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Ferguson plc reports the second quarter and half year results

STRONG EXECUTION CONTINUES TO DRIVE PERFORMANCE

Three months ended January 31,
US$ (In millions, except per share amounts) 2022 2021 Change
 

Reported1

Adjusted2 Reported1 Adjusted2 Reported Adjusted
Net sales 6,508 6,508 4,937  4,937  +31.8 % +31.8 %
Gross margin 30.6% 30.6% 30.4% 30.4% +20 bps +20 bps
Operating profit 555 588 319  350 +74.0% +68.0%
Operating margin 8.5% 9.0% 6.5% 7.1% +200 bps +190 bps
Earnings per share - diluted 1.97 1.93 1.23 1.10 +60.2% +75.5%
Adjusted EBITDA   648   391   +65.7%
Net debt2 : Adjusted EBITDA   0.8x   0.6x    

Second quarter highlights

- Strong sales growth as core strengths drove market share gains in supportive end markets.

- Price inflation increased to high teens driven largely by finished goods.

- Operating leverage led to particularly strong profit growth.

First half highlights

- Sales growth of 29.1% and robust operating leverage led to operating profit growth of 68.3% (adjusted 62.5%).

- Completed six acquisitions, four within Q2, with annualized revenues of approximately $235 million.

- Repurchased $417 million of the $1.0 billion share buy back program announced September 28, 2021.

Corporate highlights

- Interim dividend increased by 15% to $0.84 per share.

- Increasing share buy back program by $1.0 billion to $2.0 billion. Through March 11, 2022 we have completed $659 million leaving $1,341 million outstanding which we expect to complete over the next 12 months.

- Vote to enable a US primary listing approved on March 10, 2022, expected to take effect May 12, 2022.

Kevin Murphy, Group Chief Executive, commented:

“Our associates delivered another excellent performance with continued market share gains and strong price realization while navigating industry supply chain pressures. We are pleased with earnings growth that significantly outpaced revenue growth to generate another quarter of strong operating leverage. Our balance sheet is strong and we continue to return capital to shareholders through the ongoing share buy back program, which we are increasing by an additional $1.0 billion.

“Markets remain supportive and we anticipate solid revenue growth in the second half as we begin to lap tougher comparatives. We continue to be mindful that first half tailwinds on gross margin will likely moderate but we are confident in our full year expectations.”

(1) The results are presented in accordance with U.S. GAAP on a continuing operations basis.

(2) The Company uses certain non-GAAP measures, which are not defined or specified under U.S. GAAP. See the section titled “Non-GAAP Reconciliations and Supplementary Information.”

Six months ended January 31,
US$ (In millions, except per share amounts) 2022 2021 Change
 

Reported1

Adjusted2 Reported1 Adjusted2 Reported Adjusted
Net sales 13,311 13,311 10,309 10,309 +29.1% +29.1 %
Gross margin 30.9% 30.9% 30.0% 30.0% +90 bps +90 bps
Operating profit 1,294 1,355 769 834 +68.3% +62.5%
Operating margin 9.7% 10.2% 7.5% 8.1% +220 bps +210 bps
Earnings per share - diluted 4.38 4.43 2.63 2.61 +66.5% +69.7%
Adjusted EBITDA   1,462   915   +59.8%

1 The results are presented in accordance with U.S. GAAP on a continuing operations basis.

2 The Company uses certain non-GAAP measures, which are not defined or specified under U.S. GAAP. See the section titled “Non-GAAP Reconciliations and Supplementary Information.”

Summary of financial results

Second quarter

Net sales of $6,508 million were 31.8% ahead of last year, 28.5% higher on an organic basis with 1.4% from acquisitions, 1.8% from an additional trading day and a further 0.1% from the impact of foreign exchange rates. Inflation in the second quarter was in the high teens.

Gross margins of 30.6% were 20 basis points ahead of last year driven primarily by our ability to service customers while managing price inflation, offset in part by changes in business mix. Operating expenses continued to be well controlled as we focused on productivity and efficiencies while investing in our talented associates, supply chain capabilities and technology.

Reported operating profit was $555 million (adjusted operating profit: $588 million), 74.0% ahead of last year (adjusted operating profit growth: 68.0%) as strong revenue, gross margin expansion and good cost control led to strong operating leverage.

Reported earnings per share on a diluted basis was $1.97 (adjusted earnings per share – diluted: $1.93), an increase of 60.2% (adjusted earnings per share – diluted growth: 75.5%) with the increase due to the strength of the profit performance in the period and the lower share count arising from share buy back programs.

First half

Net sales of $13,311 million were 29.1% ahead of last year, 26.4% higher on an organic basis with 1.6% from acquisitions, 0.9% from an additional trading day and a further 0.2% from the impact of foreign exchange rates. Inflation in the first half was in the mid teens.

Reported operating profit was $1,294 million (adjusted operating profit: $1,355 million), 68.3% ahead of last year (adjusted operating profit growth: 62.5%) as strong revenue, gross margin expansion and good cost control led to strong operating leverage.

USA - second quarter

The US business grew net sales by 32.6% which comprised 29.4% organic growth with 1.4% from acquisitions and a further 1.8% from an additional trading day. Price inflation was in the high teens during the second quarter.

Residential end markets, which comprise just over half of our US revenue, remained robust during the quarter. New residential housing starts and permits continued to grow, as did residential repair, maintenance and improvement (“RMI”) which performed strongly. Overall, Ferguson’s residential revenue grew by approximately 29% in the second quarter.

Non-residential end markets experienced strong growth as demand continued to lap weaker comparators. Our non-residential revenue grew by approximately 37% in the second quarter and leading non-residential economic indicators continue to look strong.

Adjusted operating profit of $576 million was 64.6% or $226 million ahead of last year.

We completed four acquisitions during the quarter including, Safe Step California, an independent dealer licensed to sell and install our Safe Step products in California and Nevada, and RP Lighting & Fans, an own brand distributor based in Albuquerque, New Mexico. We also acquired Plumbers Supply Company of St. Louis, a distributor serving residential end markets in the Midwest, and Hot Water Products, Inc., a distributor of commercial water heaters and boilers in Wisconsin and Nebraska.

Canada - second quarter

Net sales grew by 18.7% with inflation in the high single digits. Organic revenue grew by 13.8% with 3.3% from two additional trading days and a further 1.6% due to the impact of foreign exchange rates. Both residential and non-residential end markets saw good growth and adjusted operating profit of $23 million grew by 76.9%, significantly outpacing revenue growth as a result of good operating leverage.

Segmental and year-to-date overview

  Three months ended January 31, Six months ended January 31,
US$ (In millions) 2022 2021 Change 2022 2021 Change
Net sales:

USA

6,172 4,654 32.6% 12,590 9,704 29.7%

Canada

336 283 18.7% 721 605 19.2%
Total net sales 6,508 4,937 31.8% 13,311 10,309 29.1%
Adjusted operating profit:   

USA

576 350 64.6% 1,328 822 61.6%

Canada

23 13 76.9% 57 36 58.3%

Central and other costs

(11) (13)   (30) (24)  
Total adjusted operating profit 588 350 68.0% 1,355 834 62.5%

Financial position and corporate updates

Net debt at January 31, 2022 was $2,207 million and during the first half we completed $417 million of the $1.0 billion share buy back announced on September 28, 2021.

Taking into account the Company’s strong financial position, the Company announces today a $1.0 billion increase to the current share buy back program. Through March 11, 2022 we have completed $659 million of the $2.0 billion share buy back program and expect to complete the remainder over the next 12 months.

An interim dividend of $0.84 per share (2021: $0.729 per share) representing an increase of 15% will be paid on May 6, 2022 to shareholders on the register on March 25, 2022.

There have been no other significant changes to the financial position of the Company.

U.S. primary listing

On March 10, 2022, the Company announced that the special resolution to enable a US primary listing on the New York Stock Exchange was passed with 95.49% support from the votes cast. Following the vote, it is expected that the transfer of the Company’s listing category on the London Stock Exchange from a premium listing to a standard listing will take effect on May 12, 2022.

Outlook

Markets remain supportive and we anticipate solid revenue growth in the second half as we begin to lap tougher comparatives. We continue to be mindful that first half tailwinds on gross margin will likely moderate but we are confident in our full year expectations.

For further information please contact

Ferguson plc
Brian Lantz, Vice President IR and Communications Mobile: +1 224 285 2410
Pete Kennedy, Director of Investor Relations Mobile: +1 757 603 0111
Media Enquiries
Mike Ward, Head of Corporate Communications Mobile: +44 (0) 7894 417060
Nina Coad, David Litterick (Brunswick) Tel: +44 (0) 20 7404 5959
Jonathan Doorley (Brunswick) Tel: +1 (917) 459 0419

Investor conference call and webcast

A call with Kevin Murphy, Group Chief Executive and Bill Brundage, Group Chief Financial Officer will commence at 1100 UK time (0700 ET) today. The call will be recorded and available on our website after the event at www.fergusonplc.com.

Dial in number

UK:        +44 (0) 20 3936 2999
US:        +1 646 664 1960

Ask for the Ferguson call quoting 103448. To access the call via your laptop, tablet or mobile device please click here. If you have technical difficulties, please click the “Listen by Phone” button on the webcast player and dial the number provided.

Ferguson is a $23B leading North American value-added distributor providing expertise, solutions and products from infrastructure, plumbing and appliances to HVAC, fire, fabrication and more. We exist to make our customers’ complex projects simple, successful and sustainable. Ferguson plc is listed on the New York Stock Exchange (NYSE: FERG) and the London Stock Exchange (LSE: FERG). For more information, please visit www.fergusonplc.com or follow us on LinkedIn https://www.linkedin.com/company/ferguson-enterprises.

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