Q1 2026 Ferguson Enterprises Inc Earnings Call

December 9, 2025

Speaker #1: Good morning, ladies and gentlemen. My name is Harry, and I will be your conference operator today. At this time, I would like to welcome you to the Ferguson Results Quarter Ended October 31st, 2025 conference call.

Operator: Good morning, ladies and gentlemen. My name is Harry, and I will be your conference operator today. At this time, I would like to welcome you to the Ferguson Results Quarter Ended 31 October 2025 conference call. All lines have been placed on mute to prevent any interference with the presentation. At the end of the prepared remarks, there'll be a question and answer session. To ask a question at that time, please press star followed by the number one on your telephone keypad. To withdraw your question, please press star followed by the number two. Thank you. I would now like to turn the call over to Mr. Brian Lantz, Ferguson's VP of Investor Relations and Communication. You may begin your conference call.

Speaker #1: All lines have been placed on mute to prevent any interference with the presentation. At the end of the head mark, there'll be a question and answer session.

Speaker #1: To ask a question at that time, please press star followed by the number one on your telephone keypad. To withdraw your question, please press star followed by the number two.

Speaker #1: Thank you. I would now like to turn the call over to Mr. Brian Lantz, Ferguson's VP of Investor Relations and Communication. We may begin your conference call.

Speaker #2: Good morning, everyone, and welcome to Ferguson's Quarterly Earnings Conference Call and Webcast. Hopefully, you've had a chance to review the earnings announcement we issued this morning.

Brian Lantz: Good morning, everyone, and welcome to Ferguson's Quarterly 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 investor 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.

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.

Speaker #2: I want to remind everyone that forward-looking and are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected.

Speaker #2: risks and uncertainties discussed in our Form Including the various website. Also, any forward-looking statements represent the today, and we disclaim any obligation to update these statements.

Speaker #2: company's expectations only as of 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 measures, including reconciliations to amortization reflect certain on our website for additional information non-GAAP adjustments.

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 their 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.

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 their 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.

Speaker #2: regarding those non-GAAP Please refer comparable GAAP financial measures. With their most directly me on the call today are Kevin Murphy, our CEO, and Bill Brundage, our CFO.

Speaker #2: I will now turn the

Speaker #2: call over to Kevin. Thank you,

Speaker #3: Brian: Welcome, everyone, to Ferguson's Quarterly Results Conference Call. On today's call, we'll cover highlights of our quarterly performance, and I'll also provide a more detailed view of our performance by end market and group.

Kevin Murphy: Thank you, Brian. Welcome, everyone, to Ferguson's Quarterly Results Conference Call. On today's call, we'll cover highlights of our quarterly performance, and I'll also provide a more detailed view of our performance by end market and customer group. I'll turn the call over to Bill to review financials and our updated guidance before I wrap up with a few final comments. We'll have time to take your questions at the end. During the quarter, once again, our expert associates delivered strong results, continuing to execute our growth strategy in a challenging market environment. Sales of $8.2 billion increased 5% over prior year, driven by organic growth of 4% and acquisition growth of 1%. Gross margin of 30.7% increased 60 basis points over the prior year. We remained disciplined on costs and generated $808 million of operating profit, which grew 14% over last year.

Speaker #3: I'll turn the call over to Bill to review financials and our updated guidance before I wrap up with a few final comments. We'll have time to take your questions at the end.

Speaker #3: During the quarter, once again, our expert associates delivered strong results, continuing to execute our growth strategy in a challenging market environment. Sales of $8.2 billion increased 5% over the prior year, driven by organic growth of 4% and acquisition growth of 1%.

Speaker #3: Gross margin of 30.7% increased 60 basis points over the prior year. We remain disciplined on costs and generated $808 million of operating profit, which grew 14% over last year.

Speaker #3: Diluted earnings the prior year to per share increased nearly 16% over $2.84. We continue to execute our capital priorities, deploying $511 million this quarter.

Kevin Murphy: Diluted earnings per share increased nearly 16% over the prior year to $2.84. We continued to execute our capital priorities, deploying $511 million this quarter. We declared a 7% increase to our quarterly dividend to $0.89 per share, and we acquired Moore Supply Co.'s HVAC equipment and supplies business in the Chicago metro area. We also returned $372 million to shareholders via share repurchases and dividends. Our balance sheet remained strong, with net debt to EBITDA of 1.1x. While we continue to operate in a challenging environment, we remain confident in our markets over the medium term, and we'll stay focused on leveraging multi-year tailwinds in both residential and non-residential end markets as we support the complex project needs of the water and air specialized professional. Turning to our performance by end markets in the United States, net sales grew by 5.3%.

Diluted earnings per share increased nearly 16% over the prior year to $2.84. We continued to execute our capital priorities, deploying $511 million this quarter. We declared a 7% increase to our quarterly dividend to $0.89 per share, and we acquired Moore Supply Co.'s HVAC equipment and supplies business in the Chicago metro area. We also returned $372 million to shareholders via share repurchases and dividends. Our balance sheet remained strong, with net debt to EBITDA of 1.1x. While we continue to operate in a challenging environment, we remain confident in our markets over the medium term, and we'll stay focused on leveraging multi-year tailwinds in both residential and non-residential end markets as we support the complex project needs of the water and air specialized professional. Turning to our performance by end markets in the United States, net sales grew by 5.3%.

Speaker #3: We've declared a 7% increase to our quarterly dividend to acquired more supply company, an $0.89 per share. And we HVAC equipment and supplies business in the Chicago metro area.

Speaker #3: We also returned shareholders by a share repurchases and remains strong with net debt to dividends. Our balance sheet $372 million to EBITDA of $1.1 times.

Speaker #3: While we continue to operate in a challenging environment, we remain confident in our markets over the medium term, and we'll stay focused on leveraging multi-year tailwinds in both residential and non-residential end markets as we support the complex project needs of the water and air specialized professional.

Speaker #3: Turning to our performance by end markets in the United States. Net sales grew by 5.3%. Residential end markets representing approximately half of US maintenance and improvement work has also remained soft. challenged.

Kevin Murphy: Residential end markets, representing approximately half of US revenue, remain challenged. New residential housing starts and permit activity have been weak, and repair, maintenance, and improvement work has also remained soft. We continue to outperform the markets, with residential revenue down 1% in the quarter. Non-residential end markets performed better than residential. Our scale, expertise, multi-customer group approach, and value-added services drove continued share gains, with non-residential revenue up 12% during the quarter. Strength in large capital project activity has continued, and we've seen solid shipments, growth in open order volumes, and bidding activity. Our intentional balanced approach to end markets continues to position us well. Moving next to revenue performance across our customer groups in the United States. We grew waterworks revenues by 14% as our highly diversified customer group saw strength in large capital projects, public works, general municipal, and meters and metering technology, offsetting weakness in residential.

Residential end markets, representing approximately half of US revenue, remain challenged. New residential housing starts and permit activity have been weak, and repair, maintenance, and improvement work has also remained soft. We continue to outperform the markets, with residential revenue down 1% in the quarter. Non-residential end markets performed better than residential. Our scale, expertise, multi-customer group approach, and value-added services drove continued share gains, with non-residential revenue up 12% during the quarter. Strength in large capital project activity has continued, and we've seen solid shipments, growth in open order volumes, and bidding activity. Our intentional balanced approach to end markets continues to position us well. Moving next to revenue performance across our customer groups in the United States. We grew waterworks revenues by 14% as our highly diversified customer group saw strength in large capital projects, public works, general municipal, and meters and metering technology, offsetting weakness in residential.

Speaker #3: revenue remain activity have been weak, and repair to outperform the markets with residential New residential housing starts and permit revenue down 1% in the quarter.

Speaker #3: performed better than residential. Our scale, expertise, multi-customer group approach, and value-added services drove continued non-residential end market share gains, with non-residential revenue up 12% during the quarter.

Speaker #3: We strengthened large capital project activity as continued, and we've seen solid shipments with growth in open order volumes and bidding markets continues to position us well.

Speaker #3: Moving next to revenue performance activity. across our customer groups in the United States. We grew waterworks revenues by Our intentional balanced approach to end saw strength in large capital projects, public works, 14% as our highly diversified customer group technology, offsetting weakness in residential.

Speaker #3: Ferguson Home, which brings together our best-in-class showroom and digital general municipal, and meters and metering experience, grew 1% in a challenging new construction and remodel market.

Kevin Murphy: Ferguson Home, which brings together our best-in-class showroom and digital experience, grew 1% in a challenging new construction and remodel market. Our ability to present a unified experience and cater to higher-end projects drove outperformance against the broader market. Residential trade plumbing declined by 4% due to headwinds in both new and RMI construction. HVAC declined by 6% against a strong 9% comparable in weaker markets impacted by the industry's transition to new efficiency standards and weak new residential construction activity, as well as a pressured consumer. We remain pleased with our execution, our contractor build-out for the dual trade and M&A opportunities. Commercial mechanical customer group grew 21% on top of a 1% prior year comparable, driven by large capital projects such as data centers, partially offset by weaker activity in traditional non-residential projects.

Ferguson Home, which brings together our best-in-class showroom and digital experience, grew 1% in a challenging new construction and remodel market. Our ability to present a unified experience and cater to higher-end projects drove outperformance against the broader market. Residential trade plumbing declined by 4% due to headwinds in both new and RMI construction. HVAC declined by 6% against a strong 9% comparable in weaker markets impacted by the industry's transition to new efficiency standards and weak new residential construction activity, as well as a pressured consumer. We remain pleased with our execution, our contractor build-out for the dual trade and M&A opportunities. Commercial mechanical customer group grew 21% on top of a 1% prior year comparable, driven by large capital projects such as data centers, partially offset by weaker activity in traditional non-residential projects.

Speaker #3: Our ability to present a unified experience and cater to higher-end projects drove outperformance against the broader market. Residential trade plumbing declined by 4% due to headwinds in both new and RMI construction.

Speaker #3: HVAC declined by 6% against a strong 9% comparable and weaker markets impacted by the industry's transition to new efficiency standards and weak new residential construction activity as well as a pressured consumer.

Speaker #3: We remain pleased with our execution of our counterbuild-out for the dual trade and M&A opportunities. Commercial mechanical customer group grew 21% on top of a 1% prior year comparable.

Speaker #3: Driven by large capital projects such as data centers, partially offset by weaker activity in traditional non-residential projects. Our fire and fabrication, facility supply, and industrial customer groups all saw growth during the quarter as we continue to take share and leverage our unique multi-customer group approach.

Kevin Murphy: Our fire and fabrication, facility supply, and industrial customer groups all saw growth during the quarter as we continued to take share and leverage our unique multi-customer group approach. Our customer groups are better together, sharing expertise to provide end-to-end solutions that help simplify complex projects and maximize contractor productivity. Now let me pass the call over to Bill for the financial results in more detail. Thank you, Kevin, and good morning, everyone. Net sales of $8.2 billion were 5.1% ahead of last year, driven by organic revenue growth of 4.2% and acquisition growth of 1%, partially offset by 0.1% from the adverse impact of foreign exchange rates and from a divestment in Canada. Price inflation was approximately 3%, with modest sequential improvement in finished goods pricing, offset by commodity-related categories being down low single digits.

Our fire and fabrication, facility supply, and industrial customer groups all saw growth during the quarter as we continued to take share and leverage our unique multi-customer group approach. Our customer groups are better together, sharing expertise to provide end-to-end solutions that help simplify complex projects and maximize contractor productivity. Now let me pass the call over to Bill for the financial results in more detail.

Speaker #3: Our customer groups are better together, sharing expertise to provide end-to-end solutions that help simplify complex projects and maximize contractor productivity. Now let me pass the call over to Bill for the financial results in more detail.

Speaker #3: Thank you, Kevin, and good morning, everyone. Net sales of $8.2 billion were 5.1% ahead of last year, driven by organic revenue growth of 4.2% and acquisition growth of 1%.

Bill Brundage: Thank you, Kevin, and good morning, everyone. Net sales of $8.2 billion were 5.1% ahead of last year, driven by organic revenue growth of 4.2% and acquisition growth of 1%, partially offset by 0.1% from the adverse impact of foreign exchange rates and from a divestment in Canada. Price inflation was approximately 3%, with modest sequential improvement in finished goods pricing, offset by commodity-related categories being down low single digits.

Speaker #3: Partially offset by 0.1% from the adverse impact of foreign exchange rates and from a divestment in Canada. Price inflation was approximately 3%, with modest sequential improvement in finished goods pricing offset by commodity-related categories beyond low single digits.

Speaker #3: Gross margin of 30.7% increased 60 basis points over last year, driven by our associates' disciplined execution. Operating costs grew slower than revenue, delivering 20 basis points of operating leverage.

Kevin Murphy: Gross margin of 30.7% increased 60 basis points over last year, driven by our associates' disciplined execution. Operating costs grew slower than revenue, delivering 20 basis points of operating leverage. Operating profit of $808 million was up 14.4%, delivering a 9.9% operating margin with 80 basis points of expansion over the prior year. Diluted earnings per share of $2.84 was 15.9% above last year, driven by operating profit growth and the impact of share repurchases. Our balance sheet remained strong at 1.1x net debt to EBITDA. Moving to our segment results, net sales in the US grew 5.3%, with organic growth of 4.4% and a further 0.9% contribution from acquisitions. Operating profit of $806 million increased $109 million over the prior year, delivering an operating margin of 10.4%.

Gross margin of 30.7% increased 60 basis points over last year, driven by our associates' disciplined execution. Operating costs grew slower than revenue, delivering 20 basis points of operating leverage. Operating profit of $808 million was up 14.4%, delivering a 9.9% operating margin with 80 basis points of expansion over the prior year. Diluted earnings per share of $2.84 was 15.9% above last year, driven by operating profit growth and the impact of share repurchases. Our balance sheet remained strong at 1.1x net debt to EBITDA. Moving to our segment results, net sales in the US grew 5.3%, with organic growth of 4.4% and a further 0.9% contribution from acquisitions. Operating profit of $806 million increased $109 million over the prior year, delivering an operating margin of 10.4%.

Speaker #3: And operating profit of $808 million was up 14.4%, delivering a 9.9% operating margin with 80 basis points of expansion over the prior year. Diluted earnings per share of $2.84 was 15.9% above last year, driven by operating profit growth and the impact of share repurchases.

Speaker #3: And our balance sheet remains strong at $1.1 times net debt to EBITDA. Moving to our segment results, net sales in the US grew 5.3% with organic growth of 4.4% and a further 0.9% contribution from acquisitions.

Speaker #3: Operating profit of $806 million increased by $109 million over the prior year, delivering an operating margin of 10.4%. In Canada, net sales were 2.2% ahead of last year, with organic growth of 0.7% and a 4.6% contribution from acquisitions, partially offset by a 1.6% adverse impact from foreign exchange rates, as well as 1.5% from a non-core business divestment.

Kevin Murphy: In Canada, net sales were 2.2% ahead of last year, with organic growth of 0.7% and a 4.6% contribution from acquisitions, partially offset by a 1.6% adverse impact from foreign exchange rates, as well as 1.5% from a non-core business divestment. Markets have remained subdued in Canada, particularly in residential. Operating profit of $16 million was $7 million below last year. Moving next to our cash flow performance for the quarter, EBITDA of $867 million was $109 million ahead of last year. Working capital investments of $440 million during the quarter were up slightly from $376 million in the prior year, principally driven by timing. Operating cash flow was $430 million compared to $345 million in the prior year.

In Canada, net sales were 2.2% ahead of last year, with organic growth of 0.7% and a 4.6% contribution from acquisitions, partially offset by a 1.6% adverse impact from foreign exchange rates, as well as 1.5% from a non-core business divestment. Markets have remained subdued in Canada, particularly in residential. Operating profit of $16 million was $7 million below last year. Moving next to our cash flow performance for the quarter, EBITDA of $867 million was $109 million ahead of last year. Working capital investments of $440 million during the quarter were up slightly from $376 million in the prior year, principally driven by timing. Operating cash flow was $430 million compared to $345 million in the prior year.

Speaker #3: Markets have remained subdued in Canada, particularly in residential. Operating profit of $16 million was $7 million below last year. Moving next to our cash flow performance for the quarter.

Speaker #3: EBITDA of $867 million was $109 million ahead of last year. Working capital investments of $440 million during the quarter were up slightly from $376 million in the prior year.

Speaker #3: Principally driven by timing. Operating cash flow was $430 million compared to $345 million in the prior year. We have continued to invest in organic growth through CapEx, investing $118 million in the quarter, resulting in free cash flow of $325 million compared to $274 million in the prior year.

Kevin Murphy: We have continued to invest in organic growth through CapEx, investing $118 million in the quarter, resulting in free cash flow of $325 million compared to $274 million in the prior year. Turning to capital allocation, as previously mentioned, we invested $440 million in working capital and another $118 million in CapEx to further build on our competitive advantages and drive above-market organic growth. We paid $164 million of dividends during the quarter, and our board declared an 89 cent per share quarterly dividend, representing a 7% increase on the prior year and reflecting our confidence in the business. We continue to consolidate our fragmented markets through bolt-on geographic and capability acquisitions. As Kevin mentioned, we completed the acquisition of Moore Supply Co. during the quarter, a great addition to our HVAC presence in the Chicago area. Our markets remain very highly fragmented, and our acquisition pipeline is healthy.

We have continued to invest in organic growth through CapEx, investing $118 million in the quarter, resulting in free cash flow of $325 million compared to $274 million in the prior year. Turning to capital allocation, as previously mentioned, we invested $440 million in working capital and another $118 million in CapEx to further build on our competitive advantages and drive above-market organic growth. We paid $164 million of dividends during the quarter, and our board declared an 89 cent per share quarterly dividend, representing a 7% increase on the prior year and reflecting our confidence in the business. We continue to consolidate our fragmented markets through bolt-on geographic and capability acquisitions. As Kevin mentioned, we completed the acquisition of Moore Supply Co. during the quarter, a great addition to our HVAC presence in the Chicago area. Our markets remain very highly fragmented, and our acquisition pipeline is healthy.

Speaker #3: Turning to capital allocation, as previously mentioned, we invested $440 million in working capital, and another $118 million in CapEx. Further build on our competitive advantages and drive above-market organic growth.

Speaker #3: We paid $164 million in dividends during the quarter, and our board declared an $0.89 dividend, representing a 7% increase over the prior year and reflecting our confidence in the business.

Speaker #3: We continue to consolidate our fragmented markets through bolt-on per share quarterly dividend, geographic and capability acquisitions. As Kevin mentioned, we completed the acquisition of more supply company during the quarter, a great addition to our HVAC presence in the Chicago area.

Speaker #3: Fragmented, and our acquisition pipeline is 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 1 to 2 times net debt to EBITDA. Our markets remain very highly fragmented.

Kevin Murphy: 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 2x net debt to EBITDA. We returned $208 million to shareholders via share repurchases during the quarter, reducing the share count by nearly $1 million, and we have approximately $800 million outstanding under the current share repurchase program. Now turning to our updated calendar 2025 guidance, we are pleased with our continued market outperformance and solid growth in the quarter. We are well-positioned to deliver a strong calendar year 2025 performance and remain confident in our markets over the medium term despite near-term uncertainties. We now expect approximately 5% revenue growth for the year, and we expect an operating margin range of between 9.4% to 9.6%, up from our prior expectation of between 9.2% to 9.6%.

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 2x net debt to EBITDA. We returned $208 million to shareholders via share repurchases during the quarter, reducing the share count by nearly $1 million, and we have approximately $800 million outstanding under the current share repurchase program. Now turning to our updated calendar 2025 guidance, we are pleased with our continued market outperformance and solid growth in the quarter. We are well-positioned to deliver a strong calendar year 2025 performance and remain confident in our markets over the medium term despite near-term uncertainties. We now expect approximately 5% revenue growth for the year, and we expect an operating margin range of between 9.4% to 9.6%, up from our prior expectation of between 9.2% to 9.6%.

Speaker #3: We return $208 million to shareholders via share repurchases during the quarter, reducing the share count by nearly 1 million. And we have approximately $800 million outstanding under the current share repurchase program.

Speaker #3: Now turning to our updated calendar 2025, we are pleased with our continued market outperformance and solid growth in the guidance quarter. We are well positioned to deliver a strong calendar year 2025 performance and remain confident in our markets over the medium term despite near-term uncertainties.

Speaker #3: We now expect approximately 5% revenue growth for the year. And we expect an operating margin range of between 9.4 to 9.6% up from our prior expectation of between 9.2 to 9.6%.

Speaker #3: Interest expense is expected to be approximately $190 million for the approximately $350 million. The year, and we estimate CapEx of upper end of our previous guide.

Kevin Murphy: Interest expense is expected to be approximately $190 million for the year, and we estimate CapEx of approximately $350 million, the upper end of our previous guide. We continue to expect our effective tax rate to land at approximately 26%. We believe we are well-positioned as we finish the year and head into the new calendar year. Thank you, and I'll now pass back to Kevin. Thank you, Bill. As we conclude our remarks, let me first reiterate our thanks for the hard work and diligence of our expert associates that continue to execute on our growth strategy as we work to drive construction productivity for our customers. We're particularly pleased with the double-digit non-residential growth as our teams closely collaborate to simplify projects, bring order to chaos, and deliver end-to-end solutions to help maximize customer success.

Interest expense is expected to be approximately $190 million for the year, and we estimate CapEx of approximately $350 million, the upper end of our previous guide. We continue to expect our effective tax rate to land at approximately 26%. We believe we are well-positioned as we finish the year and head into the new calendar year. Thank you, and I'll now pass back to Kevin.

Speaker #3: We continue to expect our effective tax rate to land at approximately 26%. We believe we are well positioned as we finish the year and head into the new calendar year.

Speaker #3: Thank you, and I'll now pass it back to Kevin. Thank you, Bill. As we conclude our remarks, let me first reiterate our thanks for the hard work and diligence of our expert associates, and our continued execution of our growth strategy as we work to drive construction productivity for our customers.

Kevin Murphy: Thank you, Bill. As we conclude our remarks, let me first reiterate our thanks for the hard work and diligence of our expert associates that continue to execute on our growth strategy as we work to drive construction productivity for our customers. We're particularly pleased with the double-digit non-residential growth as our teams closely collaborate to simplify projects, bring order to chaos, and deliver end-to-end solutions to help maximize customer success.

Speaker #3: We're particularly pleased with the double-digit non-residential growth as our teams closely collaborate to simplify projects and bring end-to-end solutions to help maximize customer success. We're poised to deliver a strong order to chaos and achieve calendar 2025 performance. Our strong balance sheet enables us to invest in organic growth, consolidate our fragmented markets through acquisitions, and return capital to our shareholders.

Kevin Murphy: We're poised to deliver a strong calendar 2025 performance, and our strong balance sheet enables us to invest in organic growth, consolidate our fragmented markets through acquisitions, and return capital to our shareholders. We'll continue to operate at the lower end of our target leverage range and maintain flexibility that capitalizes on strategic opportunities as they arise. We remain confident in our markets over the medium term and expect to continue to outperform our markets as we leverage multi-year structural tailwinds. With our size, scale, and strategy, we believe we're well-positioned to take advantage of opportunities in the underbuilt and aging US housing market, non-residential large capital projects, and the growing demand for water and air specialized professionals. 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.

We're poised to deliver a strong calendar 2025 performance, and our strong balance sheet enables us to invest in organic growth, consolidate our fragmented markets through acquisitions, and return capital to our shareholders. We'll continue to operate at the lower end of our target leverage range and maintain flexibility that capitalizes on strategic opportunities as they arise. We remain confident in our markets over the medium term and expect to continue to outperform our markets as we leverage multi-year structural tailwinds. With our size, scale, and strategy, we believe we're well-positioned to take advantage of opportunities in the underbuilt and aging US housing market, non-residential large capital projects, and the growing demand for water and air specialized professionals. Thank you for your time today. Bill and I are now happy to take your questions. Operator, I'll hand the call back over to you.

Speaker #3: We'll continue to operate at the lower end of our target leverage range and maintain flexibility to capitalize on strategic opportunities as they arise. We remain confident in our markets over the medium term and expect to continue to outperform our markets as we leverage multi-year structural tailwinds.

Speaker #3: With our size, scale, and strategy, we believe we're well positioned to take advantage of opportunities in the underbuilt and aging US housing market, non-residential large capital projects, and the growing demand for water, air, specialized professionals.

Speaker #3: 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

Speaker #3: you. also, I'm curious if you can kind Good morning, everyone. Thank you for taking the of, I don't know, give us a little bit of color on the timing of bidding and the momentum and if there's any risk of kind of lumpiness given how those projects work and how you ship to them, or if we should kind of think that this is going to be more of a, I don't know, smoother kind of outlook for that business.

Speaker #2: Thank you. For Q&A, if you would like to ask a question, please press star, keypad. If you change your mind, please press star, followed by two to exit the

Operator: Thank you. For Q&A, if you would like to ask a question, please press star followed by one on your telephone keypad. If you change your mind, please press star followed by two to exit the queue. And finally, when preparing to ask your question, please ensure that your device is unmuted locally. And our first question today will be from the line of Matthew Bouley with Barclays. Please go ahead. Your line is open.

Speaker #2: line is open.

Matthew Bouley: Good morning, everyone. Thank you for taking the questions. I wanted to start on the data center and large capital projects. I'm wondering if at this point, given all the growth you've seen, if you're able to quantify perhaps what portion of the business that is for you today, and maybe kind of where that can get to? But also, I'm curious if you can kind of, I don't know, give us a little bit of color on the timing of bidding, the momentum, and if there's any risk of kind of lumpiness given how those projects work and how you ship to them, or if we should kind of think that this is going to be more of a, I don't know, smoother kind of outlook for that business? Thank you.

Speaker #3: Thank

Speaker #4: Yeah, good

Speaker #4: Morning, Matt. Thanks for the question. This is year one. If you take a step back and look at our projects, we would estimate that that is somewhere, I'll start with that, between mid to high single digits as a percentage of our total company revenue at this point, with data centers specifically being a bit over 50% of that, so a bit over half of that overall large capital project revenue.

Kevin Murphy: Yeah, good morning, Matt. Thanks for the question. This is Bill. I'll start with that one. If you take a step back and look at overall large capital projects for us, we would estimate that that is somewhere between mid to high single digits as a percentage of our total company revenue at this point, with data centers specifically being a bit over 50% of that, a bit over half of that overall large capital project revenue. In terms of what we're seeing in the market, the pipeline does continue to grow. So we're seeing additional projects coming into planning. We're then seeing that continue to flow into additional bidding activity, and our open order volume on large capital projects does continue to grow.

Bill Brundage: Yeah, good morning, Matt. Thanks for the question. This is Bill. I'll start with that one. If you take a step back and look at overall large capital projects for us, we would estimate that that is somewhere between mid to high single digits as a percentage of our total company revenue at this point, with data centers specifically being a bit over 50% of that, a bit over half of that overall large capital project revenue. In terms of what we're seeing in the market, the pipeline does continue to grow. So we're seeing additional projects coming into planning. We're then seeing that continue to flow into additional bidding activity, and our open order volume on large capital projects does continue to grow.

Speaker #4: In terms of what we're seeing in the market, the pipeline does continue to grow. So we're seeing additional projects coming into planning. We're then seeing that continue to flow into additional bidding activity.

Speaker #4: On large capital projects, the volume continues to grow. You're seeing that our open order volume came through revenue this quarter, principally in the commercial mechanical business, which was up 21%.

Kevin Murphy: You're seeing that you saw it come through revenue this quarter, principally in the commercial mechanical business, which was up 21%, and then a portion of that Waterworks business, which grew 14%. So we are continuing to see that activity grow. Certainly, the gestation period of these projects is much longer than maybe our traditional projects. And so, yes, there could be some lumpiness in terms of revenue rates as we move into the future. But overall, we remain bullish that this is a continued growth area for us and will continue to be driving revenue as we exit 2025 and step into 2026. And Matt, as Bill said, the lumpiness will likely be there and the gestation period for these projects is going to be longer. But that's part of the reason why we're reasonably pleased with our progress.

You're seeing that you saw it come through revenue this quarter, principally in the commercial mechanical business, which was up 21%, and then a portion of that Waterworks business, which grew 14%. So we are continuing to see that activity grow. Certainly, the gestation period of these projects is much longer than maybe our traditional projects. And so, yes, there could be some lumpiness in terms of revenue rates as we move into the future. But overall, we remain bullish that this is a continued growth area for us and will continue to be driving revenue as we exit 2025 and step into 2026.

Speaker #4: And then, a portion of that waterworks business grew by 14%. So, we are continuing to see that activity grow. Certainly, the gestation period of these projects is much longer than maybe our traditional projects.

Speaker #4: And so, yes, there could be some lumpiness in terms of revenue in the future. But overall, we remain bullish that this rates as we move into this continued growth area for us.

Speaker #4: And we'll continue to be driving revenue as we '26. And Matt, as Bill said, the lumpiness will likely be exit '25 and step into there, and the gestation period for these projects that's part of the reason why we're reasonably pleased with our is going to be longer. progress.

Kevin Murphy: And Matt, as Bill said, the lumpiness will likely be there and the gestation period for these projects is going to be longer. But that's part of the reason why we're reasonably pleased with our progress.

Speaker #4: deliver scale, a multi-customer group approach, a broad base of vendors that can bring product to the site on time and in full, the impact of modular construction on data center work, that's all serving us well in terms of what those share gains look like, especially against a backdrop where traditional non-res is in a pretty challenging

Kevin Murphy: As you look at our ability to deliver scale, a multi-customer group approach, a broad base of vendors that can bring product to the site on time and in full, the impact of modular construction on data center work, that's all serving us well in terms of what those share gains look like, especially against a backdrop where traditional non-res is in a pretty challenging spot.

As you look at our ability to deliver scale, a multi-customer group approach, a broad base of vendors that can bring product to the site on time and in full, the impact of modular construction on data center work, that's all serving us well in terms of what those share gains look like, especially against a backdrop where traditional non-res is in a pretty challenging spot.

Speaker #2: then, secondly, kind of jumping into the

Operator: All right. That's perfect. Thanks for that, guys. And then secondly, kind of jumping into the outlook, I guess, maybe this is a bit of an unusual period here where you're guiding to just kind of the sub-period. I guess I'm curious if you could kind of give us any color on the November or quarter-to-date results. But just given this is sort of a smaller and, again, unusual guidance outlook here, if you're willing to kind of give any early 2026 thoughts across the end markets, kind of carry over inflation, etc., to sort of help us point us directionally a little bit into next year. Thank you.

Matthew Bouley: All right. That's perfect. Thanks for that, guys. And then secondly, kind of jumping into the outlook, I guess, maybe this is a bit of an unusual period here where you're guiding to just kind of the sub-period. I guess I'm curious if you could kind of give us any color on the November or quarter-to-date results. But just given this is sort of a smaller and, again, unusual guidance outlook here, if you're willing to kind of give any early 2026 thoughts across the end markets, kind of carry over inflation, etc., to sort of help us point us directionally a little bit into next year. Thank you.

Speaker #2: sort of a smaller and, again, unusual guidance outlook here, if you're willing to kind of give any But All right. That's early 2026, quarter-to-date 2026 thoughts across the end markets, kind of carry over inflation, et cetera, to sort of help us point us directionally a little bit into next year.

Speaker #2: Thank

Speaker #4: Sure. Yeah, Matt, as we maybe as we take a step back, if you recall when we set out our calendar '25 guidance at the end of our fiscal year in July, we had talked about the first half of the calendar year growth being about 5%.

Kevin Murphy: Sure. Yeah, Matt, maybe as we take a step back, if you recall when we set out our calendar 2025 guidance at the end of our fiscal year in July, we had talked about the first half of the calendar year growth being about 5%. And our expectation that we believed that that growth was going to get a bit more challenging as we worked through the calendar year, particularly towards the end of the calendar year, as we were expecting additional new res pressure and HVAC pressure to step up. And that's what we've started to see play through, so very much in line with our expectations. Maybe I'll shift to the calendar quarter as we're going to try to get to the calendar year reporting now.

Bill Brundage: Sure. Yeah, Matt, maybe as we take a step back, if you recall when we set out our calendar 2025 guidance at the end of our fiscal year in July, we had talked about the first half of the calendar year growth being about 5%. And our expectation that we believed that that growth was going to get a bit more challenging as we worked through the calendar year, particularly towards the end of the calendar year, as we were expecting additional new res pressure and HVAC pressure to step up. And that's what we've started to see play through, so very much in line with our expectations. Maybe I'll shift to the calendar quarter as we're going to try to get to the calendar year reporting now.

Speaker #4: And our expectation is that, challenging as we worked through the calendar year, particularly towards the end of Q1 2026, we believe that growth was going to get a bit more additional new residential pressure and HVAC pressure to step up.

Speaker #4: And that's what we've started to see play through, so very much in line with our expectations. Maybe I'll shift to the calendar quarter as we're going to try to get to the calendar year reporting now.

Speaker #4: If you look at calendar Q4 to date, so basically the first week, week and a October, November, and growth is sitting at about half of December, our total 3% for that period.

Kevin Murphy: If you look at calendar Q4 to date, so October, November, and basically the first week, week and a half of December, our total growth is sitting at about 3% for that period. Again, very much in line with our expectations with that additional pressure on new resi and HVAC. And so clearly now with about three weeks to go, I would expect our calendar Q4 growth rates to be somewhere in that 3% range as we round out the year. And then as we look forward into 2026, we will set out our calendar 2026 guidance in February. We're back with you in a couple of months as we get onto that calendar year cycle.

If you look at calendar Q4 to date, so October, November, and basically the first week, week and a half of December, our total growth is sitting at about 3% for that period. Again, very much in line with our expectations with that additional pressure on new resi and HVAC. And so clearly now with about three weeks to go, I would expect our calendar Q4 growth rates to be somewhere in that 3% range as we round out the year. And then as we look forward into 2026, we will set out our calendar 2026 guidance in February. We're back with you in a couple of months as we get onto that calendar year cycle.

Speaker #4: Again, very much in line with our expectations, with that additional pressure on new residential and HVAC. And so clearly now, with about three weeks to go, I would expect our calendar Q4 growth rates to be somewhere in that 3% range. As we round out the '26, we will set out our calendar '26 guidance in February.

Speaker #4: Again, very much in line with our expectations with that additional pressure on new res and HVAC. And so clearly now with about three weeks to go, I would expect our calendar Q4 growth rates to be somewhere in that 3% range as we round out the '26, we will set out our calendar '26 guidance in year.

Speaker #4: And then as we look forward into Matt. But again, we'll set out our

Speaker #4: We're back with you in a couple of months as we get onto that calendar year cycle. But the early part of '26, we wouldn't expect much change from a market perspective or much difference as we exit the year at about that 3% range and then step into the new year.

Kevin Murphy: But the early part of 2026, we wouldn't expect much change from a market perspective or much difference as we exit the year at about that 3% range and then step into the new year. But again, we'll set out our views on the market and our views on our guidance in February.

But the early part of 2026, we wouldn't expect much change from a market perspective or much difference as we exit the year at about that 3% range and then step into the new year. But again, we'll set out our views on the market and our views on our guidance in February.

Operator: Excellent. Thanks, Bill. Good luck, guys.

Matthew Bouley: Excellent. Thanks, Bill. Good luck, guys.

Kevin Murphy: Thanks, Matt.

Bill Brundage: Thanks, Matt.

Speaker #5: Next question today will be from the line of Ryan Merkel with William Blair. Please go ahead. Your line is open.

Operator: Next question is from the line of Ryan Merkel with William Blair. Please go ahead. Your line is open.

Speaker #6: Hey, everyone. Thanks for the question. I want to follow up on the last comment on 4Q. Just a little bit of a slowdown there to growth up 3%.

Ryan Merkel: Hey, everyone. Thanks for the question. I want to follow up on the last comment on Q4. Just a little bit of a slowdown there to growth up 3%. Is there anything that stands out, or is it just maybe just seasonally it's just a bit softer at this point?

Speaker #6: Is there anything that stands it's just a bit softer at this out, or is it just maybe just seasonally point?

Speaker #4: Yeah, it is that new res pressure continuing to play through, Ryan. If you go back, permits and starts, as everybody's well aware, had continued to weaken through the calendar year.

Kevin Murphy: Yeah, it is that new res pressure continuing to play through, Ryan. If you go back, permits and starts, as everybody's well aware, had continued to weaken through the calendar year. Outside of our waterworks business, there's a little bit of a lag of those slower starts coming through the rest of our customer groups to then play through on revenue. So I think we're just seeing that playing through on those weaker starts. And then certainly there's more HVAC pressure, which we talked about during our last quarterly conference call. Our HVAC business was down about 6% for our first quarter or for the quarter ended 31 October. That growth got a bit more challenging towards the end of the quarter as the market's in a pretty tough spot. So I think those are the two pressure points we would point to.

Speaker #4: Outside of our waterworks business, there's a little bit of a lag of those slower starts coming through the rest of our customer groups to then play through on revenue.

Speaker #4: So, I think we're just seeing that playing through on those weaker starts. And then, certainly, there's more HVAC pressure, which we talked about during our last quarterly conference call.

Speaker #4: Our HVAC business was down about 6% for our first quarter or for the quarter ended October 31st. That end of the quarter as the market's in a pretty tough spot.

Speaker #4: growth got a bit more challenging towards the those are the two pressure points we would point to. Still, as you look through that, we're very bullish and optimistic on the HVAC market overall over the medium to long term.

Kevin Murphy: Still, as you look through that, we're very bullish and optimistic on the HVAC market overall over the medium to long term. And we would believe that residential at some point will stabilize on the new resi side.

Still, as you look through that, we're very bullish and optimistic on the HVAC market overall over the medium to long term. And we would believe that residential at some point will stabilize on the new resi side.

Speaker #4: And we would believe that residential, at some point, will stabilize on the new.

Speaker #6: Got it. That makes sense. And pretty

Speaker #6: consistent with what we're hearing. Let me

Ryan Merkel: Got it. That makes sense and pretty consistent with what we're hearing. Let me shift to pricing. It looks like it came in a little better than you thought. Maybe talk about that and then talk about how the commodities are trending and if you expect supplier price increases as we head into the new year.

Speaker #6: year.

Kevin Murphy: Yeah. Overall, in the quarter, inflation was about 3%. So to your point, it stepped up from about 2% in the previous quarter to 3% this quarter. Finished goods was up a little bit more than it was in the prior quarter. So I'd still consider that kind of at the high end of that low single-digit range. And commodities were down in the low single-digit range still as a basket. If you look at commodities, three main baskets within that group. PVC, which is our largest commodity basket, is still in deflation, down in the double-digit range, kind of that low double-digit range. Steel is up. I would call that mild inflation. And then we're still seeing strong inflation on copper tube and fitting. So overall, pretty consistent with what we expected as we round out the first quarter and enter into the end of the calendar year.

Speaker #4: to your point, it stepped up from about 2% in the previous quarter to 3% this quarter. Finished goods was up a little bit more than it So I'd still consider that kind of at the high end side.

Speaker #4: the double-digit range, kind of that low double-digit range. inflation was about 3%. So Steel, I would we're still seeing strong inflation on copper tube and fittings.

Speaker #4: So overall, pretty consistent with what call that mild inflation. And then the first quarter and enter into the end of the calendar year. And if we the calendar '26, we would expect modest price increases look at entering that are in line with traditional expected.

Kevin Murphy: If we look at entering the calendar 2026, we would expect modest price increases that are in line with traditional behavior on the finished goods side of the world. Those announcements are coming through right now. Hard to say what's going to happen with all of the different dynamics that are involved in the market right now. But our expectation is that it'll be a more normalized pricing environment, knowing full well that we had six quarters of deflation before we got back to flat and then plus two in the previous quarter.

If we look at entering the calendar 2026, we would expect modest price increases that are in line with traditional behavior on the finished goods side of the world. Those announcements are coming through right now. Hard to say what's going to happen with all of the different dynamics that are involved in the market right now. But our expectation is that it'll be a more normalized pricing environment, knowing full well that we had six quarters of deflation before we got back to flat and then plus two in the previous quarter.

Speaker #6: All right. Good job. I'll pass it on.

Speaker #6: Thanks. As we round out Thanks, Ryan.

Ryan Merkel: All right. Good job. I'll pass it on. Thanks.

Speaker #5: Ryan. Next question today will be from the line of Dave Manti with Fed. Please go ahead. Your line is Thanks,

Kevin Murphy: Thanks, Ryan. Thanks, Ryan.

Kevin Murphy: Thanks, Ryan.

Bill Brundage: Thanks, Ryan.

Operator: Next question today will be from the line of Dave Manty with Baird. Please go ahead. Your line is open.

Speaker #5: open. Good morning,

Dave Manty: Yeah, thank you. Good morning, guys. Along the lines of the pricing discussion here, with price looking like it's going to represent a pretty positive factor year over year through the coming calendar year against what appears to be pretty easy deflation-affected comps last year. Should we continue to expect incremental margins to run ahead of that sort of targeted 11% to 13% rate given the contribution from positive pricing over the course of the next four quarters?

Dave Manthey: Yeah, thank you. Good morning, guys. Along the lines of the pricing discussion here, with price looking like it's going to represent a pretty positive factor year over year through the coming calendar year against what appears to be pretty easy deflation-affected comps last year. Should we continue to expect incremental margins to run ahead of that sort of targeted 11% to 13% rate given the contribution from positive pricing over the course of the next four quarters?

Speaker #7: Pricing discussion here, with price looking like it’s going up. Along the lines of this, we represent a pretty positive factor year over year through.

Speaker #1: Affected comps last year? Should we expect incremental run ahead of that sort of targeted 11% to 13% rate, given the contribution from positive pricing over the course of the next four quarters?

Speaker #2: Maybe just step margins to Dave . You know , very pleased with

Speaker #2: improvement that the business delivered . This calendar year . If you go back to has we delivered 9.1% operating margin . We've just given our guidance , is which 9.4 to 9 six .

Kevin Murphy: Maybe to step back, Dave, we're very pleased with the operating margin improvement that the business has delivered this calendar year. If you go back to calendar 2024, we delivered a 9.1% operating margin. We've just given our updated guidance, which is 9.4% to 9.6%. So call that a 9.5% at the midpoint. So we're expecting a very solid progression on operating margins this year of somewhere in that 30 to 50 basis point range. Now, I would remind you, we did have a bit of outsized gross margin gain during the middle part of this calendar year. Recall, we had a quarter with 31% and then 31.7% gross margins. And we had flagged that there was some impact of the timing and extent of supplier price increases. And then we expected that gross margin to normalize. And you've seen that play through now in this last quarter.

Speaker #2: So we wouldn't expect kind of that outsized gain to repeat and continue through the year. Next, probably actually a little bit of a headwind in the middle part of the year versus the prior year, 2026 to 2025.

Speaker #2: So we wouldn't expect kind of that outsized gain to repeat continue to year . next probably actually a little bit of a headwind in the middle part of the versus versus the prior of the year , calendar year set out our guidance for overall operating next margins year .

Kevin Murphy: So we wouldn't expect that kind of outsized gain to repeat next year. So probably actually a little bit of a headwind in the middle part of the calendar year versus the prior year, 2026 to 2025. We'll set out our guidance for overall operating margins next year. And certainly, that will be dependent on what the market environment is like. Assuming that we have a supportive market and we have decent growth, we would expect some modest progression on operating margins next year. But again, we'll be back with you in February and give you a more clear view of what we expect at that point.

So we wouldn't expect that kind of outsized gain to repeat next year. So probably actually a little bit of a headwind in the middle part of the calendar year versus the prior year, 2026 to 2025. We'll set out our guidance for overall operating margins next year. And certainly, that will be dependent on what the market environment is like. Assuming that we have a supportive market and we have decent growth, we would expect some modest progression on operating margins next year. But again, we'll be back with you in February and give you a more clear view of what we expect at that point.

Speaker #2: And in certainly that will that will be dependent on So what the market environment is like . Assuming that we have supportive and market we have growth , decent we would expect some modest progression on operating margins next year .

Speaker #2: But again, we'll be back with you in February and provide a clearer expectation of what we anticipate at that point.

Speaker #1: Makes sense . Thank you . And second , as it relates to the revenues 2 billion in from major that you projects discussed , it seems like you've been having a lot of success there because of the one Ferguson effort .

Dave Manty: Makes sense. Thank you. Second, as it relates to the 2 billion-ish in revenues from major projects that you discussed, it seems like you've been having a lot of success there because of the one Ferguson effort. Could you maybe, I don't know if you could quantify or bigger than a bread basket, tell us what percentage of those projects do you get more than one product and customer group via the one Ferguson effort versus not? Is that something you could share with us?

Dave Manthey: Makes sense. Thank you. Second, as it relates to the 2 billion-ish in revenues from major projects that you discussed, it seems like you've been having a lot of success there because of the one Ferguson effort. Could you maybe, I don't know if you could quantify or bigger than a bread basket, tell us what percentage of those projects do you get more than one product and customer group via the one Ferguson effort versus not? Is that something you could share with us?

Speaker #1: Could you maybe, I don't know if you could quantify or, bigger than a breadbasket, tell us what percentage of those do get more than one product from you and the customer group via the one Ferguson effort?

Speaker #1: Versus not ? Is that something you could share with us ?

Speaker #3: Dave . Thank you . And certainly Yeah . when we talk large capital projects , about we're talking about those projects north of $400 million in overall construction value .

Speaker #3: And so it's a it's a varied group , data certainly center gets a lot of the attention today . beyond But it's that .

Kevin Murphy: Yeah, Dave, thank you. Certainly, when we talk about large capital projects, we're talking about those projects north of $400 million in overall construction value. So it's a varied group. Certainly, data center gets a lot of the attention today, but it's beyond that to pharma, biotechnology, onshoring, reshoring, and manufacturing, and others. So the projects do vary. I will say, and people ask us quite a bit about what happens after large capital projects aren't the talk of the day. The answer to that is really a new way of working for Ferguson. So we are engaged early on in the construction process, early on with general contractors and owners around what specifications look like, how we can make sure that we have supply chains that stand up to timelines.

Speaker #3: pharma , biotechnology , onshoring reshoring and manufacturing and others . And To so the projects do vary . I will people ask us quite a bit about what say , and happens after large capital projects .

Speaker #3: the Aren't talk of the day . And the answer to that is really a new way of working for Ferguson . And so we are engaged early on in the construction process , early on with general contractors and owners around what specifications look like , how we can make sure that we have chains that stand up supply to timelines .

Speaker #3: And so doing , together with the that contractors on the job , we're engaging most of our nonresidential customer groups on these projects , whether that be industrial fire fabrication and , water works , commercial mechanical .

Kevin Murphy: And so doing that together with the contractors on the job, we're engaging most of our non-residential customer groups on these projects, whether that be industrial, fire and fabrication, waterworks, commercial, and mechanical. And they vary, again, depending on the kind of job. But that's the way we intend to work as we move forward, never abandoning the local relationships that we have with our core contractor base, but also making sure that we can deliver on tight timelines and make sure that we got the right product set for the job to deliver.

And so doing that together with the contractors on the job, we're engaging most of our non-residential customer groups on these projects, whether that be industrial, fire and fabrication, waterworks, commercial, and mechanical. And they vary, again, depending on the kind of job. But that's the way we intend to work as we move forward, never abandoning the local relationships that we have with our core contractor base, but also making sure that we can deliver on tight timelines and make sure that we got the right product set for the job to deliver.

Speaker #3: And they vary again , on the kind of that's job . But the way we intend to work as we move forward . Never depending abandoning the local relationships that with we have our core base , contractor but also making sure that we can deliver on tight timelines and make sure that we've get the right product set for the job to deliver .

Speaker #1: That's great . Kevin , thanks .

Speaker #3: Thanks , Dave .

Speaker #4: Next question will be from the line of Keith Hughes with Truist. Go ahead. Your line is open.

Dave Manty: That's great, Kevin. Thanks.

Dave Manthey: That's great, Kevin. Thanks.

Kevin Murphy: Thanks, Dave.

Speaker #5: Hey . Good morning . This is Julian on for Keith . Just in terms of the HVAC , when do you think we're going to start to ease from the head of the standard change from last year ?

Operator: Next question will be from the line of Keith Hughes with Truist Securities. Please go ahead. Your line is open.

[Analyst] (Truist Securities): Hey, good morning. This is Julian on for Keith. Just in terms of the HVAC, when do you think comps are going to start to ease from the pre-shipment ahead of the standard change from last year?

[Analyst] (Truist): Hey, good morning. This is Julian on for Keith. Just in terms of the HVAC, when do you think comps are going to start to ease from the pre-shipment ahead of the standard change from last year?

Speaker #3: Yeah , I'd say again , to build on what Bill has already said , that the market's in a tough spot right now .

Speaker #3: We saw it get a bit worse as we went through the quarter and exited October. It's a variety of factors, though. You've got a bit of the A2 transition as you had pull forward.

Kevin Murphy: Yeah, I'd say, again, to build on what Bill has already said, the market's in a tough spot right now. We saw it get a bit worse as we went through the quarter and exited October. It's a variety of factors, though. You've got a bit of the A2L transition as you had pull forward. You certainly have equipment price increase playing in now as the majority of the sell-through is in that new equipment standard. And then you've got a pressured consumer that is moving a bit to repair versus replace environment. And then you had some degree of playthrough on multifamily new construction that is now past. And so we're pleased with the overall execution. When does that start to get back to a replace environment? When do we start to see a bit of residential life? That's tough to pinpoint.

Speaker #3: You certainly have increase playing in price now as the equipment majority of the sell through is in that new equipment then you've standard , and pressured consumer that is moving a bit to repair got a replace environment .

Speaker #3: versus you had some degree of play through multifamily , new construction that is now , you know , passed . And so we're pleased with the on overall execution .

Speaker #3: When does that start to get back to a replace environment ? When do we start to see a bit of residential life ? That's that's tough to to pinpoint for us .

Speaker #3: We're bullish on what that market looks like over time . And we're going to continue to build out convenient locations across the United States , continue to build out our OEM brand representation .

Kevin Murphy: For us, we're bullish on what that market looks like over time. We're going to continue to build out convenient locations across the United States, continue to build out our OEM brand representation. We're going to continue to focus on M&A expansion as we capitalize on what we think is a growing trend with that dual trade contractor.

For us, we're bullish on what that market looks like over time. We're going to continue to build out convenient locations across the United States, continue to build out our OEM brand representation. We're going to continue to focus on M&A expansion as we capitalize on what we think is a growing trend with that dual trade contractor.

Speaker #3: We're going to continue to focus on M&A expansion as we capitalize on what we think is a growing trend with that dual trade contractor .

Speaker #5: Got it . Thank you .

Speaker #3: Ashwin .

Speaker #4: question will be from the line Next Schneeberger Scott Oppenheimer . Please go ahead . Your line is open . Go ahead .

[Analyst] (Truist Securities): Got it. Thank you.

[Analyst] (Truist): Got it. Thank you.

Kevin Murphy: Thanks, Julian.

Speaker #6: Thanks of much . Good morning

Operator: Next question will be from the line of Scott Schneeberger with Oppenheimer. Please go ahead. Your line is open.

Speaker #6: I want to touch on some some SGA topics . Last fiscal year you made investments trainees in HVAC counter expansion , large project teams .

Ryan Merkel: Thanks very much. Good morning. I want to touch on some SG&A topics. Last fiscal year, you made investments in trainees, HVAC counter expansion, large project teams. Could I get an update on how these investments have been trending, what you're looking for, maybe going out over the coming year, and impacts of these investments to date? Thanks.

Scott Schneeberger: Thanks very much. Good morning. I want to touch on some SG&A topics. Last fiscal year, you made investments in trainees, HVAC counter expansion, large project teams. Could I get an update on how these investments have been trending, what you're looking for, maybe going out over the coming year, and impacts of these investments to date? Thanks.

Speaker #6: Thanks .

Speaker #2: Yeah . Scott , thanks for the question . First off from a trainee perspective , our trainee program is something that's been really foundational success of this to the company over decades .

Kevin Murphy: Yeah. Scott, thanks for the question. First off, from a trainee perspective, our trainee program is something that's been really foundational to the success of this company over decades now. And it's an area that we invest in, in good markets and in bad markets. So we continue to add trainees year in, year out to fuel our pipeline of talent. This year, we added roughly 250 to 300 trainees in our classes throughout the year. And we would expect to continue that program and expand that program as we step into calendar 2026. In terms of additional investments, Kevin just talked about our HVAC expansion plans and the build-out of convenient locations. We have now completed roughly 650 counter conversions. So that is both taking HVAC counters and adding plumbing products as well as taking plumbing counters and adding HVAC products. And it's not just the products.

Bill Brundage: Yeah. Scott, thanks for the question. First off, from a trainee perspective, our trainee program is something that's been really foundational to the success of this company over decades now. And it's an area that we invest in, in good markets and in bad markets. So we continue to add trainees year in, year out to fuel our pipeline of talent. This year, we added roughly 250 to 300 trainees in our classes throughout the year. And we would expect to continue that program and expand that program as we step into calendar 2026. In terms of additional investments, Kevin just talked about our HVAC expansion plans and the build-out of convenient locations. We have now completed roughly 650 counter conversions. So that is both taking HVAC counters and adding plumbing products as well as taking plumbing counters and adding HVAC products. And it's not just the products.

Speaker #2: Now . And it's a it's an area in good invest in markets and in bad markets . So we continue to trainees add year in , year out to fuel our of talent pipeline .

Speaker #2: This year , we added roughly 250 to 300 trainees in our classes the year . And we would expect to in our continue that that and program expand that program as we step into calendar 26 .

Speaker #2: terms of additional investments , Kevin just talked about our HVAC expansion plans out of and the build convenient We have now completed roughly 650 counter conversions .

Speaker #2: So that is both taking HVAC locations . and adding plumbing products , as well as taking plumbing counters and adding HVAC products . And it's not just the products , it's also the expertise and our associates that we train to ensure that we have experts , serving experts .

Speaker #2: We believe that is yielding real fruit . despite a very HVAC challenging environment , we believe we are outperforming that So market and so for the have done last several quarters .

Kevin Murphy: It's also the expertise and our associates that we train to ensure that we have experts serving experts. We believe that is yielding real fruit. So despite a very challenging HVAC environment, we believe we are outperforming that HVAC market and have done so for the last several quarters. And we will continue, as Kevin said, to fuel that growth to ensure that we expand that HVAC footprint. And maybe lastly, we're continuing to invest from a technology and a digital standpoint. And so we continue to invest in new technology digital tools, principally in the areas of HVAC and for the repair replace plumbing contractor. And we're very pleased with the progress that we've made with many of those investments.

It's also the expertise and our associates that we train to ensure that we have experts serving experts. We believe that is yielding real fruit. So despite a very challenging HVAC environment, we believe we are outperforming that HVAC market and have done so for the last several quarters. And we will continue, as Kevin said, to fuel that growth to ensure that we expand that HVAC footprint. And maybe lastly, we're continuing to invest from a technology and a digital standpoint. And so we continue to invest in new technology digital tools, principally in the areas of HVAC and for the repair replace plumbing contractor. And we're very pleased with the progress that we've made with many of those investments.

Speaker #2: And we will continue , as Kevin said , to fuel that growth , to to ensure that we expand HVAC footprint and maybe lastly , we're continuing to invest from a technology and a digital standpoint .

Speaker #2: continue to so we And invest in new technology , digital tools , principally in the areas of HVAC and for the repair , replacement , plumbing contractor .

Speaker #2: We're very pleased with the progress that we've made with with those many of , if investments you take a step back from an overall SG&A perspective , we've been able to continue to invest in types of those areas to fuel future growth cost .

Kevin Murphy: If you take a step back from an overall SG&A perspective, we've been able to continue to invest in those types of areas to fuel future growth while we've managed the cost base. We did take some cost actions earlier in this calendar year that we talked about a couple of quarters ago. Those cost actions have played through. We've received the benefits of that. So even though we're operating in still a bit of a challenging top-line market environment, we're delivering good quality SG&A leverage while we're continuing to invest in the business for the future. We feel good about where the cost base sits as we exit calendar 2025 and enter calendar 2026.

If you take a step back from an overall SG&A perspective, we've been able to continue to invest in those types of areas to fuel future growth while we've managed the cost base. We did take some cost actions earlier in this calendar year that we talked about a couple of quarters ago. Those cost actions have played through. We've received the benefits of that. So even though we're operating in still a bit of a challenging top-line market environment, we're delivering good quality SG&A leverage while we're continuing to invest in the business for the future. We feel good about where the cost base sits as we exit calendar 2025 and enter calendar 2026.

Speaker #2: the managed While we've base . And we did take some cost actions earlier this , in this in calendar year that we talked about a couple of ago , those cost actions have played through .

Speaker #2: We've received the that . benefits of And so while we're even though operating of a top line and still a bit market challenging environment , delivering good SGA quality leverage continuing to invest in the while we're business for the future .

Speaker #2: good about where the base cost sits as So we exit calendar 25 and enter calendar 26 , and .

Speaker #3: Maybe to just build on what Bill was saying . Certainly trainee the aspect is a long term investment in the business and making sure that we have a pipeline of talent as associates to grow this business over time .

Kevin Murphy: And maybe to just build on what Bill was saying, certainly the trainee aspect is a long-term investment in the business and making sure that we have a pipeline of talented associates to grow this business over time. He spoke about the HVAC business, so I won't be repetitive there. But when you look at what investments we've made in waterworks diversification and making sure that we have a broad book of business from residential to public works to water, wastewater treatment plant to geosynthetics, and soil stabilization, that is serving us well. And certainly, we're pleased with a +14% growth rate. We're pleased with the large capital project space. We talked about a multi-customer group approach and engaging early on in the project, but we're also investing in value-added services like fabrication, valve actuation, and automation, and virtual design. And so that's serving us well.

Speaker #3: He spoke about the HVAC business , so it won't be repetitive . There , but when you look what at investments we've made in waterworks , diversification and making have a sure that we broad book of business from residential to public works to water wastewater treatment plant to geosynthetics and soil stabilization that is serving us well .

Speaker #3: And certainly we're pleased with a plus 14% growth rate . We're pleased with the large capital projects base . We talked about a multi customer group approach and engaging early on in the project , but we're also investing in value added like services fabrication , valve actuation and automation and virtual design .

Speaker #3: And so that's serving us well obviously with a plus 21 in the commercial mechanical business . We're pleased . And then lastly , when about you talk and bringing together what is a best in class digital platform with a showroom experience and a consultative approach and a builder home outside force .

Kevin Murphy: Obviously, with a +21 in the commercial mechanical business, we're pleased. And then lastly, when you talk about Ferguson Home and bringing together what is a best-in-class digital platform with a showroom experience and a consultative approach and a builder outside Salesforce that's driving growth with the connected consumer to that builder, designer, and remodeler. And so we think all of those investments are proving to be successful as we move through what is a challenging environment.

Obviously, with a +21 in the commercial mechanical business, we're pleased. And then lastly, when you talk about Ferguson Home and bringing together what is a best-in-class digital platform with a showroom experience and a consultative approach and a builder outside Salesforce that's driving growth with the connected consumer to that builder, designer, and remodeler. And so we think all of those investments are proving to be successful as we move through what is a challenging environment.

Speaker #3: That's driving growth with the Ferguson consumer to that builder , designer and remodeler . And so think all of investments are proving to be those successful as we move is a through it challenging environment we .

Speaker #6: Great . Thanks guys . And just a follow up . You spoke a little bit asked about supplier pricing going into next year .

Speaker #6: I'm just curious from a high level , how are you thinking about managing inventory as enter you 2026 ? Thanks .

[Analyst] (Truist Securities): Great. Thanks, guys. Just to follow up, you spoke a little bit earlier, you were asked about supplier pricing going into next year. I'm just curious from a high level, how are you thinking about managing inventory as you enter 2026? Thanks.

Scott Schneeberger: Great. Thanks, guys. Just to follow up, you spoke a little bit earlier, you were asked about supplier pricing going into next year. I'm just curious from a high level, how are you thinking about managing inventory as you enter 2026? Thanks.

Speaker #2: Yeah , we think our inventories are in a good spot right now . Teams are doing a really nice job and so . Managing have done through a unique environment with increases coming through the system this year .

Speaker #2: price So I wouldn't expect significant changes to the inventory profile as we exit calendar 25 and enter calendar 26 . We think we have the right levels of inventory to take care of our customers and to support continued market outperformance .

Kevin Murphy: Yeah. We think our inventories are in a good spot right now. Teams are doing a really nice job and have done so managing through a unique environment with price increases coming through the system this year. So I wouldn't expect significant changes to the inventory profile as we exit calendar 2025 and enter calendar 2026. We think we have the right levels of inventory to take care of our customers and to support continued market outperformance.

Bill Brundage: Yeah. We think our inventories are in a good spot right now. Teams are doing a really nice job and have done so managing through a unique environment with price increases coming through the system this year. So I wouldn't expect significant changes to the inventory profile as we exit calendar 2025 and enter calendar 2026. We think we have the right levels of inventory to take care of our customers and to support continued market outperformance.

Speaker #6: Great .

Speaker #6: very much .

Speaker #7: you Thanks

Speaker #4: Final question will come from the line of Nigel of Coe with Wolfe Research. Please go ahead. Your line is now open.

[Analyst] (Truist Securities): Great. Thanks very much.

Scott Schneeberger: Great. Thanks very much.

Kevin Murphy: Thank you.

Speaker #8: Hi . Thanks for question , guys . the Appreciate it . So you

Speaker #8: gave a bit of color on the on the on the calendar fourth quarter . missed I any gross margin commentary . Just just wondering if there's any any sense on how that's been know ?

Operator: Our final question will come from the line of Nigel Coe with Wolfe Research. Please go ahead. Your line is now open.

Nigel Coe: Oh, thanks for the question, guys. Appreciate it. So you gave a bit of color on the calendar Q4. I missed any gross margin commentary. Just wondering if there's any sense on how that's been trending Q to date.

Kevin Murphy: Yeah. I would think of it, Nigel, in a pretty similar range to the quarter that we just reported. As we had talked about coming out of the summer months, that we had expected to get back more into that normalized range of somewhere between 30% and 31%. I think you can expect it in that range as we exit the calendar year.

Bill Brundage: Yeah. I would think of it, Nigel, in a pretty similar range to the quarter that we just reported. As we had talked about coming out of the summer months, that we had expected to get back more into that normalized range of somewhere between 30% and 31%. I think you can expect it in that range as we exit the calendar year.

Speaker #8: And Q then a lot of helpful commentary on the larger project sites in terms of , you know , I know this would probably be a range , quite any but sense on what Ferguson sort of opportunity would be on a typical large project ?

Nigel Coe: Great. And then a lot of helpful commentary on the larger project side. In terms of, I know this would probably be in quite a range, but any sense on what Ferguson's sort of opportunity would be on a typical large project? Again, I know there's no typical large project, but any sense on what the kind of content might be for Ferguson?

Speaker #8: Again , I know there's no typical large project , but any any sense on what the kind of content be for might Ferguson .

Speaker #2: Yeah , well , caveat it with it will vary significantly depending on the type of project . But and as Kevin talked about , talk about large when we capital projects , we're talking about those projects that have construction north value of $400 million .

Kevin Murphy: Yeah. I'll caveat it with it will vary significantly depending on the type of project. And as Kevin talked about, when we talk about large capital projects, we're talking about those projects that have construction value north of $400 million. As a general ballpark, you take that construction value, and somewhere between 2% and 4% of the construction value would generally make up our product set and our customer group set. But again, that will vary pretty significantly. And that certainly doesn't include in the likes of the data center, that wouldn't include the cost of the servers, chips, and those types of interior pieces of equipment to run the data center. It's more just that construction value.

Bill Brundage: Yeah. I'll caveat it with it will vary significantly depending on the type of project. And as Kevin talked about, when we talk about large capital projects, we're talking about those projects that have construction value north of $400 million. As a general ballpark, you take that construction value, and somewhere between 2% and 4% of the construction value would generally make up our product set and our customer group set. But again, that will vary pretty significantly. And that certainly doesn't include in the likes of the data center, that wouldn't include the cost of the servers, chips, and those types of interior pieces of equipment to run the data center. It's more just that construction value.

Speaker #2: As a general ballpark , you take that construction value and somewhere between 2 and 4% of the construction value would generally make up our product set and our customer group set .

Speaker #2: But again , that vary pretty significantly . And that will certainly doesn't include , the likes of you know , in the data center that wouldn't include the cost of the servers and chips and those of interior pieces of equipment to run the data center .

Speaker #2: It's more just that construction value, right?

Speaker #8: Thank Very helpful . you

Speaker #8: Thank Very helpful . you .

Speaker #9: Great Thank you . .

Speaker #4: This concludes today's Q&A session . I'll now hand over to Kevin for Murphy closing remarks .

Nigel Coe: Right. Very helpful. Thank you.

Speaker #3: Thank you. And let's end the call in the way that we began, with a strong commendation to our associates for their hard work and diligence in what is clearly a challenging market.

Kevin Murphy: Thank you, Nigel.

Bill Brundage: Thank you, Nigel.

Nigel Coe: This concludes today's Q&A session. I'll now hand over to Kevin Murphy for closing remarks.

Speaker #3: As you heard today , we're pleased with the thank you quarter 5% revenue growth , expansion of growth and operating margin , 16% EPs growth , operating profit growth continued of 14% , investment in the business , and a strong balance sheet .

Kevin Murphy: Thank you, operator. And let's end the call in the way that we began with a strong thank you to our associates for their hard work and diligence in what is clearly a challenging market. As you heard today, we're pleased with the quarter: 5% revenue growth, expansion of growth in operating margin, 16% EPS growth, operating profit growth of 14%, continued investment in the business, and a strong balance sheet. We're pleased with the execution of the teams and the continued investment in key growth areas that are yielding solid results as we're sat here today. We'll continue to focus on driving construction productivity for the water and air specialized professional. We're going to leverage scale with the best local relationships. We're going to continue investing in value-added services and digital tools. So thank you very much for your time today.

Speaker #3: We're pleased with the execution of the teams and the continued investment in key growth areas that are solidly yielding results. As we sit here today, we'll continue to focus on driving construction productivity for water and air.

Speaker #3: Specialized professional . We're going to leverage scale with the best local relationships . We're going to continue investing in value added services and digital .

Speaker #3: you very So thank much for your time today . Have a happy holidays and we'll talk to you soon . Thank you .

Speaker #4: That concludes Ferguson . S results for the quarter ended October 31st , 2025 . Conference call . I'd like to thank you for your participation .

Kevin Murphy: Have a happy holidays, and we'll talk to you soon. Thank you.

Have a happy holidays, and we'll talk to you soon. Thank you.

Speaker #4: We now connect your lines.

Operator: That concludes Ferguson's results for the quarter ended 31 October 2025 conference call. I'd like to thank you for your participation. We now disconnect your lines.

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