Ferguson (FERG) Q2 2026 Earnings Call Summary

1Key Financial Results and Metrics

Sales: $8.8 billion, up 4.6% year-over-year (YoY), driven by 3.8% organic growth and 1% from acquisitions.

Gross Margin: 31%, down 20 basis points YoY.

Operating Profit: Increased 2.9% to $932 million, with an operating margin of 10.7%.

Diluted Earnings Per Share (EPS): $3.39, a 5.3% increase YoY.

Net Debt-to-EBITDA: 1.3x, with expectations to rise to 1.8x post FloWorks acquisition.

Cash Flow: Operating cash flow of $716 million, down $400 million YoY due to increased working capital investments.

2Strategic Updates and Business Highlights

Acquisitions: Announced eight acquisitions year-to-date, including five in Q2, totaling nearly $600 million. Notable acquisition of FloWorks, expected to close in Q3, valued at $1.6 billion.

Market Performance: Strong growth in non-residential markets (+8%), with residential markets returning to growth (+2%).

Customer Group Performance:

Waterworks revenue grew 3%.

Commercial mechanical revenue increased 15%.

Industrial customer group saw 18% growth.

HVAC revenue surged 11%, driven by strong organic performance and M&A contributions.

3Forward Guidance and Outlook

Full-Year 2026 Guidance:

Net sales growth revised to mid-single digits, up from low-to-mid.

Operating margin guidance raised to 9.5%-9.8%.

CapEx estimated at $375 million-$425 million.

Anticipated effective tax rate of approximately 26%.

Second Half Expectations: Anticipated stronger growth rates supported by open orders and backlog, particularly in non-residential sectors.

4Bad News, Challenges, or Points of Concern

Residential Market Challenges: Despite a return to growth, the residential market remains pressured, particularly in new construction and repair maintenance.

Inflation and Commodity Prices: Inflation is expected to remain in the low-single-digit range, with some commodity prices, like PVC, experiencing deflation.

Inventory Levels: Increased inventory days, particularly in HVAC and large capital projects, though expected to normalize in the second half.

5Notable Q&A Insights

Large Capital Projects: Continued strength in large capital projects, with backlogs building, particularly in data centers and power generation.

Inflation Trends: Inflation has decelerated to low-single digits, with expectations of continued pressure on commodity prices.

Dual Trade Strategy: Approximately one-third of the customer base engages in both plumbing and HVAC trades, with expectations for growth in this area.

FloWorks Acquisition: Emphasis on customer relationships and capabilities as key benefits, enhancing Ferguson's competitive position in various sectors. Overall, Ferguson reported solid financial performance in Q2 2026, with strategic acquisitions and a focus on growth areas positioning the company well for the future, despite facing challenges in the residential market and ongoing inflationary pressures.