, Waterworks diversification, and then what we were doing with what we believe is a strong value proposition on large capital projects and non-residential.

Kevin Murphy: That really did drive the growth. If we then take a shift into where we are currently and how we view, call it the back half of calendar year 2025 or this stub period of five months, we think that growth could be a bit softer in half two of calendar year. We really recognize that new residential construction weakness continues. We've seen continuation of softer RMI or repair remodel markets. Candidly, when we look at some of our larger growth areas, like HVAC, we have an affordability issue with a pressured consumer and a movement to more repair versus replace. The non-residential markets really continue as traditional non-residential activity isn't going to step up or we don't see that step up happening. The strength of large capital projects and that being our growth area does play out.

Kevin Murphy: We do recognize that that residential new construction and RMI market can be a bit more challenged. Yeah, Matt. Maybe just to build on that, if you look at the first half calendar results that we just walked through and that we put in the slide deck, revenue was up about 5% for the first half. I would tell you July was a strong month, a solid month in line largely with what we saw in Q4. As we stepped into August, we did see that growth come down a touch. August sales per day were up about 5%. I say sales per day because we had one fewer sales day, which we'll pick back up in September. It did step down to about 5%.

Kevin Murphy: To Kevin's point, as we look into the back half of the year and we provided a full-year guide of mid-single digits, we would expect the overall growth rate to maybe be a touch softer in the second half. The market dynamics that Kevin outlined are certainly the driving force of that. If you just look at our comparables, our volume comparables do step up as we go through Q1 and into our old fiscal Q2, which would be November, December. We feel good about the guide that we've provided. We think we will continue to have good growth in the second half, but probably a touch softer than half one.

Analyst: Okay. Yeah, that's all super helpful, exactly what I was looking for, given these, again, clearly dynamic end markets here. That leads to the second question. You know, Kevin, you really touched on it, the large capital projects. It just seems like all your efforts are coming to fruition here. Around this kind of multi-customer group approach, you mentioned Waterworks, commercial PVF, fire protection, etc., with these large projects. Can you go into maybe just some more specifics, number one, just around how do you go to market with these customers, with the different types of contractors around actually leveraging your multi-customer group approach and kind of how that actually all comes together? Then just more specifically, anything around kind of data center and what the pipeline going forward of these large capital projects looks like for you guys. Thank you.

Kevin Murphy: Thank you, Matt. We really did build the organization to be better together than apart in a multi-customer group approach. It plays quite well in large capital construction projects, which, as we've discussed, are really driving a day in non-residential activity. We go to market being best in class for the individual contractor or trade professional for that particular customer group, whether it be commercial mechanical, Waterworks, fire protection, industrial pipe, valve, and fitting, making sure that we're the best provider on that job for the contractor. We then elevate and go towards the source of funds, if you will, the engineer, the architect, the owner, to try and make sure that we are engaged from a supply chain perspective, from a design perspective, to make sure that that project can get completed on time and on budget.

Kevin Murphy: That work-up funnel closer to the source of funds allows us to be a best solution for the individual trade on the job, and it's served us well. As we look at Waterworks being up 15% in the quarter, commercial mechanical being up 21%, and our industrial business and our fire protection business being up 5%, it's paving the way for future growth. You asked a bit about what we see in the end markets. Just like the rest of the world, we're seeing that activity from a data center construction perspective continuing to accelerate. We haven't seen pauses or cancellations, and that activity is stepping up, and it's stepping up in a variety of geographies across the nation. Those are great projects for us.

Kevin Murphy: They're great projects for us on piping systems as well as valve and automation, fabrication, and virtual design, which are some of the other value-added services that we're bringing to the market that help us to earn that business from the local contractor as well as the trust of the owner and the engineer.

Analyst: All right. Thank you, Kevin. Thanks, Bill. Good luck, guys.

Kevin Murphy: Thanks, Matt.

Operator: The next question goes to Phil Ng of Jefferies. Phil, please go ahead.

Analyst: Hey, guys. Congratulations on a really impressive quarter in a tough environment. Kevin, I just want to drill down a little bit more on the non-res piece. It sounds like the data center side of things remained really strong. We appreciate comps to get a little tougher in incoming quarters. Just give us a little perspective. What are you seeing on the momentum side of things? You talked about bidding activity still being strong. Just give us a little more color on where you're seeing the strength, the bidding activity within non-res, and how far are you bidding out in just the backlogs in general?

Kevin Murphy: Yeah, the backlogs are tough to really get after. The reason that I say that is our backlogs are building, and they're quite healthy across commercial mechanical, across fire protection, across Waterworks, and across industrial pipe valve and fitting. It's more broad-based. The tougher part is, as we've discussed in the past, the gestation period of these projects does vary. For us, it really is around what that operational agility is, if you will, of making sure that we have the supply chain tightened up right so that the piping system and the valve project are done in a timely fashion. These are incredibly large projects relative to historical standards. Making sure that you've got that in the right place at the right time is challenging. Those backlogs are building. It's not just in the data center activity. We're seeing it in biotechnology and pharma.

Kevin Murphy: We're seeing it in some large-scale hospital work as well. We're starting to see that play out in the water wastewater treatment plant side of our business, which, again, plays well to our Waterworks business, but also plays well to industrial pipe valve and fitting because those two customer groups work very well together on the construction of water and wastewater treatment plants. You saw that play out in our results. You also saw that play out in what our M&A strategy is as we look to get, again, closer to the design and specification side of the world and broaden our offering on process equipment solutions, pump packages, valve offerings, and overall controls inside the water and wastewater treatment plant. We're building out that capability very much in sequential line with our strategy.

Analyst: Okay. Great color, Kevin. From a price and margin standpoint, both really impressive. Pricing inflected nicely in this quarter. Bill, I guess question for you. Should we expect pricing to kind of build from here, or this is a kind of good run rate? I know the commodity side of things were still negative. Are you starting to see that stabilize? Potentially, we got an avenue for that to inflect. On the gross margin side, you know, strong, nice expansion there. Was there any timing nuances with like inventory profit gain? Should we see some moderation, or we can build off of these gross margins, assuming obviously normal seasonality?

Kevin Murphy: Yeah, first just to start on price and margin, we were pleased to see price inflect positive, as we've talked about over the last couple of quarters. We came into this year expecting our suppliers and the industry to return to, call it, low single-digit inflation and passing through annualized price increases. We saw that step up a bit with initial announcements of tariffs. We then saw that pull back a bit when the reciprocal was pulled back and paused. We've seen a lot of noise in the system. Overall, we've seen price move back into that low single-digit rate. It's difficult to predict how that plays forward, but I would expect, and we are expecting, some modest level of overall inflation as we play through the calendar year.

Kevin Murphy: On the commodity side, as you mentioned, and as we noted, the commodity basket as a whole is still in low single-digit decline. We have seen movements in the different product categories. Clearly, copper tube and copper fittings are in, I would call it, healthy levels of inflation. We have seen, as steel tariffs came through, steel pipe, carbon steel, and stainless steel move back towards flattish, maybe up a little bit. There's still pressure on PVC, both on the plumbing side of the world and in Waterworks, which is still in deflation. As a basket, those are still in modest deflation, and it's difficult to predict how that plays forward. If I take a step back from that, again, our best view is that probably some modest level of inflation as we round out the calendar year.

Kevin Murphy: On gross margins, we were really pleased with the 31.7% gross margin delivery in the quarter. We did see the benefits of the actions that we took earlier in the fiscal year. We talked a lot as we came out of Q2 and into Q3 that we had focused our sales teams, we had made some pricing tweaks, and we had made some adjustments to ensure that we were properly charging for the value that we provide in the market every day. We saw that start to play through as we exited Q2 into Q3 and then certainly through Q4. There's no doubt we saw some temporary benefit in the quarter based on the timing and the extent of supplier price increases.

Kevin Murphy: When we take a step back, we've been, I think, pretty consistent with our view that the overall underlying ongoing normalized gross margin of this business is somewhere in that 30% to 31% range. We would expect that we would settle back down into that range as we move into the future. In fact, if you look at, we talked about August revenue, but if you look at August gross margins, we started to see that normalization play through. We are very confident with the underlying gross margins of the business, and the teams are doing a great job executing every day for our customers.

Analyst: Really appreciate the color. Thank you, guys. Continuing the good work.

Kevin Murphy: Thanks. Thanks, Phil.

Operator: The next question goes to John Lovallo of UBS. John, please go ahead.

Analyst: Good morning, guys. Thanks for taking my questions as well. You know, you may have answered this partly with Phil's question, but sort of back of the envelope at the midpoint, it seems like the implied calendar year second half operating margin is expected at about 9.2% versus 9.6% in the first half. That comes despite what looks to be about a 1% improvement in sales half over half. What's sort of driving that expected margin decline? Is it the timing of the pricing that you just mentioned, or are there other factors as well?

Kevin Murphy: Yeah, it's a great question, John. I think as we get more used to calendar quarters, we'll get more used to the seasonality of the business. I would point mostly to that seasonality. If you go back to last calendar year in the second half, we delivered about an 8.8% operating margin. Your back-of-the-cocktail napkin math is spot on in terms of the guide for the full year at 9.2% to 9.6%, which implies that the second half will be somewhere in the upper 8% to, call it, mid-9% range in the back half of the year. We are expecting continued improvement year over year. I'd point a bit more towards seasonality, that the second half of the calendar year will be typically a touch lighter given November and December with the holidays from a seasonality perspective.

Analyst: Okay, that's helpful. Last quarter, I think you guys talked about $100 million of expected annual savings from restructuring actions, and it wasn't expecting much impact in the fourth quarter of the fiscal year, fourth quarter. How should we sort of think about the cadence of those savings as we move forward here?

Kevin Murphy: Yeah, we are pleased with the execution of those streamlining actions, and the cost savings are playing through in the underlying cost base of the business. Maybe more importantly, the speed and agility of decision-making has improved in the field. That was really the primary reason for some of the organizational design changes that we made, moving those decisions closer to the customer. We did quote about $100 million of annualized cost benefits. We did see that play through in the fourth quarter, and I would expect that, call it roughly $25 million year over year to play through over the next three quarters. If you look at the fourth quarter and just take a step back, our cost as a percentage of sales were roughly 20.3%, which is roughly flat to last year. We got good underlying cost reductions from the streamlining action.

Kevin Murphy: We had a bit of cost increase driven by sales volume and a touch of cost inflation. Certainly, every one of our associates has a variable component of their pay that's linked to performance. Given the strong financial performance in the second half, our associates were appropriately awarded for that performance. We very much believe that the cost base is positioned well as we look to the second half and would expect a bit of operating leverage, assuming that the sales environment plays out like we expect.

Analyst: Great. Thanks, you guys.

Kevin Murphy: Thanks, Sean.

Operator: The next question goes to David Manthey of Baird. David, please go ahead.

Analyst: Thank you, Kevin. Bill, good morning. First question, Bill, you gave some nice detail on commodities pricing. I was wondering if you could just give us an idea by segment, sort of high-end versus low-end of the pricing spectrum by segment, just so we understand how that sort of lays across your reporting segments. You mentioned the kind of the reversion of the gross margin to that 30, 31%. I guess that kind of implies 100 basis points maybe of incremental benefit in the period because of some of the inventory gains that would be temporary. Is that in the range? Is there anything left over as we look to the October quarter? Should we expect some residual benefit as well there, or are we pretty much worked through now?

Kevin Murphy: I'll start with the commodities and pricing. If I go back to my comments earlier, having seen a bit more inflation in copper and then steel returning towards flat to up a little bit, you should expect that our non-res business has a bit more inflation in it right now than our residential business. It does vary by customer group, and we generally don't provide a lot of detail by customer group. I would consider that Waterworks is slightly down on price, largely driven by PVC, with the majority of our customer groups slightly up from an overall inflation standpoint. Maybe, again, a touch more inflation on the commercial and steel. In terms of the gross margin, we do expect, again, it to land somewhere in that normalized range of 30% to 31%.

Kevin Murphy: If I look at last year in the second half of the calendar year, we were right about the mid-30% range, 30.4%, I believe. We would expect there to be some relative performance to last year. We would expect, again, the temporary benefit that we've seen over the last quarter, quarter and a half, driven by the timing and extent of supplier price increases, to start to wane as we go through the back half.

Analyst: Okay, thank you. Specifically on HVAC, you didn't mention that as it relates to pricing, but maybe if you could help us understand the benefit from pricing and acquisitions in the HVAC segment that added to the number we saw. Any comments you have regarding the refrigerant transition? Like, do you have any R410 systems left at the end of July? Multifamily is a hot topic lately. Any other commentary around HVAC would be helpful.

Kevin Murphy: Yeah, HVAC overall on equipment, we are going through the transition, as you noted, from 410A to A2L. Clearly, A2L systems have a higher price point. We are clearly working through that transition as we went through the back half of the calendar year. There's a bit of inflation on overall equipment, but we're also seeing a lot of repair replace. Not nearly as much inflation on parts and supplies. I would consider HVAC, you should think about it as very low single-digit overall inflation in the overall business. Again, a bit more on equipment, a bit less on supplies and parts. When you look at the overall market and what our business was, Dave, we were pleased with being, call it, down one in Q4 on a plus nine prior year comparative.

Kevin Murphy: If you look at the business overall, we continue to get after counter conversions to address the dual-trade contractor and be the source of supply for them. We've done about 600 of them. We'll continue with, call it, 50 plus more as we go into early 2026. You've seen us expand our geographic footprint, and we will continue to open up new stores that are dedicated to serving that dual-trade HVAC and plumbing contractor. You've seen it play out in the M&A side. There's clearly a move towards more repair versus replace in today's world. We have sold through the majority of our 410A, and that was in place as we went through the fourth quarter, which is why, as Bill indicated, low single digit is probably the inflation number you should be thinking about. That will clearly move as repair moves a bit more to repair moves to replace.

Kevin Murphy: As we start to see that A2L play into the system as the system of choice. You've also got the balance between ductless and unitary system playing through as well. Generally speaking, we're very pleased with the strategy. We're very pleased with the execution, and we'll continue to have that as a major source of growth for us on the residential side of our house as we go forward.

Analyst: That all sounds good. Thanks very much, guys.

Kevin Murphy: Thanks, Dave.

Operator: The next question goes to Sam Reed of Wells Fargo. Sam, please go ahead.

Analyst: Thanks. You called out a little earlier some softness in resi remodel, and I just wanted to unpack that a bit more because you've got a really strong presence in remodel with higher income consumers, and that's historically insulated you from some of the category slowness. Are you starting to see demand crack from that higher income consumer? Can you just give us a sense as to where remodel backlogs sit today versus, say, one to two quarters ago?

Kevin Murphy: Yeah. In the remodel market, it is continued pressure. We're seeing continued pressure there. We've said that the higher end of the market will continue to perform better than the rest. We're pleased with a +3% growth rate in Ferguson Home, especially as we brought those two channels together. If you look at our showroom business in particular, it is predominantly that remodel space today, and it's primarily that remodel project work for the higher end of the market. We've seen traffic continue to be healthy, and we'll look at that continuing to be the driver. On the lower end of the market, we saw that pressure play through in residential trade, and along with new construction pressure and PVC price deflation, that put that business under a little bit more pressure in a down 2% position.

Kevin Murphy: Generally speaking, we're pleased with that higher end of the market with Ferguson Home.

Analyst: That helps. Just switching gears and drilling down a little bit more on Waterworks, I mean, really strong results here, especially in the context of some peer reads. Can you talk more specifically about what you're hearing from your large home builder customers? It sounds like there was a pullback that accelerated in August in demand for, let's call it, new residential subdivision projects. I just want to confirm that. Can you give us a rough sense as to where your residential Waterworks business sits from a geographic standpoint? Do you under-index, for instance, in markets like, say, Florida? I'd love some additional context there.

Kevin Murphy: Yeah, I'll start with we don't under-index in Florida. If I take a step back and look at our business, clearly, we're really pleased with a +15% in the quarter. We're really pleased with a +20% on a two-year stack inside that Waterworks business. It's a testament to what the group has built over time and that diverse business mix that they have: residential, commercial, public works, municipal spend, water wastewater treatment plant, stormwater management, geosynthetics, and even moving closer to that engineering environment, as I referenced earlier, with pumps, valve packages, process equipment, and controls. That continues to play well for us. Perhaps the biggest impact that we've seen, though, is in that large capital project non-residential space as the water piece of that business is quite impactful, and the multi-customer group approach on non-res is playing out.

Kevin Murphy: If I then shift to your residential portion of the question, we have a pretty broad-based business residentially across the U.S. We have strength in the Southeast, we have strength in the South, but it's pretty broad-based. If you look at what we're seeing, I'll take aside conversations with the large builder. We've clearly seen pressure on that new residential construction space, as has the rest of the country. If you look at our bidding activity, we have not seen a significant falloff in residential bidding activity. That said, we have no idea how that work will be released, will it be released at all, and what does that look like in terms of sections or phases and how that plays out. We do anticipate that in the near term, we'll see some continued pressure on that new residential Waterworks installation space.

Analyst: Really appreciate the context. Thanks so much. I'll pass it on.

Kevin Murphy: Thanks, Sam.

Operator: The next question goes to Ryan Merkel of William Blair. Ryan, please go ahead.

Analyst: Hey, everyone. Thanks for taking the question. I wanted to follow up on the new residential construction market. You mentioned that trends have weakened. Can you just give us a little bit more color? We've heard the Sunbelt in particular has weakened recently, and lot development feels like that's slowed quite a bit. Curious if you're seeing that. For the guide, are you assuming that it gets worse from August to December for new residential?

Kevin Murphy: Yeah, maybe, Brian, I'll start with the guide. Again, we don't see anything falling off of a cliff from where we sit today. We think that new resi will be a bit weaker as we move through the back half of the calendar year. Therefore, we think that our growth overall for the second half of the calendar year could be a bit below the first half. First half was clearly at 5%. I'd read that to be sub 5%. Again, don't see that falling off dramatically. To Kevin's point, we're still seeing decent activity out there. If I go back to kind of how we saw the residential markets playing through our fiscal year, we've been pretty consistent and kind of seen a bit more softening as we've come through, but expected those markets to be down low to mid-single digits.

Kevin Murphy: Now expect them to be down maybe a touch more in the second half of the year. Ryan, it's precisely why we are pleased with the balanced business mix that we have inside the organization and the growth areas that we've got with HVAC, Waterworks diversification, large capital, and then that higher end of the remodel market of residential with Ferguson Home.

Analyst: Got it. Okay. Thanks for that. My second question, just back to the non-resi market, you know, up 15% is a really good number. When I look at the details, industrial is up 5%. Could you comment on why, you know, that particular market might be a little bit slower than the others? You mentioned the onshoring theme, which is very real. Just curious if you expect the industrial market to stay softer than commercial and civil.

Kevin Murphy: I'll give you a bit of color, and then Bill can fill in. If you look at that plus 5 number, that's inclusive of our fire protection business, our industrial business, and our facility supply business together. If I think about the fire business and the industrial business space, still, we're working through periods of commodity deflation. As Bill indicated, we haven't seen a massive ramp-up in steel pipe pricing across those markets. We were very pleased with what those businesses have done in market share, especially in our industrial business, and what they've done to work together with our water business and our commercial mechanical business on the valve packages and the valve actuation and automation pieces of large capital projects. We're pleased with that. I wouldn't read too much into the plus 5 against the plus 21 of the commercial.

Analyst: All right, passing on. Thank you.

Kevin Murphy: Thanks, Ryan.

Operator: The next question goes to Mike Dull of RBC Capital Markets. Mike, please go ahead.

Analyst: Morning. Thanks for taking my questions. Just to go back on HVAC for a minute, I wanted to dive a little bit deeper. Obviously, a lot of concern from some of the OEMs and voicing some much sharper declines in the near term. A similar question as you just answered on Waterworks, but when you think about what the guide embeds for the balance of the year, you know, the OEMs seem to suggest that the near term is going to be quite pressured on HVAC volumes, but then potentially even better price mix than what you've articulated. Just give us a little more detail on how your guide embeds kind of that HVAC growth in the second half.

Kevin Murphy: Mike, thank you for the question. Good morning. If you look at the HVAC business, as we looked at the fourth quarter, as Bill indicated, we would see low single-digit price embedded. We clearly believe that that will increase on the equipment side as 410A moves over to A2L. We also had that mix move from replace to repair, which had muted what that overall inflationary impact is. If I also look at a down one number in the quarter, it really was the tale of, call it, two geographies, if you will, inside of our company. Very strong performance on the East Coast, the Mid-Atlantic, up through the Northeast and the Midwest, with some challenging weather environments and sell-through inside the Western United States. It really was bifurcated. We know there's going to be pressure on new res construction.

Kevin Murphy: We know there's going to be pressure on affordability with the consumer as we go through the next several months. We are pleased with what has been happening from a volume perspective, especially as we've got a lot to go after in the market and continue to expand. As I indicated, we're going to expand our counters, we're going to expand our locations, and we're going to continue to focus on that from an M&A perspective. The market's going to be a bit challenging, but we're bullish on what that looks like over the medium term. Mike, that's effectively embedded in the guide, again, not to be too repetitive, but the second half being down a bit from the first half would play through. Our expectation is that that's driven by that new resi weakness and a bit of HVAC softness. We've seen that in August.

Kevin Murphy: HVAC was down a touch in August, still low single digit. I don't see that falling off a cliff from our revenue perspective. We're coming up against some pretty tough comparables in HVAC. Start to lap some double-digit comparables. Probably some softness in the near term on HVAC, all embedded in the guide with a touch softer revenue in the second half.

Analyst: Okay, thanks. That's helpful. Shifting gears just on the balance sheet and capital allocation, you've done a good job deploying a decent amount of capital. That said, your balance sheet's still being pretty conservatively managed around the low end of your target range. There's obviously a lot of differing views on where we are in the cycle right now. From your standpoint, what would it take for you to deploy capital even more aggressively towards the midpoint or upper end of your leverage range? Is that more likely, as you sit here today and look at your M&A pipeline, to come through increased focus on M&A or a step up in buybacks?

Kevin Murphy: Yeah, I'll start with we try to be very consistent, and I think we've delivered consistency when it comes to capital allocation. We like having strong

Nadia: The balance sheet gives us that optionality to scale up and to go after growth investments. We intend to operate towards the low end of that leverage range of one to two times net debt to EBITDA on an ongoing basis. In terms of scaling up, you would see us scale up where there were really good organic growth opportunities or maybe more so in the near term where there would be more M&A opportunities. There's nothing large in the pipeline right now, but we have that balance sheet flexibility to take advantage of those opportunities should they occur.

Brian Lantz: Okay, great. Thank you.

Nadia: Thanks, Mike.

Kevin Murphy: Thanks, Mike.

Operator: Thank you. We'll take our last question from Anthony Pettinari of Citi. Anthony, please go ahead.

Analyst: Hi, good morning. Just following up on the last question on M&A. I think you indicated there's nothing large in the pipeline, but I'm wondering if you could talk more, maybe more generally about what the pipeline looks like as we get closer to the end of the year. I guess specifically, you know, valuations, seller expectations, whether you're seeing any increased competition for assets in water and air, maybe from new parties. Is there anything that's kind of changed about the landscape and the model?

Nadia: Yeah, Anthony, no, no real significant changes in the landscape. I mean, it's been a pretty competitive environment in water and air for a number of quarters and years, quite honestly. Valuations still probably towards the upper end of our typical, call it 7 to 10x, 7 to 10 enterprise value to EBITDA range. We have a good actionable pipeline, as I mentioned, yet nothing really large in that pipeline. Quite frankly, that's what the industry is. The industry lends itself to 10,000 plus small to medium-sized competitors that are out there, and our focus has been on consolidating those markets over time. Our strategy is very consistent. The pipeline is pretty healthy, and we think we have a good opportunity to continue to consolidate the industry.

Analyst: Okay, that's very helpful. Just following up on maybe some of the earlier questions on margin, you said you expect some level of inflation over the next few quarters. Does that anticipate any specific tariff-related price increases, or are we pretty much kind of level set on tariffs essentially to being in prices right now?

Nadia: Yeah, Anthony, as Bill said earlier, we expected earlier in this year to get annual price increases. That's happened. We thought we would see some additional increases based on a variety of factors. That's happened, and it was offset by continued commodities inflation, principally at CBDCs. At 2% inflation in the quarter, that's modest overall inflation. We expect that to continue, but it's a pretty uncertain environment. As Bill indicated earlier, manufacturers reacted quickly to the reciprocals, then pulled back in large part, and they've been slower to address those changes, taking a more wait-and-see approach. The good part for us as a business is that the cost of product pales in comparison to the cost of labor, and we wake up every day making sure that we're driving construction productivity for that water and air specialized pro.

Nadia: We expect some degree of modest inflation, but we're going to compete every day in the market and make sure that we leverage scale, that we're sourcing product from 37,000 different suppliers, and that we're getting the right price for the right project and getting it at the right time to get that project done. It will be modest inflation as we go forward, but still a lot of uncertainty out in the marketplace right now.

Analyst: Okay, that's helpful. I'll turn it over.

Nadia: Thank you.

Operator: Thank you. I'll now pass back to Kevin Murphy, CEO, for closing remarks.

Nadia: Thank you, operator. Thank you all for the time today. We appreciate it more than you know. I just want to reiterate a thanks to our associates. We're incredibly pleased and proud of the execution of our strategy in both the quarter and the full year. Although near-term markets remain challenging, particularly on the residential side of our balanced business mix, we're confident in our ability to outperform over time. Please reach out with any further questions, and we look forward to seeing you very soon. Thank you again.

Operator: That concludes the Ferguson plc fourth quarter and year-end results conference call. I'd like to thank you for your participation. You may now disconnect your lines.