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Ferguson plc reports third quarter results

CONTINUED STRONG SALES AND OPERATING PERFORMANCE

Three months ended April 30,
US$ (In millions, except per share amounts) 2022 2021 Change
 

Reported1

Adjusted2 Reported1 Adjusted2 Reported Adjusted
Net sales 7,284 7,284 5,916  5,916 +23.1% +23.1%
Gross margin 30.3% 30.3% 30.9% 30.9% (60) bps (60) bps
Operating profit 712 747 520  559 +36.9% +33.6%
Operating margin 9.8% 10.3% 8.8% 9.4% +100 bps +90 bps
Earnings per share - diluted 2.50 2.50 1.65 1.78 +51.5% +40.4%
Adjusted EBITDA   795   602   +32.1%
Net debt2 : Adjusted EBITDA   0.8x   0.4x    
(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.”

Third quarter highlights

  • Strong sales growth of 23.1% on top of tough prior year comparables.
  • Operating margin of 9.8% expanded by 100 bps (adjusted operating margin of 10.3%, up 90 bps), driven by disciplined cost control.
  • Completed four bolt-on acquisitions in the quarter; acquired an additional three post quarter end; and signed a definitive purchase agreement to acquire an own brand lighting and fan business, subject to regulatory approval. Annualized revenue for these acquisitions is approximately $450 million.
  • Share repurchases of $501 million during the quarter, with $918 million of our $2.0 billion buy back program completed during the first nine months of the year.
  • Achieved primary listing move to the NYSE on May 12, 2022.

 

Kevin Murphy, Ferguson CEO, commented:

“Our associates continued to drive outstanding service and support for our customers, delivering further market share gains and a strong financial performance. Disciplined cost control ensured earnings growth continued to outpace revenue growth as we ran up against strong prior year comparables. We continue to execute our strategy of investing for organic growth, consolidating our fragmented markets through acquisitions and returning capital to shareholders.

“Near term market demand remains supportive and we have increased our full year expectations for adjusted operating profit to $2.85 - $2.95 billion. While we are mindful of broader macroeconomic headwinds, our balanced business mix, agile business model and strong balance sheet position us well for the future.”

 

Summary of financial results

Third quarter

Net sales of $7,284 million were 23.1% ahead of last year, and the same on an organic basis, as a 1.7% contribution from acquisitions was fully offset by one fewer trading day and the impact of foreign exchange rates. Inflation in the third quarter was approximately 20%.

Gross margins of 30.3% were 60 basis points lower than last year driven primarily by strong prior year comparables and changes in business mix. Operating expenses continued to be well controlled, resulting in an operating margin increase of 100 basis points (adjusted operating margin +90 basis points). We remain focused on productivity and efficiencies while investing in our talented associates, supply chain capabilities and technology.

Reported operating profit was $712 million (adjusted operating profit: $747 million), 36.9% ahead of last year (adjusted operating profit growth: 33.6%) as strong revenue and good cost control led to continued operating leverage.

Reported earnings per share on a diluted basis was $2.50 (adjusted earnings per share – diluted: $2.50), an increase of 51.5% (adjusted earnings per share – diluted growth: 40.4%) 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.

USA - third quarter

The US business grew net sales by 23.9% which comprised 23.7% organic growth with 1.8% from acquisitions offset by 1.6% from one fewer trading day.

Residential end markets, which comprise just over half of our US revenue, remained robust during the quarter. New residential housing start and permit activity has continued at elevated levels. Overall, our residential revenue grew by approximately 20% in the third quarter.

Non-residential end markets, representing just under half of our US revenue, experienced strong growth. Our non-residential revenue grew by approximately 29% in the third quarter.

Adjusted operating profit of $736 million was 31.4% or $176 million ahead of last year.

We completed four acquisitions during the quarter with annualized revenues of approximately $50 million. We acquired two bolt-ons within our residential building and remodel customer group, Lighting Plus, a lighting business based in Alabama, and Founders Kitchen & Bath, a cabinetry design and install business serving the greater Atlanta region. We also acquired Adirondack Piping Solutions and AP Supply Co., both industrial distributors of PVF products in upstate New York and the southern US respectively.

Canada - third quarter

Net sales grew by 8.8%, with organic revenue growth of 11.3% offset by 1.8% from one fewer trading day and a further 0.7% due to the adverse impact of foreign exchange rates. Both residential and non-residential end markets saw good growth and adjusted operating profit of $20 million grew by 66.7%, significantly outpacing revenue growth as a result of good operating leverage.

Segmental overview

Three months ended April 30,
US$ (In millions) 2022 2021 Change
Net sales:      
USA 6,938 5,598 23.9%
Canada 346 318 8.8%
Total net Sales 7,284 5,916 23.1%
Adjusted operating profit      
USA 736 560 31.4%
Canada 20 12 66.7%
Central and other costs (9) (13)  
Total adjusted operating profit 747 559 33.6%

Financial position

Net debt at April 30, 2022 was $2,375 million and during the first nine months of the year we completed $918 million of the previously announced $2.0 billion share buy back.

On April 20, 2022, Ferguson closed a two-tranche $1.0 billion bond offering comprised of $300 million aggregate principal amount 4.25% notes due April 20, 2027 and $700 million aggregate principal amount 4.65% notes due April 20, 2032. The net proceeds will be used for general corporate purposes, including the repayment of existing debt.

We continue to see attractive growth opportunities through selective bolt-on acquisitions and subsequent to the quarter end we have completed an additional three acquisitions and signed a definitive purchase agreement to acquire a fourth, subject to regulatory approval. These bolt-ons include Aaron & Company, a leading plumbing and HVAC distributor in New Jersey and Safe Step Canada and Pacific Northwest, an independent dealer licensed to sell and install our Safe Step products. We also acquired STE, giving us broader distribution rights for geotextile products that remove contaminants from polluted water. Additionally, we signed a definitive purchase agreement to acquire Minka Lighting, an own brand lighting and fan company, which we expect to complete in the fourth quarter subject to regulatory approval. These post quarter end acquisitions have additional annualized revenues of approximately $400 million.

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, the primary listing on the New York Stock Exchange became effective on May 12, 2022, aligning our listing structure with the geographic location of our operations and associates.

Outlook

Near term market demand remains supportive and we have increased our full year expectations for adjusted operating profit to $2.85 - $2.95 billion. While we are mindful of broader macroeconomic headwinds, our balanced business mix, agile business model and strong balance sheet position us well for the future.

For further information please contact

Ferguson

 

 

Brian Lantz, Vice President IR and Communications

Mobile:

+1 224 285 2410

Pete Kennedy, Director of Investor Relations

Mobile:

+1 757 603 0111

 

 

 

Media inquiries

 

 

John Pappas, Director of Financial Communications

Mobile:

+1 484 790 2727

Jonathan Doorley (Brunswick)

Tel:

+1 917 459 0419

Rebecca Kral (Brunswick)

Tel:

+1 917 818 9002

Investor conference call and webcast

A call with Kevin Murphy, CEO and Bill Brundage, CFO will commence at 7:30 a.m. ET (12:30 p.m. BST) 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 461274. To access the call via your laptop, tablet or mobile device please go to www.fergusonplc.com. If you have technical difficulties, please click the “Listen by Phone” button on the webcast player and dial the number provided.

Ferguson is a 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.