Ferguson 10Q 2024 Q3 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 30, 2024


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-40066

Ferguson plc
(Exact name of registrant as specified in its charter)


Jersey, Channel Islands						98-1499339
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

1020 Eskdale Road, Winnersh Triangle, Wokingham,

Berkshire, RG41 5TS, United Kingdom

(Address of principal executive offices and zip code)

+44 (0) 118 927 3800

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)


Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Ordinary Shares of 10 pence	FERG	New York Stock Exchange
		London Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

As of May 31, 2024, the number of outstanding ordinary shares was 201,940,271.

TABLE OF CONTENTS


			PAGE


CERTAIN TERMS			1
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS			1
PART I – FINANCIAL INFORMATION			4
Item 1. Financial Statements			4
Condensed Consolidated Statements of Earnings			4
C ondensed C onsolidated Statements of Comprehensive Income			5
C ondensed C onsolidated Balance Sheets			6
C ondensed C onsolidated Statements of Shareholders’ Equity			7
C ondensed C onsolidated Statements of Cash Flows			9
Notes to the Condensed Consolidated Financial Statements			10
Note 1: Summary of significant accounting policies			10
Note 2: Revenue and segment information			12
Note 3: Weighted average shares			13
Note 4: Income tax			14
Note 5: Debt			14
Note 6: Assets and liabilities at fair value			15
Note 7: Commitments and contingencies			15
Note 8: Accumulated other comprehensive loss			15
Note 9: Retirement benefit obligations			16
Note 10: Shareholders’ equity			17
Note 11: Share-based compensation			17
Note 12: Acquisitions			18
Note 13: Related party transactions			20
Note 14: Subsequent event			20
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			21
Item 3. Quantitative and Qualitative Disclosures About Market Risk			29
Item 4. Controls and Procedures			29
PART II - OTHER INFORMATION			30
Item 1. Legal Proceedings			30
Item 1A. Risk Factors			30
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			36
Item 6. Exhibits			36
SIGNATURES			37

EXPLANATORY NOTE

As previously disclosed in a Current Report on Form 8-K filed by Ferguson plc (the “Company”) with the Securities and Exchange Commission (“SEC”) on May 31, 2024, the Company held an extraordinary general meeting of shareholders on May 30, 2024 (the “Special Meeting”) at which the Company’s shareholders (i) approved the merger agreement (the “Merger Agreement”), dated as of February 29, 2024, by and among the Company, Ferguson Enterprises Inc., a newly incorporated corporation under the laws of Delaware (“New TopCo”), and Ferguson (Jersey) 2 Limited, a newly formed Jersey incorporated private limited company and direct, wholly owned subsidiary of New TopCo (“Merger Sub”) and (ii) on an advisory basis, voted on other matters relating to certain differences between the Company’s Memorandum and Articles of Association and the proposed Amended and Restated Certificate of Incorporation (the “New TopCo Proposed Certificate of Incorporation”) and proposed Amended and Restated Bylaws (the “New TopCo Proposed Bylaws” and, together with the New TopCo Proposed Certificate of Incorporation, the “New TopCo Proposed Organizational Documents”) of New TopCo. The Merger Agreement provides for the merger (the “Merger”) of Merger Sub with and into the Company, with the Company surviving the Merger as a direct, wholly owned subsidiary of New TopCo and Merger Sub ceasing to exist, at 12:01 a.m. Eastern Time on August 1, 2024 (the “Effective Time”), on the terms and subject to the conditions of the Merger Agreement. Following completion of the Merger, New TopCo would be the Company’s parent company and shareholders of the Company would become holders of common stock of New TopCo in accordance with the terms of the Merger Agreement.

On the terms of, subject to the conditions of and/or in connection with the Merger Agreement at the Effective Time, (i) each ordinary share, par value 10 pence per share, of Ferguson plc (collectively, the “Ferguson Shares” and each a, “Ferguson Share”) that is issued and outstanding at 6:00 p.m. Eastern Time on July 31, 2024 (the “Merger Record Time”) will automatically be cancelled without any repayment of capital and New TopCo will issue as consideration therefor new, duly authorized, validly issued, fully paid and non-assessable shares of common stock, par value $0.0001 per share, of New TopCo (the “New TopCo Common Stock”) to each holder of Ferguson Shares (collectively, the “Ferguson Shareholders” and each, a “Ferguson Shareholder”) on a one-for-one basis for each Ferguson Share held by such Ferguson Shareholder immediately preceding the Merger Record Time and (ii) each depositary interest (collectively, the “U.K. DIs” and each, a “U.K. DI”) issued through CREST by Computershare Investor Services PLC (the “Depositary”) representing a beneficial interest in an issued and outstanding Ferguson Share at the Merger Record Time will be cancelled and a depositary interest representing one share of New TopCo Common Stock will be issued through CREST by the Depositary as consideration therefor to each holder of U.K. DIs on a one-for-one basis for each U.K. DI held by such holder immediately preceding the Merger Record Time. All Ferguson Shares held in treasury will be cancelled as a result of the Merger.

Following completion of the Merger, New TopCo will be the Company’s parent company and will continue to pursue the Company’s current strategic initiatives and business operations. Further information about the expected Merger is available in the definitive proxy statement filed by the Company with the SEC on April 18, 2024 (the “Definitive Proxy Statement”). We encourage you to read that entire document carefully.

CERTAIN TERMS

Unless otherwise specified or the context otherwise requires, the terms “Company,” “Ferguson,” “we,” “us,” and “our” and other similar terms refer to Ferguson plc and its consolidated subsidiaries prior to the Effective Time and to Ferguson Enterprises Inc. and its consolidated subsidiaries after the Effective Time. Except as otherwise specified or the context otherwise requires, references to years indicate our fiscal year ended July 31 of the respective year. For example, references to “fiscal 2024” or similar references refer to the fiscal year ended July 31, 2024.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain information included in this quarterly report on Form 10-Q (“Quarterly Report”) is forward-looking, including within the meaning of the Private Securities Litigation Reform Act of 1995, and involves risks, assumptions and uncertainties that could cause actual results to differ materially from those expressed or implied by forward-looking statements. Forward-looking statements cover all matters which are not historical facts and include, without limitation, statements or guidance regarding or relating to our future financial position, results of operations and growth, the Merger, the benefits of the Merger, our ability to manage the risks relating to the Merger, plans and objectives for the future including our capabilities and priorities, risks associated with changes in global and regional economic, market and political conditions, ability to manage supply chain challenges, ability to manage the impact of product price fluctuations, our financial condition and liquidity, legal or regulatory changes, and other statements concerning the success of our business and strategies.

Forward-looking statements can be identified by the use of forward-looking terminology, including terms such as “believes,” “estimates,” “anticipates,” “expects,” “forecasts,” “intends,” “continues,” “plans,” “projects,” “goal,” “target,” “aim,” “may,” “will,” “would,” “could” or “should” or, in each case, their negative or other variations or comparable terminology and other similar references to future periods. Forward-looking statements speak only as of the date on which they are made. They are not assurances of future performance and are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Therefore, you should not place undue reliance on any of these forward-looking statements. Although we believe that the forward-looking statements contained in this Quarterly Report are based on reasonable assumptions, you should be aware that many factors could cause actual results to differ materially from those in such forward-looking statements, including but not limited to:

•the Merger may be delayed, cancelled, suspended or terminated;

•unexpected costs relating to the Merger and other business uncertainties;

•the outcome of any legal proceedings that may be instituted against us following announcement of the Merger and related transactions;

•the risk that the Merger disrupts current plans and operations;

•the risk that Ferguson’s effective tax rate may increase in the future, including as a result of the Merger;

•the risk that Ferguson Shareholders may recognize taxable gain or other income with respect to their Ferguson Shares at the Effective Time;

•unanticipated adverse tax consequences to Ferguson, New TopCo and/or Ferguson Shareholders in connection with the Merger;

•our ability to adapt to operating under the laws of the State of Delaware and changes in shareholder rights as a result of the Merger;

•weakness in the economy, market trends, uncertainty and other conditions in the markets in which we operate, and other factors beyond our control, including disruption in the financial markets and any macroeconomic or other consequences of political unrest, disputes or war;

•failure to rapidly identify or effectively respond to direct and/or end customers’ wants, expectations or trends, including costs and potential problems associated with new or upgraded information technology systems or our ability to timely deploy new omni-channel capabilities;

•decreased demand for our products as a result of operating in highly competitive industries and the impact of declines in the residential and non-residential markets, as well as the repair, maintenance and improvement (“RMI”) and new construction markets;

•changes in competition, including as a result of market consolidation or competitors responding more quickly to emerging technologies (such as generative artificial intelligence (“AI”));

•failure of a key information technology system or process as well as exposure to fraud or theft resulting from payment-related risks;

•privacy and protection of sensitive data failures, including failures due to data corruption, cybersecurity incidents or network security breaches;

•ineffectiveness of or disruption in our domestic or international supply chain or our fulfillment network, including delays in inventory availability at our distribution facilities and branches, increased delivery costs or lack of availability;

•failure to effectively manage and protect our facilities and inventory or to prevent personal injury to customers, suppliers or associates, including as a result of workplace violence;

•unsuccessful execution of our operational strategies;

•failure to attract, retain and motivate key associates; exposure of associates, contractors, customers, suppliers and other individuals to health and safety risks;

•inherent risks associated with acquisitions, partnerships, joint ventures and other business combinations, dispositions or strategic transactions;

•regulatory, product liability and reputational risks and the failure to achieve and maintain a high level of product and service quality;

•inability to renew leases on favorable terms or at all, as well as any remaining obligations under a lease when we close a facility;

•changes in, interpretations of, or compliance with tax laws in the United States, the United Kingdom, Switzerland or Canada;

•our indebtedness and changes in our credit ratings and outlook;

•fluctuations in product prices (e.g., commodity-priced materials, inflation/deflation) and foreign currency;

•funding risks related to our defined benefit pension plans;

•legal proceedings as well as failure to comply with domestic and foreign laws, regulations and standards, as those laws, regulations and standards or interpretations and enforcement thereof may change, or the occurrence of unforeseen developments such as litigation;

•our failure to comply with the obligations associated with being a U.S. domestic issuer and the costs associated therewith;

•the costs and risk exposure relating to environmental, social and governance (“ESG”) matters, including sustainability issues, regulatory or legal requirements, and disparate stakeholder expectations;

•adverse impacts caused by a public health crisis; and

•other risks and uncertainties set forth under the heading “Risk Factors” in this Quarterly Report and in our Annual Report on Form 10-K for the fiscal year ended July 31, 2023 as filed with the SEC on September 26, 2023 (the “Annual Report”) and in other filings we make with the SEC in the future.

Additionally, forward-looking statements regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future. Other than in accordance with our legal or regulatory obligations, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

Part I - FINANCIAL INFORMATION

Item 1.Financial Statements

Ferguson plc

Condensed Consolidated Statements of Earnings

(unaudited)


	Three months ended		Nine months ended
	April 30,		April 30,
(In millions, except per share amounts)	2024	2023	2024	2023
Net sales	$7,308	$7,140	$21,689	$21,896
Cost of sales	(5,076)	(5,000)	(15,097)	(15,273)
Gross profit	2,232	2,140	6,592	6,623
Selling, general and administrative expenses	(1,522)	(1,435)	(4,503)	(4,376)
Impairments and other charges	—	(127)	—	(127)
Depreciation and amortization	(85)	(81)	(248)	(243)
Operating profit	625	497	1,841	1,877
Interest expense, net	(43)	(48)	(132)	(136)
Other expense, net	(1)	(2)	(4)	(7)
Income before income taxes	581	447	1,705	1,734
Provision for income taxes	(138)	(111)	(421)	(429)


Net income	$443	$336	$1,284	$1,305


Earnings per share - Basic	$2.19	$1.64	$6.32	$6.30




Earnings per share - Diluted	$2.18	$1.63	$6.30	$6.28



Weighted average number of shares outstanding:
Basic	202.6	205.4	203.3	207.1
Diluted	203.2	206.1	203.9	207.9

See accompanying Notes to the Condensed Consolidated Financial Statements.

Ferguson plc

Condensed Consolidated Statements of Comprehensive Income

(unaudited)


	Three months ended		Nine months ended
	April 30,		April 30,
(In millions)	2024	2023	2024	2023
Net income	$443	$336	$1,284	$1,305
Other comprehensive income (loss):
Foreign currency translation adjustments	(19)	(7)	(33)	(25)
Pension adjustments, net of tax impacts of ($1), $0, ($3) and ($1), respectively.	2	4	7	11
Total other comprehensive loss, net of tax:	(17)	(3)	(26)	(14)
Comprehensive income	$426	$333	$1,258	$1,291

See accompanying Notes to the Condensed Consolidated Financial Statements.

Ferguson plc

Condensed Consolidated Balance Sheets

(unaudited)


	As of
(In millions, except share amounts)	April 30, 2024	July 31, 2023
Assets
Cash and cash equivalents	$691	$601
Accounts receivable, less allowances of $41 and $27, respectively	3,532	3,597
Inventories	4,115	3,898
Prepaid and other current assets	946	953
Assets held for sale	30	28
Total current assets	9,314	9,077
Property, plant and equipment, net	1,692	1,595
Operating lease right-of-use assets	1,511	1,474
Deferred income taxes, net	306	300
Goodwill	2,325	2,241
Other intangible assets, net	767	783
Other non-current assets	543	524
Total assets	$16,458	$15,994

Liabilities and shareholders’ equity
Accounts payable	$3,638	$3,408
Short-term debt	150	55
Current portion of operating lease liabilities	382	366
Other current liabilities	1,359	1,600
Total current liabilities	5,529	5,429
Long-term debt	3,518	3,711
Long-term portion of operating lease liabilities	1,155	1,126
Other long-term liabilities	734	691
Total liabilities	10,936	10,957

Shareholders’ equity:
Ordinary shares, par value 10 pence: 500,000,000 shares authorized, 232,171,182 shares issued	30	30
Paid-in capital	855	809
Retained earnings	9,301	8,557
Treasury shares, 29,993,774 and 27,893,680 shares, respectively at cost	(3,750)	(3,425)
Employee Benefit Trusts, 0 and 274,031 shares, respectively at cost	—	(46)
Accumulated other comprehensive loss	(914)	(888)
Total shareholders' equity	5,522	5,037
Total liabilities and shareholders' equity	$16,458	$15,994

See accompanying Notes to the Condensed Consolidated Financial Statements.

Ferguson plc

Condensed Consolidated Statements of Shareholders’ Equity

(unaudited)


	Three Months Ended April 30, 2024
(In millions, except per share data)	Ordinary Shares	Paid-in Capital	Retained Earnings	Treasury Shares	Accumulated Other Comprehensive Loss	Total Shareholders’ Equity
Balance at January 31, 2024	$30	$842	$9,018	($3,575)	($897)	$5,418
Share-based compensation	—	13	—	—	—	13
Net income	—	—	443	—	—	443
Cash dividends declared ($0.79) per share	—	—	(160)	—	—	(160)
Other comprehensive loss	—	—	—	—	(17)	(17)
Share repurchases	—	—	—	(175)	—	(175)


Balance at April 30, 2024	$30	$855	$9,301	($3,750)	($914)	$5,522


	Nine months ended April 30, 2024
(In millions, except per share data)	Ordinary Shares	Paid-in Capital	Retained Earnings	Treasury Shares	Employee Benefit Trusts	Accumulated Other Comprehensive Loss	Total Shareholders’ Equity
Balance at July 31, 2023	$30	$809	$8,557	($3,425)	($46)	($888)	$5,037
Share-based compensation	—	44	—	—	—	—	44
Net income	—	—	1,284	—	—	—	1,284
Cash dividends declared ($2.33) per share	—	—	(472)	—	—	—	(472)
Other comprehensive loss	—	—	—	—	—	(26)	(26)
Share repurchases	—	—	—	(351)	—	—	(351)
Shares issued under employee share plans	—	—	(68)	26	45	—	3
Other	—	2	—	—	1	—	3
Balance at April 30, 2024	$30	$855	$9,301	($3,750)	$—	($914)	$5,522


	Three Months Ended April 30, 2023
(In millions, except per share data)	Ordinary Shares	Paid-in Capital	Retained Earnings	Treasury Shares	Employee Benefit Trusts	Accumulated Other Comprehensive Loss	Total Shareholders’ Equity
Balance at January 31, 2023	$30	$789	$7,945	($3,151)	($47)	($841)	$4,725
Share-based compensation	—	10	—	—	—	—	10
Net income	—	—	336	—	—	—	336
Other comprehensive loss	—	—	—	—	—	(3)	(3)
Cash dividends declared ($0.75) per share	—	—	(152)	—	—	—	(152)
Share repurchases	—	—	—	(195)	—	—	(195)
Shares issued under employee share plans	—	—	(1)	—	1	—	—

Balance at April 30, 2023	$30	$799	$8,128	($3,346)	($46)	($844)	$4,721


	Nine months ended April 30, 2023
(In millions, except per share data)	Ordinary Shares	Paid-in Capital	Retained Earnings	Treasury Shares	Employee Benefit Trusts	Accumulated Other Comprehensive Loss	Total Shareholders’ Equity
Balance at July 31, 2022	$30	$760	$7,594	($2,782)	($107)	($830)	$4,665
Share-based compensation	—	39	—	—	—	—	39
Net income	—	—	1,305	—	—	—	1,305
Other comprehensive loss	—	—	—	—	—	(14)	(14)
Cash dividends declared ($3.41) per share	—	—	(704)	—	—	—	(704)
Share repurchases	—	—	—	(570)	—	—	(570)
Shares issued under employee share plans	—	—	(67)	6	61	—	—

Balance at April 30, 2023	$30	$799	$8,128	($3,346)	($46)	($844)	$4,721

See accompanying Notes to the Condensed Consolidated Financial Statements.

Ferguson plc

Condensed Consolidated Statements of Cash Flows

(unaudited)


(In millions)	Nine months ended
	April 30,
	2024	2023
Cash flows from operating activities:
Net income	$1,284	$1,305


Depreciation and amortization	248	243
Share-based compensation	39	38
Non-cash impact of impairments and net loss on disposal of assets	—	127
Change in deferred income taxes	(14)	(88)
(Increase) decrease in inventories	(194)	315
Decrease in receivables and other assets	107	313
Increase (decrease) in accounts payable and other liabilities	107	(441)
Decrease in income taxes payable	(69)	(12)
Other operating activities	(1)	6
Net cash provided by operating activities of continuing operations	1,507	1,806
Net cash used in operating activities of discontinued operations	—	(4)
Net cash provided by operating activities	1,507	1,802

Cash flows from investing activities:
Purchase of businesses acquired, net of cash acquired	(185)	(179)
Capital expenditures	(263)	(361)
Other investing activities	30	(3)


Net cash used in investing activities	(418)	(543)

Cash flows from financing activities:
Purchase of treasury shares	(421)	(784)
Repayments of debt	(1,480)	(2,280)
Proceeds from debt	1,375	2,250
Change in bank overdrafts	19	1
Cash dividends	(465)	(557)
Other financing activities	(23)	(19)
Net cash used in financing activities	(995)	(1,389)
Change in cash, cash equivalents and restricted cash	94	(130)
Effects of exchange rate changes	(8)	20
Cash, cash equivalents and restricted cash, beginning of period	669	785
Cash, cash equivalents and restricted cash, end of period	$755	$675

Supplemental Disclosures:
Cash paid for income taxes	$505	$529
Cash paid for interest	162	156
Accrued capital expenditures	9	11
Accrued dividends	160	153

See accompanying Notes to the Condensed Consolidated Financial Statements.

Ferguson plc

Notes to the Condensed Consolidated Financial Statements

(unaudited)

Note 1: Summary of significant accounting policies

Background

Ferguson plc (the “Company”) (NYSE: FERG; LSE: FERG) is a public company limited by shares incorporated in Jersey under the Companies (Jersey) Law 1991 (as amended). The Company is a value-added distributor in North America 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 is headquartered in the United Kingdom (“U.K.”), with its operations and associates solely focused on North America and managed from Newport News, Virginia. The Company’s registered office is 13 Castle Street, St Helier, Jersey, JE1 1ES, Channel Islands.

Basis of presentation

The accompanying unaudited condensed consolidated financial statements and notes to the condensed consolidated financial statements are presented in accordance with the rules and regulations of the SEC and accounting principles generally accepted in the United States of America (“U.S. GAAP”), but do not include all disclosures normally required in annual consolidated financial statements. In the opinion of management, the unaudited condensed consolidated financial statements contain all normal recurring adjustments necessary to present fairly the financial position, results of operations and cash flows for the interim periods presented. The July 31, 2023 condensed consolidated balance sheet was derived from the audited financial statements.

For the nine months ended April 30, 2023 and to conform to current period presentation, the Company has disaggregated the total change in income taxes within the cash flows from operating activities to reflect the changes in deferred income taxes separately from the changes in income taxes payable.

These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Annual Report. The financial results for the interim periods may not be indicative of the financial results for the entire fiscal year.

Use of estimates

The preparation of the Company's interim condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions affecting certain reported amounts. Actual results may differ from those estimates.

Cash, cash equivalents and restricted cash

Cash and cash equivalents include cash on hand, deposits with banks with original maturities of three months or less and overdrafts to the extent there is a legal right of offset and practice of net settlement with cash balances.

Restricted cash primarily consists of deferred consideration for business combinations, subject to various settlement agreements, and is recorded in prepaid and other current assets in the Company’s condensed consolidated balance sheets.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets compared with amounts shown in the condensed consolidated statements of cash flows.


	As of
(In millions)	April 30, 2024	July 31, 2023
Cash and cash equivalents	$691	$601
Restricted cash	64	68
Total cash, cash equivalents and restricted cash	$755	$669

Supplier finance program

In October 2023, the Company began a supplier financing program with a third party wherein certain shipping and logistics providers in the United States can opt to receive early payment at a nominal discount. The Company’s standard payment terms under this program is 45 days. All outstanding payables related to the supplier finance program are classified within accounts payable within our unaudited consolidated balance sheets and were $49 million as of April 30, 2024.

Recently issued accounting standard updates (“ASU”)

In November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” This ASU expands public entities’ required segment disclosures, including disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items and interim disclosures of a reportable segment’s profit or loss and assets. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact of adopting this ASU on its disclosures.

In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” This ASU provides qualitative and quantitative updates to the rate reconciliation and income taxes paid disclosures, among others, in order to enhance the transparency of income tax disclosures, including consistent categories and greater disaggregation of information in the rate reconciliation and disaggregation by jurisdiction of income taxes paid. The amendments in this ASU are effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied prospectively; however, retrospective application is also permitted. The Company is currently evaluating the ASU to determine the impact on its disclosures.

Recent accounting pronouncements pending adoption that are not discussed above are either not applicable, or will not have, or are not expected to have, a material impact on our consolidated financial condition, results of operations, cash flows or related disclosures.

Note 2: Revenue and segment information

The Company reports its financial results of operations on a geographical basis in the following two reportable segments: United States and Canada. Each segment generally derives its revenues in the same manner. The Company uses adjusted operating profit as its measure of segment profit. Adjusted operating profit is defined as profit before tax, excluding central and other costs, restructuring costs, impairments and other charges, amortization of acquired intangible assets, net interest expense, as well as other items typically recorded in net other (expense) income such as (loss)/gain on disposal of businesses, pension plan changes/closure costs and amounts recorded in connection with the Company’s interests in investees. Certain income and expenses are not allocated to the Company’s segments and, thus, the information that management uses to make operating decisions and assess performance does not reflect such amounts.

Segment details were as follows:


	Three months ended		Nine months ended
	April 30,		April 30,
(In millions)	2024	2023	2024	2023
Net sales:
United States	$6,974	$6,827	$20,667	$20,863
Canada	334	313	1,022	1,033
Total net sales	$7,308	$7,140	$21,689	$21,896
Adjusted operating profit:
United States	$685	$664	$1,976	$2,088
Canada	6	7	38	54

Central and other costs	(17)	(14)	(47)	(39)
Corporate restructurings(1)	(12)	—	(20)	—
Impairments and other charges(2)	—	(127)	—	(127)
Amortization of acquired intangible assets	(37)	(33)	(106)	(99)
Interest expense, net	(43)	(48)	(132)	(136)
Other expense, net	(1)	(2)	(4)	(7)
Income before income taxes	$581	$447	$1,705	$1,734

(1)For the three and nine months ended April 30, 2024, corporate restructuring costs related to incremental costs in connection with establishing a new corporate structure to domicile our ultimate parent company in the United States.

(2)For the three and nine months ended April 30, 2023, impairments and other charges related to the $107 million in software impairment charges in the United States, as well as charges associated with the closure of certain smaller, underperforming branches in the United States.

Our products are delivered through a common network of distribution centers, branches, specialist sales associates, counter service, showroom consultants and e-commerce. The Company recognizes revenue when a sales arrangement with a customer exists, the transaction price is fixed or determinable, collection of consideration is probable and the Company has satisfied its performance obligation per the sales arrangement. The majority of the Company’s revenue originates from sales arrangements with a single performance obligation to deliver products, whereby the performance obligations are satisfied when control of the product is transferred to the customer which is the point the product is delivered to, or collected by, the customer.

The Company determined that disaggregating net sales by end market at the segment level achieves the disclosure objective to depict how the nature, amount, timing, and uncertainty of revenue and cash flows may be impacted by economic factors. The disaggregated net sales by end market are as follows:


	Three months ended		Nine months ended
	April 30,		April 30,
(In millions)	2024	2023	2024	2023
United States:
Residential	$3,552	$3,534	$10,591	$10,956
Non-residential:
Commercial	2,337	2,231	6,929	6,764
Civil/Infrastructure	599	567	1,740	1,713
Industrial	486	495	1,407	1,430
Total Non-residential	3,422	3,293	10,076	9,907
Total United States	6,974	6,827	20,667	20,863
Canada	334	313	1,022	1,033
Total net sales	$7,308	$7,140	$21,689	$21,896

No sales to an individual customer accounted for more than 10% of net sales during any of the periods presented.

The Company is a value-added distributor in North America of products from infrastructure, plumbing and appliances to HVAC, fire, fabrication and more. We offer a broad line of products, and items are regularly added to and removed from the Company's inventory. Accordingly, it would be impractical to provide sales information by product category due to the way the business is managed, and the dynamic nature of the inventory offered.

Note 3: Weighted average shares

The following table presents the reconciliation of our basic to diluted weighted average number of shares outstanding:


	Three months ended		Nine months ended
	April 30,		April 30,
(In millions)	2024	2023	2024	2023




Basic weighted average shares	202.6	205.4	203.3	207.1
Effect of dilutive shares(1)	0.6	0.7	0.6	0.8
Diluted weighted average shares	203.2	206.1	203.9	207.9











Excluded anti-dilutive shares	—	0.1	—	0.1

(1)Represents the potential dilutive impact of share-based awards.

Note 4: Income tax

Ferguson manages its affairs so that it is centrally managed and controlled in the U.K. and therefore has its tax residency in the U.K. The provision for income taxes consists of provisions for the U.K. plus non-U.K. tax rate differentials with respect to other locations in which Ferguson’s operations are based. Accordingly, the consolidated income tax rate is a composite rate reflecting earnings in various locations and the applicable rates.

The Company’s tax provision for each period presented was calculated using an estimated annual tax rate, adjusted for discrete items occurring during the applicable period to arrive at an effective tax rate. The effective income tax rates for the relevant periods were as follows:


	Three months ended				Nine months ended
	April 30,				April 30,
	2024		2023		2024		2023
Effective tax rate	23.8	%	24.8	%	24.7	%	24.7	%

During the three and nine months ended April 30, 2024, there have been no material changes to the Company’s unrecognized tax benefits when compared to those items disclosed in the Annual Report.

Note 5: Debt

The Company’s debt obligations consisted of the following:


	As of
(In millions)	April 30, 2024	July 31, 2023
Variable-rate debt:
Receivables Facility	$—	$50
Term Loan	500	500
Fixed-rate debt:
Private placement notes	850	905
Unsecured senior notes	2,350	2,350
Subtotal	$3,700	$3,805
Less: current maturities of debt	(150)	(55)
Unamortized discounts and debt issuance costs	(19)	(22)
Interest rate swap - fair value adjustment	(13)	(17)
Total long-term debt	$3,518	$3,711

Variable rate debt

The Company maintains a Receivables Securitization Facility (the “Receivables Facility”) that consists of funding for up to $1.1 billion, including a swingline for up to $100 million in same day funding. As of April 30, 2024, no borrowings were outstanding under the Receivables Facility. There was no significant change in interest rates from those disclosed in the Annual Report.

The Company’s Credit Agreement, dated October 7, 2022 (the “Term Loan Agreement”), provides for term loans (“Term Loan”) in an aggregate principal amount of $500 million. There was no significant change in interest rates from those disclosed in the Annual Report.

The Company maintains a revolving credit facility (the “Revolving Facility”) that has aggregate total available credit commitments of $1.35 billion. As of April 30, 2024, no borrowings were outstanding under the Revolving Facility.

Fixed rate debt

In November 2023, the Company repaid $55 million related to the 3.30% private placement notes that matured. In November 2024, an additional $150 million of such notes will mature.

Other

The Company was in compliance with all debt covenants that were in effect as of April 30, 2024.

Note 6: Assets and liabilities at fair value

The Company has not changed its valuation techniques for measuring fair value of any financial assets or liabilities during the periods presented. The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities and other debt instruments, such as the receivables securitization facility and term loans, approximated their fair values as of April 30, 2024 and July 31, 2023.

The Company’s derivatives (interest rate swaps which are considered fair value hedges) and investments in equity instruments are carried at fair value on the condensed consolidated balance sheets (Level 2 and Level 3 fair value inputs, respectively) and are not material. The notional amount of the Company’s outstanding fair value hedges was $300 million and $355 million as of April 30, 2024 and July 31, 2023, respectively. The notional value of fair value hedges decreased in connection with the repayment of $55 million related to the 3.30% private placement notes that matured in November 2023.

Carrying amounts and the related estimated fair value (Level 2) of the Company’s long-term debt were as follows:


	April 30, 2024		July 31, 2023
(In millions)	Carrying Amount	Fair Value	Carrying Amount	Fair Value
Unsecured senior notes	$2,333	$2,183	$2,330	$2,195
Private placement notes	849	826	904	871

Note 7: Commitments and contingencies

The Company is, from time to time, involved in various legal proceedings considered to be normal course of business in relation to, among other things, the products that we supply, contractual and commercial disputes and disputes with employees. Provision is made if, on the basis of current information and professional advice, liabilities are considered probable. In the case of unfavorable outcomes, the Company may benefit from applicable insurance protection. The Company does not expect any of its pending legal proceedings to have a material adverse effect on its results of operations, financial position or cash flows.

Note 8: Accumulated other comprehensive loss

The change in accumulated other comprehensive loss was as follows:


(In millions, net of tax)	Foreign currency translation	Pensions	Total
Balance at July 31, 2023	($429)	($459)	($888)
Other comprehensive loss before reclassifications	(35)	(2)	(37)
Amounts reclassified from accumulated other comprehensive loss	—	3	3
Other comprehensive (loss) income	(35)	1	(34)
Balance at October 31, 2023	(464)	(458)	(922)
Other comprehensive income before reclassifications	21	2	23
Amounts reclassified from accumulated other comprehensive loss	—	2	2
Other comprehensive income	21	4	25
Balance at January 31, 2024	(443)	(454)	(897)
Other comprehensive loss before reclassifications	(19)	(1)	(20)
Amounts reclassified from accumulated other comprehensive loss	—	3	3
Other comprehensive (loss) income	(19)	2	(17)
Balance at April 30, 2024	($462)	($452)	($914)


(In millions, net of tax)	Foreign currency translation	Pensions	Total
Balance at July 31, 2022	($420)	($410)	($830)
Other comprehensive loss before reclassifications	(36)	(3)	(39)
Amounts reclassified from accumulated other comprehensive loss	—	2	2
Other comprehensive loss	(36)	(1)	(37)
Balance at October 31, 2022	(456)	(411)	(867)
Other comprehensive income before reclassifications	18	6	24
Amounts reclassified from accumulated other comprehensive loss	—	2	2
Other comprehensive income	18	8	26
Balance at January 31, 2023	(438)	(403)	(841)
Other comprehensive (loss) income before reclassifications	(7)	2	(5)
Amounts reclassified from accumulated other comprehensive loss	—	2	2
Other comprehensive (loss) income	(7)	4	(3)
Balance at April 30, 2023	($445)	($399)	($844)

Amounts reclassified from accumulated other comprehensive loss related to pension and other post-retirement items include the related income tax impacts. Such amounts consisted of the following:


	Three months ended		Nine months ended
	April 30,		April 30,
(In millions)	2024	2023	2024	2023
Amortization of actuarial losses	$4	$2	$11	$8
Tax benefit	(1)	—	(3)	(2)
Amounts reclassified from accumulated other comprehensive loss	$3	$2	$8	$6

Note 9: Retirement benefit obligations

The Company maintains pension plans in the U.K. and Canada. The components of net periodic pension cost, which are included in Other expense, net in the condensed consolidated statements of earnings, were as follows:


	Three months ended		Nine months ended
	April 30,		April 30,
(In millions)	2024	2023	2024	2023
Interest cost	($15)	($13)	($45)	($38)
Expected return on plan assets	16	12	46	36
Amortization of net actuarial losses	(4)	(2)	(11)	(8)
Net periodic cost	($3)	($3)	($10)	($10)

The impact of exchange rate fluctuations is included on the amortization line above.

Note 10: Shareholders’ equity

The following table presents a summary of the Company’s share activity:


	Three months ended		Nine months ended
	April 30,		April 30,
	2024	2023	2024	2023
Ordinary shares:
Balance at beginning of period	232,171,182	232,171,182	232,171,182	232,171,182
Change in shares issued	—	—	—	—
Balance at end of period	232,171,182	232,171,182	232,171,182	232,171,182
Treasury shares:
Balance at beginning of period	(29,168,420)	(25,619,935)	(27,893,680)	(21,078,577)
Repurchases of ordinary shares	(827,205)	(1,588,636)	(2,319,358)	(6,181,156)
Treasury shares used to settle share-based compensation awards	1,851	—	219,264	51,162
Balance at end of period	(29,993,774)	(27,208,571)	(29,993,774)	(27,208,571)
Employee Benefit Trusts:
Balance at beginning of period	—	(283,604)	(274,031)	(846,491)
Employee Benefit Trust shares used to settle share-based compensation awards	—	7,953	253,212	570,840
Shares sold upon termination of Employee Benefit Trust	—	—	20,819	—
Balance at end of period	—	(275,651)	—	(275,651)
Total shares outstanding at end of period	202,177,408	204,686,960	202,177,408	204,686,960

Two Employee Benefit Trusts had been previously established in connection with the Company’s discretionary share award plans and long-term incentive plans. As of January 31, 2024, each of these trusts had been terminated with all shares disbursed or sold. The proceeds from shares sold upon termination of the Employee Benefit Trusts were $4 million and included in other financing activities in the statement of cash flow.

Share Repurchases

The Company is currently purchasing shares under a revocable purchase arrangement with repurchases recorded directly to treasury shares as incurred. As of April 30, 2024, the Company has completed $2.9 billion of the total announced authorized program.

In June 2024, the Company extended the share repurchase program by an additional $1.0 billion. As such, the Company is currently purchasing shares under an authorization that allows up to $4.0 billion in share repurchases.

Note 11: Share-based compensation

Following adoption by the board of directors of the Company (the “Board”), the Ferguson plc 2023 Omnibus Equity Incentive Plan (the “New Plan”) was approved by the shareholders of the Company at the annual general meeting on November 28, 2023, and became effective as of September 21, 2023, the date of the Board’s adoption of the New Plan. The New Plan provides for the issuance of up to 6,750,000 of the Company’s ordinary shares, subject to the share recycling and adjustment provisions as provided under the New Plan. All new share-based compensation awards granted subsequent to November 28, 2023 will be granted under the New Plan. No new awards will be granted under the Ferguson Group Ordinary Share Plan 2019, Ferguson Group Performance Ordinary Share Plan 2019 or the Ferguson Group Long Term Incentive Plan 2019 (the “Prior Plans”).

The Company grants share-based compensation awards that can be broadly characterized by the underlying vesting conditions as follows:

•Time vested awards (“time vested”) typically vest at the end of three years. The fair value of these awards are based on the closing share price on the date of grant.

•Performance vested awards (“performance vested”) typically vest following three-year performance cycles. The number of ordinary shares issued varies based upon the Company’s performance against an adjusted operating profit measure. The fair value of the award is based on the closing share price on the date of grant.

•Long-term incentive awards granted to Executive Directors (“LTI-ED”) typically vest following three-year performance cycles. The number of ordinary shares issued varies based upon multiple performance metrics as described below.

For LTI-ED awards granted prior to fiscal 2023, the number of ordinary shares to be issued upon vesting will vary based on Company measures of inflation-indexed earnings per share (“EPS”), cash flow and total shareholder return (“TSR”) compared to a peer company set. Based on the performance conditions of these awards granted prior to fiscal 2023, these awards are treated as liability-settled awards. As such, the fair value of these awards are initially determined at the date of grant and are remeasured at each balance sheet date until the liability is settled. Dividend equivalents accrue during the vesting period. As of April 30, 2024 and July 31, 2023, the total liability recorded in connection with these grants was $7 million and $13 million, respectively.

In fiscal 2024 and 2023, the Company granted LTI-ED awards in which the ordinary shares to be issued upon vesting vary based on fixed measures of Company defined EPS and return on capital employed (“ROCE”), as well as TSR compared to a peer company set. Dividend equivalents accrue during the vesting period. Based on the performance conditions of these awards, such grants are treated as equity-settled awards (“LTI-ED, equity-settled”) with the fair value determined on the date of grant. Specifically, the fair value of such awards that vest based on achievement of the EPS and ROCE measures are equal to the closing share price on the date of grant. The fair value of the awards that vest based on TSR were determined using a Monte-Carlo simulation, which estimate the fair value based on the Company's share price activity relative to the peer comparative set over the expected term of the award, risk-free interest rate, expected dividends, and the expected volatility of the shares of the Company and that of the peer company set.

The following table summarizes the share-based compensation awards activity for the nine months ended April 30, 2024:


	Number of shares	Weighted average grant date fair value
Outstanding at July 31, 2023	1,158,673	$111.57
Time vested awards granted	112,579	160.82
Performance vested awards granted	209,945	158.16
LTI-ED, equity-settled awards granted	32,050	149.37
Share adjustments based on performance	38,178	198.72
Vested	(471,691)	98.86
Forfeited	(25,405)	126.65
Outstanding at April 30, 2024	1,054,329	$135.74

The following table relates to time vested, performance vested and LTI-ED award activity:


			Nine months ended
			April 30,
(In millions, except per share amounts)			2024
Fair value of awards vested			$77
Weighted average grant date fair value per share granted			$158.21

The following table relates to all share-based compensation awards:


	Three months ended		Nine months ended
	April 30,		April 30,
(In millions)	2024	2023	2024	2023
Share-based compensation expense (within SG&A)	$15	$11	$39	$38
Income tax benefit	4	3	10	10

The total unrecognized share-based compensation expense at April 30, 2024 was $62 million and is expected to be recognized over a weighted average period of 2.1 years.

Note 12: Acquisitions

The Company acquired six businesses during the nine months ended April 30, 2024. Each of the acquired businesses is engaged in the distribution of plumbing, HVAC and infrastructure related products and was acquired to support growth. In each of the Company’s acquisitions, the Company has substantially purchased the acquiree's business and therefore all transactions have been accounted for as a business combination pursuant to FASB Accounting Standards Codification (ASC) 805.

The following table summarizes the preliminary purchase price allocation for the assets acquired and liabilities assumed in regards to the Company's acquisitions:


(In millions)
Intangible assets:
Trade names and brands			$5
Customer relationships			81
Other			5
Cash and cash equivalents			1
Trade and other receivables			33
Inventories			35
Property, plant and equipment			3
Right of use assets			12
Trade and other payables			(28)
Lease liabilities			(12)
Deferred tax			(3)
Other			(2)

Total			130
Goodwill			92
Consideration			$222
Satisfied by:
Cash			$186
Deferred & other consideration			36
Total consideration			$222

The fair values of the net assets acquired are considered preliminary and are based on management’s best estimates. Further adjustments may be necessary in connection with acquisitions completed in a prior period when additional information becomes available about events that existed at the date of acquisition. Amendments to fair value estimates may be made to these figures during the measurement period following the date of acquisition. There were no material adjustments in the current fiscal year that related to the closing of the measurement period of acquisitions made in the prior fiscal year. As of the date of this Quarterly Report, the Company has made all known material adjustments related to acquisitions in fiscal 2024.

The fair value estimates of intangible assets are considered non-recurring, Level 3 measurements within the fair value hierarchy and are estimated as of each respective acquisition date.

The goodwill on these acquisitions is attributable to the anticipated profitability of the new markets and product ranges to which the Company has gained access and additional profitability, operating efficiencies and other synergies available in connection with existing markets. Goodwill acquired during the nine months ended April 30, 2024 that was attributed to the United States and Canada segments were $55 million and $37 million, respectively. Goodwill that is expected to be deductible for tax purposes is $79 million.

Deferred consideration represents the expected payout due to certain sellers of acquired businesses that is subject to either 1) a contractual settle-up period or 2) a contingency related to contractually defined performance metrics. If the deferred consideration is contingent on achieving performance metrics, the liability is estimated using assumptions regarding the expectations of an acquiree’s ability to achieve the contractually defined performance metrics over a period of time that typically spans one to three years. When ultimately paid, deferred consideration is reported as a cash outflow from financing activities.

The businesses acquired during the year-to-date period of fiscal 2024 contributed $53 million to net sales and $4 million in losses to the Company’s income before income tax, including acquired intangible asset amortization, transaction and integration costs for the period between the applicable date of acquisition and April 30, 2024. Acquisition costs during the nine months ended April 30, 2024 were not material. Acquisition costs are expensed as incurred and included in SG&A in the Company’s consolidated statements of earnings.

The net outflow of cash related to business acquisitions is as follows:


			Nine months ended
(In millions)			April 30, 2024
Purchase consideration			$186
Cash, cash equivalents and bank overdrafts acquired			(1)
Cash consideration paid, net of cash acquired			185
Deferred and contingent consideration(1)			26
Net cash outflow in respect of the purchase of businesses			$211

(1) Included in other financing activities in the Condensed Consolidated Statements of Cash Flows.

Pro forma disclosures

If each acquisition had been completed on the first day of the prior fiscal year, the Company’s unaudited pro forma net sales would have been:


	Three months ended		Nine months ended
	April 30,		April 30,
(In millions)	2024	2023	2024	2023
Pro forma net sales	$7,328	$7,213	$21,848	$22,107

The impact on income before income tax, including additional amortization, transaction costs and integration costs would not be material in the three and nine months ended April 30, 2024 and 2023.

These unaudited pro forma results do not necessarily represent financial results that would have been achieved had the acquisition actually occurred at the beginning of the prior fiscal year.

Note 13: Related party transactions

For the nine months ended April 30, 2024, the Company purchased $8 million of delivery, installation and related administrative services from a company that is, or is an indirect wholly-owned subsidiary of a company that is, controlled or significantly influenced by a Ferguson Non-Employee Director. In the three and nine months ended April 30, 2023, the Company purchased $9 million and $22 million, respectively, of such services. These services were purchased on an arm’s-length basis. In December 2023, this related party relationship ended. As a result, in the three months ended April 30, 2024 we did not have, nor do we expect in the future to have, any services provided by this company which would constitute a related party transaction. No material amounts are due to any related party entities.

Note 14: Subsequent event

The Company held a Special Meeting on May 30, 2024 at which the Company’s shareholders voted on the establishment of a new corporate structure to domicile the Company’s ultimate parent company in the United States and other related governance matters. Shareholders approved the transaction and, subject to the satisfaction of the conditions to the completion of the transaction, the effective date is expected to be August 1, 2024.

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s discussion and analysis of financial condition and results of operations (“MD&A”) is intended to convey management’s perspective regarding the Company’s operational and financial performance for the three and nine months ended April 30, 2024 and 2023, respectively. This MD&A should be read in conjunction with the unaudited condensed consolidated financial statements and related notes appearing in “Item 1. Financial Statements” of this Quarterly Report (the “Condensed Consolidated Financial Statements”) and the consolidated financial statements and related notes in “Item 8. Financial Statements and Supplementary Data” of the Annual Report.

The following discussion contains trend information and forward-looking statements. Actual results could differ materially from those discussed in these forward-looking statements, as well as from our historical performance, due to various factors, including, but not limited to, those referred to or discussed in “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” and elsewhere in this Quarterly Report.

Overview

Ferguson is a value-added distributor in North America providing expertise, solutions and products from infrastructure, plumbing and appliances to HVAC, fire, fabrication and more. Ferguson is headquartered in the U.K., with its operations and associates solely focused on North America and managed from Newport News, Virginia.

The following table presents highlights of the Company’s performance for the periods below:


	Three months ended		Nine months ended
	April 30,		April 30,
(In millions, except per share amounts)	2024	2023	2024	2023
Net sales	$7,308	$7,140	$21,689	$21,896
Operating profit	625	497	1,841	1,877
Net income	443	336	1,284	1,305

Earnings per share - diluted	2.18	1.63	6.30	6.28

Net cash provided by operating activities			1,507	1,802

Supplemental non-GAAP financial measures:(1)
Adjusted operating profit	674	657	1,967	2,103
Adjusted earnings per share - diluted	2.32	2.20	6.72	7.07

(1) 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 Informatio n.”

For the third quarter of fiscal 2024, net sales increased by 2.4% compared to the third quarter of fiscal 2023, primarily due to higher sales volume, incremental revenue from acquisitions and the benefit of one additional sales day, partially offset by price deflation (approximately 2%).

For the third quarter of fiscal 2024, operating profit increased by 25.8% (adjusted operating profit increased 2.6%), compared with the third quarter of fiscal 2023. The year-over-year change was attributed to not having the software impairment and other charges recorded in the third quarter of fiscal 2023, as well as higher sales and the associated gross profit in the third quarter of fiscal 2024, which includes the benefit of one additional sales day, partially offset by higher operating costs.

For the third quarter of fiscal 2024, diluted earnings per share was $2.18 (adjusted diluted earnings per share: $2.32), increasing 33.7% compared to the prior fiscal year period (5.5% on an adjusted basis) due to higher net income and the impact of share repurchases.

Net cash provided by operating activities decreased to $1.5 billion in the year-to-date period of fiscal 2024 compared with $1.8 billion in the same period in fiscal 2023, primarily reflecting changes in inventory period-over-period and lower net income after adjusting for non-cash items, partially offset by other working capital improvements.

Results of Operations


	Three months ended		Nine months ended
	April 30,		April 30,
(In millions)	2024	2023	2024	2023
Net sales	$7,308	$7,140	$21,689	$21,896
Cost of sales	(5,076)	(5,000)	(15,097)	(15,273)
Gross profit	2,232	2,140	6,592	6,623
Selling, general and administrative expenses	(1,522)	(1,435)	(4,503)	(4,376)
Impairments and other charges	—	(127)	—	(127)
Depreciation and amortization	(85)	(81)	(248)	(243)
Operating profit	625	497	1,841	1,877
Interest expense, net	(43)	(48)	(132)	(136)
Other expense, net	(1)	(2)	(4)	(7)
Income before income taxes	581	447	1,705	1,734
Provision for income taxes	(138)	(111)	(421)	(429)
Net income	$443	$336	$1,284	$1,305

Net sales

Net sales were $7.3 billion in the third quarter of fiscal 2024, an increase of $0.2 billion, or 2.4%, compared with the same period in fiscal 2023. The increase in net sales was driven by higher sales volume, incremental sales from acquisitions of 1.7%, as well as the benefit of one additional sales day in the quarter of 1.6%. These increases were partially offset by price deflation of approximately 2%, mainly within certain commodity categories. The Company’s increase in net sales was primarily driven by its United States segment, mainly due to growth in non-residential sales, along with a slight increase in residential sales.

Net sales were $21.7 billion in the year-to-date period of fiscal 2024, a decrease of $0.2 billion, or 0.9%, compared with the same period in fiscal 2023. The decrease in net sales was primarily driven by price deflation of approximately 2%, mainly within certain commodity categories, along with lower sales volume. These decreases were partially offset by incremental sales from acquisitions of 1.9% and the benefit of one additional sales day of 0.4% in the year-to-date comparison. The Company’s decrease in net sales in the year-to-date period was primarily driven by its United States segment, mainly due to declines in residential sales.

For further discussion on the Company’s net sales, see the “Segment results” section below.

Gross profit

Gross profit in the third quarter of fiscal 2024 increased $92 million, or 4.3%, compared with the same period in fiscal 2023, primarily reflecting increased net sales. Gross profit as a percentage of sales was 30.5% and 30.0% in the third quarters of fiscal 2024 and fiscal 2023, respectively. The increase of 0.5% primarily reflected favorable product mix, partially offset by deflation in certain commodity categories.

Gross profit in the year-to-date period of fiscal 2024, decreased $31 million, or 0.5%, compared with the same period in fiscal 2023, primarily reflecting lower sales. Gross profit as a percentage of sales was 30.4% and 30.2% in the year-to-date periods of fiscal 2024 and fiscal 2023, respectively. The increase of 0.2% primarily reflected favorable product mix, partially offset by deflation in certain commodity categories.

Selling, general and administrative (“SG&A”) expenses

SG&A expenses in the third quarter of fiscal 2024 increased $87 million, or 6.1%, compared with the same period in fiscal 2023. SG&A as a percentage of sales was 20.8% and 20.1% in the third quarters of fiscal 2024 and fiscal 2023, respectively. The increase in SG&A as a percent of sales primarily reflects the impact of wage and infrastructure cost inflation, corporate restructuring costs and the impact of acquisitions.

SG&A expenses in the year-to-date period of fiscal 2024, increased $127 million, or 2.9%, compared with the same period in fiscal 2023. SG&A as a percentage of sales was 20.8% and 20.0% in the year-to-date period of fiscal 2024 and fiscal 2023, respectively. The increase in SG&A as a percent of sales primarily reflects lower sales and the impact of wage and infrastructure cost inflation, corporate restructuring costs and the impact of acquisitions.

Net interest expense

Net interest expense was $43 million in the third quarter of fiscal 2024 compared with $48 million compared with the same period in fiscal 2023. In the year-to-date periods, net interest expense was $132 million in fiscal 2024 compared with $136 million in fiscal 2023. The decrease in interest expense was due to lower average borrowings over the respective periods compared with the prior year.

Income tax

Income tax expense was $138 million for the third quarter of fiscal 2024, an increase of $27 million, or 24.3%, compared to the same period in fiscal 2023 in connection with higher income before income taxes. In the year-to-date period of fiscal 2024, income tax expense was $421 million, a decrease of $8 million, or 1.9%, compared to the same period in fiscal 2023, mainly due to lower income before income taxes. The Company’s effective tax rates were 23.8% and 24.8% for the third quarters of fiscal 2024 and 2023, respectively. The decrease in the effective tax rate was primarily due to a discrete tax benefit recorded in the third quarter of fiscal 2024 related to the releases of uncertain tax positions due to the lapsing of statute of limitations.

The Company’s effective tax rates for the year-to-date periods of fiscal 2024 and 2023 were about even at 24.7%.

As discussed in the Explanatory Note to this Quarterly Report, the Company’s shareholders approved the Merger Agreement on May 30, 2024. As such, the Company expects to record in the fourth quarter of fiscal 2024, a one-time, non-cash deferred tax charge of between $75 million and $135 million, driven by the elimination of certain pre-existing U.K. tax attributes of the Company.

Net income

Net income for the third quarter and year-to-date periods of fiscal 2024 was $443 million and $1,284 million, respectively. These represented an increase in net income of $107 million, or 31.8%, and a decrease of $21 million, or 1.6%, compared to the respective periods in fiscal 2023 due to the various elements described in the sections above.

Segment results

United States


	Three months ended		Nine months ended
	April 30,		April 30,
(In millions)	2024	2023	2024	2023
Net sales	$6,974	$6,827	$20,667	$20,863
Adjusted operating profit	685	664	1,976	2,088

Net sales for the United States segment were $7.0 billion in the third quarter of fiscal 2024, an increase of $0.1 billion, or 2.2%, compared to the same period in fiscal 2023. The increase in net sales was primarily driven by higher sales volume, incremental sales from acquisitions of 1.5%, as well as the benefit of one additional sales day in the quarter of 1.6%. These increases were partially offset by price deflation of approximately 2%, mainly within certain commodity categories. Net sales in non-residential markets increased 3.9% in connection with growth in Commercial and Civil/Infrastructure sales compared with the same period in fiscal 2023. Net sales in residential markets increased 0.5%.

On a year-to-date basis, net sales for the United States segment were $20.7 billion in fiscal 2024, a decrease of $0.2 billion, or 0.9%, compared to the same period in fiscal 2023. The decrease in net sales was primarily driven by price deflation of approximately 2%, mainly within certain commodity categories, along with lower sales volume. These decreases were partially offset by incremental sales from acquisitions of 1.9% and the benefit of one additional sales day of 0.4% in the year-to-date comparison. Net sales in residential markets decreased 3.3%, while net sales in non-residential markets increased 1.7% in connection with growth in Commercial and Civil/Infrastructure sales compared with the same period in fiscal 2023.

Adjusted operating profit for the United States segment was $685 million for the third quarter of fiscal 2024, an increase of $21 million, or 3.2%, compared to the same period in fiscal 2023, primarily reflecting higher gross profit in connection with higher sales, which includes the benefit of one additional sales day, partially offset by the impact of wage and infrastructure cost

inflation, along with the impact of acquisitions.

On a year-to-date basis, adjusted operating profit for the United States segment was $1,976 million in fiscal 2024, a decrease of $112 million, or 5.4%, compared to the same period in fiscal 2023, primarily reflecting lower gross profit due to lower sales, as well as the impact of wage and infrastructure cost inflation, along with the impact of acquisitions.

Canada


	Three months ended		Nine months ended
	April 30,		April 30,
(In millions)	2024	2023	2024	2023
Net sales	$334	$313	$1,022	$1,033
Adjusted operating profit	6	7	38	54

Net sales for the Canada segment were $334 million in the third quarter of fiscal 2024, an increase of $21 million, or 6.7%, compared to the same period in fiscal 2023. This increase in net sales was primarily driven by incremental sales from an acquisition of 5.1%, the combined impact of one additional sales day and foreign exchange rates of 2.2% and price inflation of approximately 1%, partially offset by lower sales volumes.

On a year-to-date basis, net sales for the Canada segment were $1,022 million in fiscal 2024, a decrease of $11 million, or 1.1%, compared to the same period in fiscal 2023. The sales decrease was primarily driven by lower sales volume, as well as the impact of foreign currency exchange rates of 1.0%, partially offset by price inflation of approximately 2%, the incremental sales from an acquisition of 1.5% and the benefit of one additional sales day of 0.7%.

Adjusted operating profit for the Canada segment in the third quarter decreased slightly due to higher operating costs, while adjusted operating profit decreased in the year-to-date period of fiscal 2024 due to lower sales and higher operating costs compared to the same period of fiscal 2023.

Non-GAAP Reconciliations and Supplementary Information

The Company reports its financial results in accordance with U.S. GAAP. However, the Company believes certain non-GAAP financial measures provide users of the Company’s financial information with additional meaningful information to assist in understanding financial results and assessing the Company’s performance from period to period. These non-GAAP measures include adjusted operating profit, adjusted net income and adjusted earnings per share (“adjusted EPS”) - diluted. Management believes these measures are important indicators of operations because they exclude items that may not be indicative of our core operating results and provide a better baseline for analyzing trends in our underlying businesses, and they are consistent with how business performance is planned, reported and assessed internally by management and the Board. Such non-GAAP adjustments include amortization of acquired intangible assets, discrete tax items, and any other items that are non-recurring. Non-recurring items may include various restructuring charges, gains or losses on the disposals of businesses which by their nature do not reflect primary operations, as well as certain other items deemed non-recurring in nature and/or that are not a result of the Company’s primary operations. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies’ non-GAAP financial measures having the same or similar names. These non-GAAP financial measures should not be considered in isolation or as a substitute for results reported under U.S. GAAP. These non-GAAP financial measures reflect an additional way of viewing aspects of operations that, when viewed with U.S. GAAP results, provide a more complete understanding of the business. The Company strongly encourages investors and shareholders to review the Company’s financial statements and publicly filed reports in their entirety and not to rely on any single financial measure.

Reconciliation of net income to adjusted operating profit

The following table reconciles net income (U.S. GAAP) to adjusted operating profit (non-GAAP):


	Three months ended		Nine months ended
	April 30,		April 30,
(In millions)	2024	2023	2024	2023
Net income	$443	$336	$1,284	$1,305


Provision for income taxes	138	111	421	429
Interest expense, net	43	48	132	136
Other expense, net	1	2	4	7
Operating profit	625	497	1,841	1,877
Corporate restructurings(1)	12	—	20	—
Impairments and other charges(2)	—	127	—	127
Amortization of acquired intangibles	37	33	106	99
Adjusted operating profit	$674	$657	$1,967	$2,103

Reconciliation of net income to adjusted net income and adjusted EPS - diluted

The following table reconciles net income (U.S. GAAP) to adjusted net income and adjusted EPS - diluted (non-GAAP):


	Three months ended
	April 30,
(In millions, except per share amounts)	2024		2023
		per share(1)		per share(1)
Net income	$443	$2.18	$336	$1.63


Corporate restructurings(2)	12	0.06	—	—
Impairments and other charges(3)	—	—	127	0.62
Amortization of acquired intangibles	37	0.18	33	0.16
Discrete tax adjustments(4)	(11)	(0.06)	(1)	(0.01)
Tax impact on non-GAAP adjustments(5)	(9)	(0.04)	(41)	(0.20)
Adjusted net income	$472	$2.32	$454	$2.20

Diluted weighted average shares outstanding	203.2		206.1


	Nine months ended
	April 30,
(In millions, except per share amounts)	2024		2023
		per share(1)		per share(1)
Net income	$1,284	$6.30	$1,305	$6.28


Corporate restructurings(2)	20	0.10	—	—
Impairments and other charges(3)	—	—	127	0.61
Amortization of acquired intangibles	106	0.52	99	0.48
Discrete tax adjustments(4)	(13)	(0.07)	(4)	(0.02)
Tax impact on non-GAAP adjustments(5)	(27)	(0.13)	(57)	(0.28)
Adjusted net income	$1,370	$6.72	$1,470	$7.07

Diluted weighted average shares outstanding	203.9		207.9

(1)Per share on a dilutive basis.

(2)For the three and nine months ended April 30, 2024, corporate restructuring costs related to incremental costs in connection with establishing a new corporate structure to domicile our ultimate parent company in the United States.

(3)For the three and nine months ended April 30, 2023, impairments and other charges related to the $107 million in software impairment charges in the United States, as well as charges associated with the closure of certain smaller, underperforming branches in the United States.

(4)For the three and nine months ended April 30, 2024, discrete tax adjustments related to the release of uncertain tax positions due to the lapsing of statute of limitations, as well as the tax treatment of certain compensation items that were not individually significant. For the three and nine months ended April 30, 2023, discrete tax items primarily related to adjustments in connection with amended returns.

(5)For the three and nine months ended April 30, 2024, the tax impact on non-GAAP adjustments primarily related to the amortization of acquired intangibles. For the three and nine months ended April 30, 2023, the tax impact on non-GAAP adjustments primarily related to the tax impact on the impairments and other charges, along with the amortization of acquired intangibles.

Liquidity and Capital Resources

The Company believes its current cash position coupled with cash flow anticipated to be generated from operations and access to capital should be sufficient to meet its operating cash requirements for the next 12 months and would also enable the Company to invest and fund acquisitions, capital expenditures, dividend payments, share repurchases, required debt payments and other contractual obligations through the next several fiscal years. The Company also anticipates that it will have the ability to obtain alternative sources of financing, if necessary.

The Company’s material cash requirements include contractual and other obligations arising in the normal course of business. These obligations primarily include debt service and related interest payments, operating lease obligations and other purchase obligations. The nature and composition of such existing cash requirements have not materially changed from those disclosed in the Annual Report other than items updated in this Quarterly Report.

Cash flows

As of April 30, 2024 and July 31, 2023, the Company had cash and cash equivalents of $691 million and $601 million, respectively. In addition to cash, the Company had $2.5 billion of available liquidity from undrawn debt facilities as of April 30, 2024.

As of April 30, 2024, the Company’s total debt was $3.7 billion. The Company anticipates that it will be able to meet its debt obligations as they become due.

Cash flows from operating activities


	Nine months ended
	April 30,
(In millions)	2024	2023
Net cash provided by operating activities	$1,507	$1,802

Net cash provided by operating activities was $1,507 million for the year-to-date period of fiscal 2024 compared to $1,802 million in the same period in fiscal 2023. The $295 million decrease was primarily driven by changes in inventory, along with the timing of receivables collections and lower earnings in fiscal 2024 after adjusting for non-cash charges. In fiscal 2024, inventory levels have stabilized in line with customer demand compared to fiscal 2023 where inventory was decreasing to normalized levels following periods of supply chain disruption. These decreases in cash flow were partially offset by a net increase in payables, due to the timing of vendor payments and a decrease in cash paid for income taxes.

Cash flows from investing activities


	Nine months ended
	April 30,
(In millions)	2024	2023
Net cash used in investing activities	($418)	($543)

Net cash used in investing activities was $418 million for the year-to-date period of fiscal 2024 compared to $543 million in the same period in fiscal 2023.

Capital expenditures totaled $263 million and $361 million for the year-to-date period of fiscal 2024 and fiscal 2023, respectively. These investments were primarily for strategic projects to support future growth, such as new market distribution centers, our branch network and new technology. In addition, the Company invested $185 million and $179 million in new acquisitions for the year-to-date period of fiscal 2024 and fiscal 2023, respectively.

Cash flows from financing activities


	Nine months ended
	April 30,
(In millions)	2024	2023
Net cash used in financing activities	($995)	($1,389)

Net cash used in financing activities was $995 million for the year-to-date period of fiscal 2024 compared with $1,389 million in the same period in fiscal 2023.

Dividends paid to shareholders were $465 million and $557 million for the year-to-date periods of fiscal 2024 and 2023, respectively.

Share repurchases under the Company’s announced share repurchase program were $421 million and $784 million for the year-to-date periods of fiscal 2024 and fiscal 2023, respectively.

Net repayments of debt were $105 million compared with $30 million for the year-to-date periods of fiscal 2024 and fiscal 2023, respectively. In the year-to-date period of fiscal 2024, the Company repaid $55 million in connection with the maturity of certain Private Placement Notes (as defined below) and $50 million under the Receivables Facility. In the same year-to-date period of fiscal 2023, the Company repaid $250 million due to the maturity of certain Private Placement Notes and $280 million in net repayments of the Receivables Facility, partially offset by proceeds from the $500 million of term loans.

Debt facilities

The following section summarizes certain material provisions of our debt facilities. The following description is only a summary, does not purport to be complete and is qualified in its entirety by reference to the documents governing this indebtedness.


	As of
(In millions)	April 30, 2024	July 31, 2023
Short-term debt	$150	$55
Long-term debt	3,518	3,711
Total debt	$3,668	$3,766

Private Placement Notes

In June 2015 and November 2017, Wolseley Capital, Inc., a wholly-owned subsidiary of the Company, privately placed fixed rate notes in an aggregate principal amount of $800 million and $355 million, respectively (collectively, the “Private Placement Notes”). In November 2023, the Company repaid $55 million of Private Placement Notes that matured. In November 2024, an additional $150 million of such notes will mature.

Unsecured Senior Notes

Ferguson Finance plc, a wholly-owned subsidiary of the Company, has issued $2.35 billion in various issuances of unsecured senior notes (collectively, the “Unsecured Senior Notes”).

The Unsecured Senior Notes are fully and unconditionally guaranteed on a direct, unsubordinated and unsecured senior basis by the Company and generally carry the same terms and conditions with interest paid semi-annually. The Unsecured Senior Notes may be redeemed, in whole or in part, (i) at 100% of the principal amount on the notes being redeemed plus a “make-whole” prepayment premium at any time prior to three months before the maturity date (the “Notes Par Call Date”) or (ii) after the Notes Par Call Date at 100% of the principal amount of the notes being redeemed plus accrued and unpaid interest on the principal being redeemed. The Unsecured Senior Notes include covenants, subject to certain exceptions, which include limitations on the granting of liens and on mergers and acquisitions.

Term Loan

In October 2022, the Company and Ferguson UK Holdings Limited (“Ferguson UK”) entered into, and Ferguson UK borrowed in full, the $500 million of term loans available under the Term Loan Agreement. The proceeds of the term loans may be used for general corporate purposes. The Term Loan Agreement will mature on October 7, 2025.

Revolving Credit Facility

The Company maintains a Revolving Facility with aggregate total available credit commitments of $1.35 billion.

As of April 30, 2024, no borrowings were outstanding under the Revolving Facility.

Receivables Securitization Facility

The Company maintains a Receivables Facility with an aggregate total available amount of $1.1 billion, including a swingline for up to $100 million in same day funding. The Company has the ability to increase the aggregate total available amount under the Receivables Facility up to a total of $1.5 billion from time to time, subject to lender participation.

As of April 30, 2024, no borrowings were outstanding under the Receivables Facility.

Other

The Company was in compliance with all debt covenants that were in effect as of April 30, 2024.

See note 5, Debt to the Condensed Consolidated Financial Statements for further details regarding the Company’s debt, as well as notes to the consolidated financial statements in “Item 8. Financial Statements and Supplementary Data” of the Annual Report.

There have been no significant changes to the Company’s policies on accounting for, valuing or managing the risk of financial instruments during the third quarter of fiscal 2024.

Critical accounting policies and estimates

There have been no material changes to our critical accounting policies as disclosed in the Annual Report.

Item 3.Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes to the quantitative and qualitative disclosures about market risk disclosed in the Annual Report.

Item 4.Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has carried out an evaluation of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) or 15d-15(e) promulgated under the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of April 30, 2024. The term “disclosure controls and procedures” means controls and other procedures that are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in our reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding our required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well conceived and operated, can only provide reasonable assurance that the objectives of the disclosure controls and procedures are met.

Based on their evaluation as of the end of the period covered by this Quarterly Report, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective at a reasonable assurance level.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended April 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

The Company is from time to time a party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business. With respect to such lawsuits, claims and proceedings, the Company records reserves when it is probable a liability has been incurred and the amount of loss can be reasonably estimated. The Company does not expect any of its pending legal proceedings to have a material adverse effect on its results of operations, financial position or cash flows. The Company maintains liability insurance for certain risks that are subject to certain self-insurance limits.

Item 1A.Risk Factors

In addition to the other information set forth in this Quarterly Report, you should carefully consider the factors discussed in “Risk Factors” in the Annual Report, which could materially affect our business, financial condition or future results. Except as set forth below, there have been no material changes in our risk factors from those disclosed in the Annual Report.

Risks Related to New TopCo

The rights of stockholders under Delaware law may differ from the rights of shareholders under Jersey law. Moreover, the City Code, which currently applies to Ferguson plc, will not apply to any takeover offer for New TopCo.

Currently, your rights as a Ferguson Shareholder arise under the laws of Jersey, as well as the Memorandum and Articles of Association of Ferguson plc, as currently in effect (the “Ferguson Governing Documents”). Upon effectiveness of the Merger, your rights as a stockholder of New TopCo will arise under Delaware law, as well as the New TopCo Proposed Organizational Documents. The New TopCo Proposed Organizational Documents and Delaware law contain provisions that differ in certain respects from those in the Ferguson Governing Documents and Jersey law and, therefore, some of your rights as a shareholder will change materially.

For instance, Jersey law constrains the ability of Jersey companies to limit the liability of directors for breaches of duty. A Jersey company may only exempt from liability, and indemnify directors and officers for liabilities incurred in defending proceedings where a judgment in favor of the director or officer is obtained or the director or officer is acquitted, proceedings are discontinued or settled (such that in the opinion of a majority of disinterested directors, the concerned director or officer was substantially successful on merits), to anyone other than the company if the director or officer acted in good faith with a view to the best interests of the company, in connection with judicial relief from liability for negligence, default, breach of duty or breach of trusts, or in a case in which the company normally maintains insurance for persons other than directors.

However, upon effectiveness of the Merger, it is expected that, pursuant to the New TopCo Proposed Certificate of Incorporation, the directors and certain officers will not be personally liable to New TopCo or any of its stockholders for monetary damages for breach of fiduciary duty as a director or officer to the fullest extent permitted by the Delaware General Corporation Law, as in effect from time to time (the “DGCL”). Currently the DGCL does not permit exculpation for: (i) a director or officer for any breach of the director’s or officer’s duty of loyalty to New TopCo or its stockholders; (ii) a director or officer for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) a director for unlawful payment of dividends or unlawful stock repurchases or redemptions, as provided under Section 174 of the DGCL; (iv) a director or officer for any transaction from which the director or officer derived an improper personal benefit or (v) an officer in any action by or in the right of the corporation.

Moreover, the City Code on Takeovers and Mergers, issued and administered by the Panel on Takeovers and Mergers of the U.K. (the “City Code”), which currently applies to Ferguson plc, will not apply to any takeover offer for New TopCo due to its incorporation in Delaware, meaning that, upon effectiveness of the Merger, Ferguson Shareholders will no longer be afforded the specific protections provided by the City Code. For a further description of your rights following the Merger and how they may differ from your current rights, please see the section entitled “Comparison of Corporate Governance and Shareholder Rights” in the Definitive Proxy Statement. All Ferguson Shareholders are encouraged to read each of the New TopCo Proposed Certificate of Incorporation and the New TopCo Proposed Bylaws, substantially in the form attached to the Definitive Proxy Statement as Annex B and Annex C, respectively.

The price of New TopCo Common Stock may be negatively impacted, and Ferguson Shareholders may suffer losses, as a result of the different rights afforded to Ferguson Shareholders following effectiveness of the Merger and the loss of the protections provided by the City Code.

Provisions in the New TopCo Proposed Certificate of Incorporation and New TopCo Proposed Bylaws under Delaware law could discourage another company from acquiring New TopCo and may prevent attempts by New TopCo stockholders to replace or remove its current management.

Provisions in the New TopCo Proposed Certificate of Incorporation and New TopCo Proposed Bylaws, which will become effective at the Effective Time, may discourage, delay or prevent a merger, acquisition or other change in control of New TopCo that certain stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares. These provisions could also limit the price that investors might be willing to pay in the future for New TopCo Common Stock, thereby depressing the market price of New TopCo Common Stock. In addition, these provisions may frustrate or prevent any attempts by stockholders of New TopCo to replace or remove its current management by making it more difficult for stockholders to replace members of the Board of Directors of New TopCo (the “New TopCo Board”).

Among other things, these provisions:

•provide the New TopCo Board the right to issue one or more series of preferred stock, par value $0.0001 per share, of New TopCo (“New TopCo Preferred Stock”) and to determine the price and other terms of those shares, including preferences and voting rights, without shareholder approval;

•authorize a number of shares of stock that are not yet issued, which would allow the New TopCo Board to issue shares to persons friendly to current management without offering pre-emptive rights to existing stockholders;

•permit the New TopCo Board to amend the New TopCo Proposed Bylaws, which may allow the New TopCo Board to take additional actions to prevent an unsolicited takeover and inhibit the ability of an acquirer to amend the bylaws to facilitate an unsolicited takeover attempt;

•prohibit stockholders from taking action by written consent;

•provide the New TopCo Board with the sole authority to determine the number of directors of the New TopCo Board and to fill vacancies on the New TopCo Board (whether resulting from any increase in the authorized number of directors or otherwise); and

•establish advance notice and other requirements for nominations of candidates for election to the New TopCo Board or for proposing matters that can be acted on by stockholders at the annual or special meetings of stockholders.

As a Delaware corporation, New TopCo will be subject to provisions of Delaware law, including Section 203 of the DGCL. Section 203 of the DGCL provides (in general) that, unless certain conditions have been met, New TopCo may not engage in a business combination with an interested stockholder (generally defined as a stockholder of New TopCo, together with his or her affiliates or associates, who owns more than 15% of New TopCo’s voting stock) for a period of three years after the time of the transaction in which the person became an interested stockholder. The prohibition on business combinations with interested stockholders does not apply in some cases, including if: (1) the New TopCo Board, prior to the time of the transaction in which the stockholder became an interested stockholder, approves the business combination or the transaction in which the stockholder becomes an interested stockholder; (2) upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock (excluding stock owned by certain persons) of New TopCo outstanding at the time the transaction commenced; or (3) at or after the time of the person became an interested stockholder, the New TopCo Board and the holders of at least two-thirds of the outstanding voting stock not owned by the interested stockholder approve, at an annual or special meeting of stockholders, and not by written consent, the business combination. Any provision of the New TopCo Proposed Certificate of Incorporation, the New TopCo Proposed Bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for New TopCo stockholders to receive a premium for their New TopCo Common Stock and affect the price that some investors are willing to pay for the New TopCo Common Stock.

The New TopCo Proposed Certificate of Incorporation provides that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between New TopCo and its stockholders, which could limit its stockholders’ ability to obtain a favorable judicial forum for disputes with New TopCo or its directors, officers, employees, agents or stockholders.

The New TopCo Proposed Certificate of Incorporation provides that, subject to certain exceptions, the Court of Chancery of the State of Delaware (the “Court of Chancery”) will, to the fullest extent permitted by law, be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of New TopCo, (ii) any action asserting a claim of breach of a duty (including any fiduciary duty) by, or other wrongdoing by, any current or former director, officer, employee, agent or stockholder of New TopCo to New TopCo or New TopCo’s stockholders, (iii) any action asserting a claim against New TopCo or any current or former director, officer, employee, agent or stockholder of New TopCo arising out of or relating to any provision of the DGCL, the New TopCo Proposed Certificate of Incorporation or the New TopCo Proposed Bylaws, (iv) any action to interpret, apply, enforce or determine the validity of the New TopCo Proposed Certificate of Incorporation or the New TopCo Proposed Bylaws, (v) any action asserting a claim against New TopCo or any current or former director, officer, employee, agent or stockholder of New TopCo governed by the internal affairs doctrine, (vi) any action asserting an “internal corporate claim” as that term is defined in Section 115 of the DGCL or (vii) any action as to which the DGCL confers jurisdiction on the Court of Chancery. In addition, to prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other considerations, the New TopCo Proposed Certificate of Incorporation provides that, unless New TopCo consents in writing to the selection of an alternative forum, to the fullest extent permitted by law, the federal district courts of the U.S. will be the sole and exclusive forum for resolving any complaint asserting a cause of action arising under the U.S. Securities Act of 1933, as amended (the “U.S. Securities Act”) against New TopCo or any director, officer, employee or agent of New TopCo.

These exclusive-forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with New TopCo or its directors, officers, employees, agents or stockholders and this limitation may have the effect of discouraging lawsuits or make New TopCo securities less attractive to investors. For example, stockholders who bring a claim in the Court of Chancery could face additional litigation costs in pursuing any such claim, particularly if they do not reside in or near the State of Delaware. The Court of Chancery may also reach different judgments or results than would other courts, including courts where a stockholder considering an action may be located or would otherwise choose to bring the action, and such judgments or results may be more favorable to New TopCo than to its stockholders.

It should also be noted that Section 22 of the U.S. Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the U.S. Securities Act or the rules and regulations thereunder. Accordingly, both state and federal courts have jurisdiction to entertain such claims. Due to such concurrent jurisdiction, there is uncertainty as to whether a court would enforce the exclusive forum provision in the New TopCo Proposed Certificate of Incorporation in respect of causes of action arising under the U.S. Securities Act against New TopCo or any director, officer, employee or agent of New TopCo. While the Delaware courts have determined that such choice of forum provisions are facially valid, a stockholder may nevertheless seek to bring such a claim arising under the U.S. Securities Act against New TopCo, its directors, officers, employees, agents or stockholders in a venue other than in the federal district courts of the U.S. In such instance, New TopCo would expect to vigorously assert the validity and enforceability of the exclusive forum provisions of the New TopCo Proposed Certificate of Incorporation. This may require significant additional costs associated with resolving such action in other jurisdictions and New TopCo cannot assure you that the provisions will be enforced by a court in those other jurisdictions. If a court were to find the exclusive-forum provisions in the New TopCo Proposed Certificate of Incorporation to be inapplicable or unenforceable in an action, New TopCo may incur further significant additional costs associated with resolving the dispute in other jurisdictions, all of which could harm New TopCo’s business.

The New TopCo Proposed Certificate of Incorporation provides that any person purchasing or otherwise acquiring or holding any interest in shares of capital stock of New TopCo shall be deemed to have notice of and to have consented to the exclusive forum provisions described above. However, these exclusive forum provisions may not apply to suits brought to enforce a duty or liability vested in the exclusive jurisdiction of a court or forum other than the Court of Chancery, such as those created by the Exchange Act, or any other claim for which the federal courts have exclusive jurisdiction.

Risks Related to the Merger

Failure to complete the Merger could negatively affect the stock price and the future business and financial results of Ferguson.

Completion of the Merger is subject to the satisfaction or waiver of several conditions precedent listed in the Merger Agreement. Ferguson and New TopCo may not satisfy all of the closing conditions in the Merger Agreement. There can be no assurance that the conditions to the closing of the Merger will be satisfied or, where applicable, waived or that the Merger will be completed. If the closing conditions are not satisfied or waived, the Merger will not occur, or will be delayed pending later satisfaction or waiver, and such delay may cause Ferguson and New TopCo to lose some or all of the intended benefits of the Merger.

Furthermore, if the Merger is not completed for any reason without realizing any of the benefits of having completed the Merger, Ferguson may experience negative reactions from the financial markets, including negative impacts on its stock prices.

If the Merger fails to qualify as a “reorganization” within the meaning of Section 368(a) of the Code or tax-free exchange within the meaning of Section 351 of the Code, U.S. Holders (as defined below) may recognize taxable gain as a result of the Merger.

Ferguson intends for the Merger to qualify as a “reorganization” within the meaning of Section 368(a) of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), a tax-free exchange within the meaning of Section 351 of the Code, or both (collectively, the “Intended Tax Treatment”), and Ferguson and New TopCo intend to file tax returns consistent with this Intended Tax Treatment. The position of Ferguson is not binding on the Internal Revenue Service (the “IRS”) or the courts, and Ferguson does not intend to request a ruling from the IRS with respect to the Merger. Accordingly, there can be no assurance that the IRS will not challenge the Intended Tax Treatment or that a court will not sustain such a challenge. If the IRS were to be successful in any such contention, or if for any other reason the Intended Tax Treatment were to not be respected for U.S. federal income tax purposes, the Merger could be a taxable event to the U.S. Holders. Ferguson Shareholders are urged to consult with their own tax advisors with respect to the tax consequences of the Merger.

For purposes of this discussion, a “U.S. Holder” is a beneficial owner of Ferguson Shares (including Ferguson Shares underlying U.K. DIs) who or that, for U.S. federal income tax purposes, is or is treated as:

•an individual who is a citizen or resident of the U.S.,

•a corporation organized in or under the laws of the U.S., any state thereof or the District of Columbia,

•an estate, the income of which is subject to U.S. federal income tax regardless of its source, or

•a trust that (1) is subject to the primary supervision of a U.S. court and the control of one or more “U.S. persons” (within the meaning of Section 7701(a)(30) of the Code) or (2) was in existence on August 20, 1996, and has a valid election in effect to be treated as a U.S. person for U.S. federal income tax purposes.

Following the Merger, Non-U.S. Holders (as defined below) may be subject to U.S. federal income tax.

In general, any distributions made to a Non-U.S. Holder with respect to New TopCo Common Stock, to the extent paid out of New TopCo’s current or accumulated earnings and profits (as determined under U.S. federal income tax principles), will constitute dividends for U.S. federal income tax purposes and, provided such dividends are not effectively connected with such Non-U.S. Holder’s conduct of a trade or business within the U.S. (and, if required by an applicable income tax treaty, attributable to a U.S. permanent establishment or fixed base maintained by such Non-U.S. Holder), will be subject to withholding tax from the gross amount of the dividend at a rate of 30%, unless such Non-U.S. Holder is eligible for a reduced rate of withholding tax under an applicable income tax treaty and provides proper certification of its eligibility for such reduced rate (usually on an IRS Form W-8BEN or W-8BEN-E, as applicable). Dividends paid by New TopCo to a Non-U.S. Holder that are effectively connected with such Non-U.S. Holder’s conduct of a trade or business within the U.S. (and, if required by an applicable income tax treaty, attributable to a U.S. permanent establishment or fixed base maintained by such Non-U.S. Holder) will generally not be subject to U.S. federal withholding tax, provided such Non-U.S. Holder complies with certain certification and disclosure requirements (usually by providing an IRS Form W-8ECI). Instead, such dividends will generally be subject to U.S. federal income tax, net of certain deductions, at the same graduated individual or corporate rates applicable to U.S. Holders. If the Non-U.S. Holder is a corporation, dividends that are effectively connected income may also be subject to a “branch profits tax” at a rate of 30% (or such lower rate as may be specified by an applicable income tax treaty). For more information about the tax considerations with respect to such matters, see the section entitled “Material U.S. Federal Income Tax Considerations” in the Definitive Proxy Statement.

For purposes of this discussion, a “Non-U.S. Holder” is any beneficial owner of Ferguson Shares (including Ferguson Shares underlying U.K. DIs) who or that is neither a U.S. Holder nor an entity classified as a partnership for U.S. federal income tax purposes.

Ferguson’s effective tax rate may increase in the future, including as a result of the Merger.

In connection with the Merger, Ferguson anticipates recognizing a one-time, non-cash deferred tax charge of between $75 million to $135 million in the fourth quarter of fiscal 2024, the quarter in which shareholders approved the Merger, driven by the elimination of certain pre-existing U.K. tax attributes of Ferguson. In addition, Ferguson anticipates that, following the Merger, the amount of taxable income which it generates in the U.K. may not be sufficient to fully realize the tax benefits associated with certain future expenses (including, without limitation, future contributions to Ferguson’s U.K. pension plans).

Apart from the one-time charge and certain future expenses discussed above, the Company’s Board of Directors currently anticipates that the Merger on its own will have an immaterial impact on our effective tax rate, as tax reforms in the U.K. and Switzerland relating to global minimum tax policies are in any event expected to reduce the benefit of our current structure and increase our effective tax rate. However, following the Merger, the income of Ferguson will be subject to U.S. federal income tax as well as income tax in other jurisdictions. Currently applicable income tax laws, regulations, treaties and judicial and administrative interpretations of these laws, regulations and treaties in the U.S. and other jurisdictions may cause Ferguson’s effective tax rate to fluctuate significantly beyond our current projections. In light of these factors, there can be no assurance that Ferguson’s effective tax rate will not be materially affected in future periods.

Moreover, U.S. tax laws significantly limit Ferguson’s ability to redomicile outside of the U.S. once the Merger has been consummated. Accordingly, if Ferguson’s effective tax rate were to increase significantly as a result of the Merger, the business and financial performance of Ferguson could be adversely affected.

If the Merger fails to qualify for “reorganisation of share capital” treatment pursuant to Section 136 of the Taxation of Chargeable Gains Act 1992, U.K. Holders (as defined below) may recognize taxable gain as a result of the Merger.

Ferguson intends for the Merger to qualify as a “reorganisation of share capital” pursuant to Section 136 of the Taxation of Chargeable Gains Act 1992 for the purposes of U.K. taxation of chargeable gains (the “Intended U.K. CGT Treatment”). Ferguson has obtained statutory clearance from His Majesty’s Revenue and Customs (“HMRC”) (under Section 138 of the Taxation of Chargeable Gains Act 1992) that HMRC are satisfied that the Merger will be effected for bona fide commercial reasons and will not form part of a scheme of arrangement of which the main purpose, or one of the main purposes, is avoidance of liability to U.K. taxation of chargeable gains (“U.K. CGT”). However, while this statutory clearance confirms the non-application of certain anti-avoidance provisions, there can be no assurance that HMRC will not challenge the Intended U.K. CGT Treatment on other grounds or that a court will not sustain such a challenge. If HMRC were to be successful in any such contention, or if for any other reason the Intended U.K. CGT Treatment were to not be respected for U.K. tax purposes, the Merger could be a taxable event to Ferguson Shareholders for U.K. CGT purposes. Ferguson Shareholders are urged to consult with their own tax advisors with respect to the tax consequences of the Merger.

For purposes of this discussion, a “U.K. Holder” refers to shareholders who are resident, and in the case of individuals domiciled, for tax purposes in (and only in) the U.K. (except insofar as express reference is made to the treatment of non-U.K. residents), who hold their Ferguson Shares and will hold their New TopCo Common Stock as an investment (other than where a tax exemption applies, for example where the Ferguson Shares or the New TopCo Common Stock are held in an individual savings account or pension arrangement) and who are the absolute beneficial owner of both the Ferguson Shares and New TopCo Common Stock and any dividends paid on them.

Non-U.S. Holders and Non-U.K. Holders may recognize taxable gain as a result of the Merger.

Ferguson has not analyzed the impact of the Merger in all jurisdictions and it is possible that the Merger would be viewed as taxable to shareholders in jurisdictions other than the U.S. and U.K. Ferguson Shareholders are urged to consult with their own tax advisors with respect to their specific tax consequences of the Merger.

We have funding risks related to our defined benefit pension plans.

We operate a variety of pension plans, including funded and underfunded defined benefit schemes in Canada and the U.K. Our pension trustees and plan sponsors aim to match the liabilities with a portfolio of assets, comprising debt securities alongside diversified growth assets and further investments designed to hedge the underlying interest and inflation risk inherent in the associated liabilities. The market value of these assets can rise and fall over time, which impacts the funding position of the plan. The U.K. defined benefit pension plan (the “U.K. Plan”), our largest defined benefit plan, is closed to future service costs and has a buy-in insurance policy which covers a large proportion of the existing participants. Following the completion of our disposal of Wolseley UK Limited on January 29, 2021, we retained future responsibility for the U.K. Plan, as the ongoing liabilities were not transferred to the purchaser.

As required by U.K. pensions regulation, the U.K. Plan completed its triennial actuarial valuation exercise, which is measured on a technical provisions basis, based on the U.K. Plan’s financial position as of April 30, 2022. The triennial valuation resulted in a need for deficit reduction contributions of £133 million spread over the period to January 31, 2026, of which we have paid £38 million as of January 31, 2024. New funding requirements will apply to the next triennial valuation of the U.K. Plan (as of April 30, 2025), requiring the plan to target a funding level where dependency on the employer is low. Although we broadly comply with the funding target principles under these new funding requirements as of our April 30, 2022 valuation, the U.K. pensions regulator’s code for the new requirements has yet to be finalized. If the code changes from current expectations, it could lead to employer deficit reduction contributions changing. In addition to required contributions, we make voluntary contributions at the discretion of management. The potential requirement to pay such additional sums, due to factors such as a deterioration in economic conditions or changes in actuarial assumptions, could have an adverse effect on our financial condition.

Furthermore, the U.K. pensions regulator could take action (for example civil, criminal, monetary and non-monetary penalties) in situations where the “employer covenant” of a defined benefit plan—the willingness and ability of the sponsor to fund the plan—has been detrimentally affected in a material way or where corporate activity, such as certain corporate activities we will undertake in connection with the Merger, poses a materially detrimental risk to accrued plan benefits. The consequences of successful civil and criminal actions include fines, and (in the case of civil actions) requirements to provide further funding for the plan, for both the sponsor and its connected group companies. In addition, actions by the trustees of our pension plans or any material revisions to the existing pension legislation could result in us being required to incur significant additional costs immediately or in short time frames. Such costs, in turn, could have an adverse effect on our financial condition.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

Issuer purchases of equity shares

The following table presents the number and average price of shares purchased in each month of the third quarter of fiscal 2024:


(In millions, except share count and per share amount)	(a) Total Number of Shares Purchased	(b) Average Prices Paid per Share	(c) Total Number of Shares Purchased as Part of Publicly Announced Program(1)	(d) Maximum Value of Shares that May Yet Be Purchased Under the Program(1)
February 1 - February 29, 2024	189,523	$199.45	189,523	$248
March 1 - March 31, 2024	279,760	$213.14	279,760	$188
April 1 - April 30, 2024	357,922	$216.98	357,922	$110
	827,205		827,205

(1)In September 2021, the Company announced a program to repurchase up to $1.0 billion of shares. In March 2022, September 2022 and June 2023, the Company announced an increase of $1.0 billion, $0.5 billion and $0.5 billion, respectively, bringing the total authorized share repurchases to $3.0 billion. As of April 30, 2024, the Company had completed $2.9 billion of the total announced $3.0 billion repurchase program. In June 2024, the Company extended the share repurchase program by an additional $1.0 billion. As such, the Company is currently purchasing shares under an authorization that allows up to $4.0 billion in share repurchases.

Item 6.Exhibits

The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report.


(a)			Exhibits


Exhibit						Description
2.1						Merger Agreement, dated as of February 29, 2024, by and among Ferguson plc, Ferguson (Jersey) 2 Limited and Ferguson Enterprises Inc. (incorporated by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K (File No. 001-40066), filed with the SEC on March 1, 2024).


10.1						Change in Control Policy for Executive Officers, effective as of February 28, 2024 (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K (File No. 001-40066), filed with the SEC on March 1, 2024).
10.2						Form of Non-Employee Director Restricted Stock Unit Award Agreement Pursuant to the Ferguson plc 2023 Omnibus Equity Incentive Plan (incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K (File No. 001-40066), filed with the SEC on March 1, 2024).
31.1*						Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*						Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**						Certification of Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**						Certification of Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*						Inline XBRL Instance Document—this instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document
101.SCH*						Inline XBRL Taxonomy Extension Schema Document
101.CAL*						Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*						Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*						Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*						Inline XBRL Taxonomy Extension Presentation Linkbase Document
104*						Cover Page Interactive Data File (embedded within the Inline XBRL document)

* Filed herewith

** Furnished herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

June 5, 2024


			Ferguson plc
						/s/ William Brundage
			Name:			William Brundage
			Title:			Chief Financial Officer
						(Principal Financial Officer and Duly Authorized Officer)

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Ferguson (FERG) 10-Q2024 Q3 Quarterly report

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