FERG - Earnings call 4 2023

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Operator

Good morning, ladies and gentlemen. My name is Emily, and I'll be your conference operator today. At this time, I would like to welcome you to Ferguson's fourth quarter conference call. [Operator Instructions] I would now like to turn the call over to Mr. Brian Lantz, Ferguson's Vice President of Investor Relations and Communications.

conference your begin may call. You

Brian Lantz

we and Good on this the Earnings to Investors made Ferguson's The our announcement Quarter be section of of website filings to Call morning, review is and and in earnings chance SEC everyone, recording Conference a Webcast. Fourth had web call today. morning. A corporate welcome will Hopefully, available this later issued our available the announcement you've page.

statements cause SEC's remind today are from to that our to various everyone uncertainties in XX-K the looking risks of our risks on differ including be want and and discussed may Form available I the subject and website. some forward uncertainties actual materially certain entitled to section projected Factors the and that those could results Risk

these disclaim Also, we and expectations statements these company's statements. update the forward-looking of only today, as represent any to obligation specifically

today's to most regarding financial measures, will GAAP on additional information reconciliations discuss those addition, presentation we measures. our financial for comparable non-GAAP on their to earnings announcement our including certain call, website In refer directly non-GAAP Please measures. and

call CFO. are will me Brundage, the Bill our now our Kevin. to With CEO; on turn and Murphy, Kevin today call the over I

Kevin Murphy

'XX. outlook performance as the and performance year Thank for our to Bill end well I'll Call. market On as call cover I'll over Fourth more everyone, today's by welcome, turn you, QX After Quarter that, a Brian, view financials call, year fiscal and full highlights Ferguson's to Results for our of and the Conference customer of groups. detailed and our

years see give opportunities questions. of our some share Finally, your of Bill the take the I'll I market to we a update brief on back ahead and view come the at and significant in before end

our with full year starting performance. So

further projects express simple, saw help XXXX. like teams to year. customers' results sustainable. Revenue of growth commitment make sincere successful their was unwavering to dynamic X.X% on strong to in in and for Our We'd last the our $XX.X delivered year billion building associates XX% year, thanks fiscal a challenging and our above we

solid we and operating operating adjusted we share billion, on teams proactively down prior Our diluted managed expenses, margins, while year, by X% delivering $X.X of earnings grew delivered our profit X%. per adjusted gross

the Cash delivery us by in $X.X $X.X been to returned during provided of capital continuing billion by to during with welcome inventory via activities cash year cash And to delivery the in we're allocation buybacks from shareholders our We pleased against X allowed associates and increasing markets. has our excellent, execute part fragmented priorities. our driven year. $X.X acquisitions consolidating net disciplined strategy billion. billion operating share dividends management to This year, the

Xx leverage with net of sheet for of the to remains to we bottom EBITDA. overall the end at balance our range And Our debt on continued XX% capital year. strong adjusted deliver strong returns

fourth recent Focusing the on we robust most comparables. pleased to performance a quarter against deliver were strong quarter,

our consultative continues to challenging sheet leverage strong our and our our improve share us approach, and markets, balanced in to we business projects. as customers' chain continue mix Our help scale, take supply our serve global we to well balance

and model gross managing year the quarter results which of by diligent as down $X.XX, ago. the are for a margins costs, we adjusted equivalent the confident guidance saw of share operating nearly we're in of the our end adjusted with in we prior adjusted expected, decline significant stepping representing We revenue year compared million per delivering $XXX an strength both XXXX. year, quarter, the delivered go fiscal in in in operating and but revenue XX.X% of profit quarter remain slightly top of earnings pleased As forward. on slight and and of the towards proud the We're margin our business up growth years and to from XX% came but these solid diluted X

by the slowdown for more to whereas Turning lapped particularly to in high-end in consumer the professionals and a our became RMI consecutive strong our second the performance serving Net new compressed United project-minded markets more area comparables markets, remodel impacted residential sales proved we construction with quarter in trade core end markets as be by markets remained an and in resilient. challenged. States. Residential

U.S. the half during quarter. Our which revenue declined comprised residential revenues, just over X%

nonresidential in areas. As in markets to markets in some residential outperform net by more to continue nonresidential industrial Overall, quarter. nonresidential X% the due strength expected, in traditional grew sales offsetting softness

now performance. focus previously our discussed, in comparable we prior XX% market year we revenue XX% on will mix seek activity customer Shifting we to declines U.S. declined balance. the trade new in plumbing expect As groups our construction residential this end time, over across balanced a against rates on we weighed growth Residential by as while growth maintain to our will fluctuate maintaining to healthy continue and

While HVAC by X% comparable, the prior stabilized, flat XX%, declined by leading on higher-end driven were execution our digital subdued. Residential remains of grew Residential supported as X% with indicators a on of HVAC residential commerce building growth broadly permits of year. prior demand grew remain the XX% by of remodel top as by X-year top a X% and a such XX%. have down consumer by year and still revenues comparable remodel year on Waterworks prior projects. starts growth new of strategy. they stack

the X%, and We and delivered in onshoring, Waterworks commercial/mechanical declined from the as mix works by and comparable, continue of industrial combined trends X% fabrication public to commercial, nonresidential by exposure. work activity. facilities such to group against driven fire growth continuation The business supply diversified our plant municipal our to benefit residential, quarter industrial while a from manufacturing, turnaround businesses customer a XX% general and

market customer total exposure. us end a allows balanced of retaining groups breadth to and bring the to while Our value project broad

organic to We've and our new Nonresidential X%. weaker markets. Turning resilient markets growing end X% well markets the due X% across residential end modestly markets proved demand We've outperformed we're nonresidential believe to X% a performance U.S. take organically end of outperforming to outgrown we our and for growth and both construction residential broader the with market. outperforming believe to We environment, continue X%, principally more in markets in the approximately approximately positioned against our revenue down consistently to with years. organic future by share year declined continued our total. revenue

markets ability organically and market-leading Our model business and is our outperform our markets it's of what we But leveraging focus, geographic our acquisitions positions adds excess scale a dimension acquisition over and another what deals. our to X We've our mix of made and consolidate through past our fragmented do in rich grow capability bolt-ons principal core representing at the to the years, and to growth. of delivers. XX

as the the is acquiring real gain value locations, their physical the such business. relationships vehicles we we're customer assets and expertise people, bring from their they to and inventory, While that

acquirer multiples far to to industry these to have best a grow revenue, aligned with We careers to acquisitions the in potential strong and good ability synergies and and associates we industry leverage spend we access we're the the gross to We cost platform profit because we and fit time target. opportunities. of a values cultural in a drive targets, we believe capabilities scale choice acquired lot their ensuring provide as our of present their And then proven existing beyond operating at and their the these our and generate attractive companies returns. Ferguson

particularly both X associates earlier, been we dual-trade annualized to and exception the plumbing and reach, on. our from There I'll and mentioned HVAC of high-quality on businesses, to in welcomed later pleased HVAC as the we bit customers. needs geographic no year Ferguson. X while significant this more $XXX strengthening our We're opportunities relationships million with deals, as touch of this to complete has I bringing approximately As service vendors detail a look expanding revenue are professional,

Waterworks remodel commercial/mechanical our The customer acquired the aging in as to East positions businesses the industrial, two balanced infrastructure year M&A. approach take highlighting the acquisitions remaining look that span The we with and U.S. support residential bolster groups, this market-leading continue we building and to we in

maintain our to we look forward, a pipeline healthy we future consolidate as look markets. deals we further fragmented As of

hand who a Bill, take little will detail. through you financials Let in the me to more over now

Bill Brundage

good were X.X% additional Thank sales morning results. and everyone, by driven below and and X.X% X.X% or day sales net afternoon, me of you, Kevin, fourth X a last impact Net quarter let X.X% from and foreign year, from by partially start combined the offset with the exchange. acquisitions decline, organic

QX expected, basis further margin points down up year. price from to XX.X% over prior the approximately in inflation As X% XX was Gross stepped QX. of in X%

managed we gross on certain in of a pricing in performance, teams older had commodity inventories resulting and brand sell-through categories. maintained deflation margin strong We down Our own some discipline the benefit inventory. further, despite

share to enabling lower to adjusted contained or $XXX has been than prior the operating base Cost us last lower of XX million share adjusted remains of with year, at offset net higher repurchase the per to adjusted due EBITDA. balance lower to by last partially down deliver quarter, Adjusted through a compared our year. operating seasonally sheet well X.X% $XX And strong and earnings was X.X% diluted XX.X% Adjusted impact was onetime expense, operating million interest points our reduction program. year. over our basis debt profit margin, down largest profit

a quarterly results. performance delivered by our impact profit XX.X% comparable, million, operating X.X% the of strong to prior We XX.X% The a and sales of down margin. by Moving business year against prior revenue comparables. adjusted one operating X.X%. this contribution a solid positive a Net X.X% was delivered delivering X.X% year, partially Organic offset declined another declined over additional segment on X% adjusted top from sales day. acquisitions U.S. and from $XXX

from with Markets our impact X X.X%. contribution rates. exchange declined some X.X% Canadian XX.X% segment. from offset decline X% sales sales foreign pressure the revenue partially rates, sustained day. of X.X% softened a strong of Organic by a additional from to Net against adverse the impact with a exchange comparable further foreign Turning declined

Canadian business to proving more of improve U.S. And the last operating profile resilient end expect seen year. Adjusted and term. profit continue trends Canadian to than similar the over to have in nonresidential million We million in below the longer markets was $XX those return markets the residential. invest $XX with in we

the with year, was points results. X.X% further contributed net was exchange last X.X% X%. prior approximately ahead from margin year organic year sales inflation against to X.X% year with Average rates. growth during comparable. full the strong to of a impact Gross basis day sales the foreign a XX.X%, revenue XX Acquisitions expected Turning contribution down X.X%. of and were of Net as

in to lower respond were to operating the proactive volumes. both During we managing sales expenses and nonlabor year, labor

operating margin. operating lower adjusted than result, a year, As a billion adjusted $X.X X% was profit X.X% last delivering of

earnings And prior billion, share of diluted benefiting Disciplined $X.X repurchase excellent cash management We over billion increase operating the drove program. our an by year. X%, this adjusted share to delivered capital per flow cash grew year. from $X.X working flow

As we the supply inventory chains have by acquisitions. during normalized, $XXX approximately the million impact fiscal of year, excluding down managed

continue investing CapEx, in increase to through $XXX over prior with in rollout year organic business attributable market the our center growth million distribution the We multiyear invest the strategy. to

significant $X.X a of a As billion, prior result, year. the billion was $X.X over free cash flow increase

to sheet with to sheet. We advantage position through to of capacity priorities. balance maintain towards as to net of allocate operate the Xx. Xx target have take as adjusted to that and EBITDA X is low cycle to ensure we Xx, well resilient end a of balance capital we intend across the leverage Our of debt clear net strong, We range growth opportunities a range

investing growth. organic business First, drive in to above-market we're the

we CapEx, programs. $XXX capital working and had invested our distribution positive on on branch impact into market principally mentioned, a and technology previously centers, million cash As network focused flow,

Second, ordinary grow we continue dividend. to sustainably our

declared and Board a $X.XX quarterly and 'XX a representing X% fiscal our confidence the in increase business dividend reflecting Our dividend, share of cash full declared generation. our our bringing declared $X, dividends year per to

acquisitions. Third, we're consolidating our and capability geographic through bolt-on fragmented markets

million $XXX revenue. we from X are We pleased this incremental Kevin to associates businesses million, year. welcomed bringing $XXX in outlined, invested of high-quality approximately annualized have As

deal strategy. consolidation remains Our to our and will execute pipeline healthy, continue we

committed X $XXX below capital low year the surplus and end under are current count share by we via We to program. year we Finally, the returned to with to shareholders shareholders our share outstanding share of returning approximately our the repurchases when target million, we million million are range. reducing $XXX ended this repurchase leverage

fiscal of view our to last Turning 'XX guidance. year

in reflects the Given is of against comparables. a market account, challenging this particularly continued broad uncertainty a fiscal prior This the we revenue year broadly flat for first market, potential range will of the And backdrop, into year. believe our outcomes. be there half the taking of year strong

we these to basis in based over environment points, for the in by day the our end the assumptions from XXX which million generate a one us already sales third outperforming declining markets to approximately are markets assuming tail landing mid-single-digit range, completed expect on benefit Our $XXX we just are XXX neutral pricing Overall, of quarter. and of the revenue, year. broadly additional acquisitions,

adjusted We strong normalization modest the first continued X.X% between operating have driven range midpoint margin provided X.X%, reflecting by a for half with largely comparables. to

expect interest We between to to rise $XXX million. $XXX to slightly expense million

fiscal Our adjusted levels and stay we $XXX invest broadly $XXX to effective to million should XX% CapEx, similar between to tax consistent approximately rate expect in million at XXXX.

our focused of stepping on the strong top 'XX. year sheet, summarize, Thank exposure We at fiscal and of I'll you, balanced So flexible Kevin. end expectations the the model remain and business balance believe our us to market we into finish combination positions pass well we execution. and now back a end strong to had to

Kevin Murphy

Thank very briefly opportunity, a total our to want market coming our Bill. from addressable confident the of in you, in on of grow to revenue market market positions by organically our with I within we're latest both billion America, X/X acquisition. and in leading North touch $XXX strategy the share views

customer past way. We're the we of able groups more bringing product customers' how holistic in our expertise, breadth That our core a breadth we talked scale knowledge, means serve leverage position project and our together strengths. During in year, us the better markets needs to our the to about that serve. uniquely

experience solutions, our our make digital help value-added associates chain, groups successful Our to simple, projects our supply and sustainable. across and global customer complex

our influence serve decision-makers landscape. with build the The and role We the trade construction professional is influence the our to core that contractor, and developer, architect, relationships expanding general customer, we're owner. but the engineer key

add and solutions sell products. solutions the can ground-up value this, integration than just entire solutions we rather synergistic the from the group selling bring we generate value product When scale do environmental highly multi-customer we markets. Our to of as fragmented on focusing and project

market segment growth The we Our trade ability and professionals. dual provide serving serviced all focused plumbing residential advantage a to growth HVAC HVAC estimate plumbing than both for billion We're the market XX,XXX is amounts competitive on $XXX the offering and our bring by of trade executing growing of both acquisition together for of is from market to capturing in HVAC the trade strategy. $XX nearly with market-leading on years these expanding rapidly. more come. and combined and capabilities of which markets, market professionals HVAC approximately us an billion, dual plumbing and And this organic across our plumbing to

efficiencies to as a our our to for positioned harmonize dual capabilities differentiating service to strength We deliveries. market, to trade our building further leveraging provide this we We're with drive and while services process, coordinate our are service point pricing single further professionals simplify expertise pickups and we dual-trade believe of customers.

non-residential markets. Turning to

data mega X the to structural with onshoring by acts recent projects over tailwinds large-scale spend project the years, towards of and ahead The point view remains unchanged. the mega from supported continue aging legislative next opportunities construction Our infrastructure. activity,

selling I we entire products than simply ability our and across from products. before, the our As project the and focusing businesses, when solutions leverage ground-up have value strengths, said on the we rather to services add sell core

$XXX projects it's We the million these $XX activity. the growth X market to position significant are multi-customer we our to continue to meaningful capture our perspective, while and term. with for from revenue of over us believe increasing still over estimate value these over platform a from proposition billion our years. medium and bidding next group be mega total We seeing projects addressable construction days And complex across strongly over total scale early

well We're To close, and balanced environment, associates a pleased execution a positioned non-residential, construction repair thank residential we're for improvement. macro year team's dedication customers. in let our our to quarter new challenging their the me Despite with for whole. again and and the with business serving and our mix, maintenance the as

us We to base market model adapt a have business conditions. and allows changing an that cost to flexible agile

Our cash-generative fragmented capital through to model organic to invest allows return consolidate to growth, for markets acquisitions and continue us our shareholders.

this in We leverage balance the the over confident We intend of while end a strong medium of our sheet, target range. markets term. do operating maintaining the to our and longer low remain at strength

our Our scale across and breadth capture end in position our from order allows us to changes leverage our in customer competitive structural groups to opportunities markets.

are over now to questions. today. call your Bill take the your Thank I and And time you. back I'll you operator, to happy hand for

Operator

Matthew Instructions] with The the [Operator you. first Bouley comes from of line Barclays. Thank

Matthew Bouley

asking just And in quarter-to-date? implied Couple first that, curious further And your your your could around of half, pieces what in does through half? to just of buildup guidance versus versus kind like kind of might all around the guess half to what look 'XX. first, here, assumptions second given the nonresidential fiscal growth but out I that. be of improvement I'm growth then the sort if assumptions second residential break I you organic guess

Bill Brundage

it's Matt, I start that. question. with for Thank the will you Bill.

First a in perspective decline range from about August in where to organic it the off, is quarter-to-date date, through QX. September same of was and

market were still we and entered be environment the to very to expected And we in as X.X%. comparables to where been range that. tough. the QX, the we down a that's a similar year quite are exited It's very So year similar

take had XX% price If at growth QX back a XX% inflation. we year, year, you organic look last last

into we second first continue first the we'd the quarter. half that growth as would to quarter through into So expect be the pressured step

the would and still the organic day tail to guidance to of then with broadly be flat, flat midpoint sales year, down for imply our back our us additional the range. that does back acquisitions the bringing for slightly then that year broadly And of getting

In a to we're non-resi terms the perspective, in of expecting versus be residential high resi single-digit residential to from mid- range. down

than to a low be better RMI expecting We expect single-digit a worse nonresidential then markets to bit in from down be bit for And to new range. that. the res year be the nonresidential perspective, that, a than we're

Matthew Bouley

Got it. That's perfect color.

Second guidance. to again the guess, one, on I down jumping margin line, the

So that? said the also, think margin think gross decline on, curious bit you basis to the midpoint. from question touch still QX this benefit little margin of operating of inventory. had here, I'm could point gross XX in a at within older a you the a of to about in And margin if in maybe the how I sell-through assumption you

quantify you maybe of and the expectations the quarter around next year. can kind So sort that then in fourth gross of margin

Bill Brundage

Yes.

margin from So the on operating if back, year, particularly quarter Again, Matt, an also QX really we imply had full inflation where of being we delivered commented X.X% last I QX. had the margin. guide in point, we to perspective, midpoint of about comparables, to year. points X.X% the first finished for an XX by your operating year environment this X.X% you driven nearly That's basis environment XX% in the we does half growth down margin from look QX and just but first the operating year strong

through QX. compression So again, about now, right into decline expecting given some have step QX into margin was we're it in organic as QX, to is we where where

that -- by normalization most comparable. So is that normalization strong modest of driven

team's we perspective, in deflation really choppy in environment, pleased see point a with a we first commodity In the XX.X%. did pricing pressure terms pressure Look, how view. pretty on some commodities gross a off, delivered were of QX, from the of from margin

really our digits the QX, deflation down pricing in high maintained was and single strong Commodity teams discipline. in

under brand. performance, own highlight, we're of inventory. sell our yes, cost brand lastly, through our own older did pleased And with some we then did was Secondly, just revenue we XX%

inventory look about million came the you reduction QX. for organically, in $XXX $XXX at year that If the million of down

of gross a driven So cost by inventory. XX.X% piece goods strong margin sell-through that of that was some of sold older

grow back that go strategy. we margins to margin range to back then a to rather this them we gross in specific get than the then to would we product our those expecting normalization those the and And over where low time period normalize through execute as fact trying points, period, are gross just we somewhere our and quantify XX%

Operator

Our next question comes from RBC Mike Markets. Dahl Capital with

Michael Dahl

specifically deceleration a think I expected as about contribution follow-up, pricing the in X% environment? of more came to X% the can talk Just as in versus terms last we it quarter.

talked some commodity the prior decline about specifically on think price seeing I had quarter, you dynamics. sequentially,

in broadly impact price of year about from talking You're neutral in full terms 'XX. the

are? But that walk entering Or can pressure improve more a actually in the characterize dynamics through little the with how ] dynamics on year to year? us you Are and price commodity the through detail to dynamic? you due slight the expecting [ would you that what

Bill Brundage

I'll it Bill. start it's to over Mike, pass Kevin. and then Yes,

back over the to saw we compression point, year you if look as price year, last your So at difficult fiscal through were comparables. the of we rolling

single-digit back again XX% quarter we as highlighted, roughly just low goods, QX, finished QX. And about again, in goods to about we're in X%, seeing inflation revenue. dropped first then X% total So go our of finished price year, last XX% had are of to we still in in XX% which inflation on QX. that X% That about

point expected again, commodities in stepped to that's we've high XX% more in that Again, in on down inflation But X-year be price to into pricing years the QX single-digit the last price And if -- XX% go range if back importantly, have were at comparable close view stack inflation, in seen we year. you QX as negative. quarter over of X slightly a go maybe to QX, we're you look facing. the that from total the fourth in was it

go expecting we've price bit that that. to and negative, seen a we're So

seeing environment goods the difficult range, past, the calling which, the pricing still that we're finished the we expect back the However, pretty quarter on world. in it's a as talked of more we for which happens, industry, as single-digit about likely is the side get through we in roll actually year, would supportive to but to normalized good low pricing

Kevin Murphy

much very experience. would Yes, we thought we Mike, experiencing we're what

And our about a what it's those we all commodity-based into product going that that, to we're do. at And move that's move basket XX% we the look not knew we at deflationary of but in same do believe direction is, was would same also the velocity. period, seeing. what you what that if So products

basket steel. moved our pipe If carbon copper deflationary at iron but they've and different product commodity-based moved for ductile fittings, Yes, PVC at you customer of the velocity into and cast look tube territory, fittings, haven't and groups. iron, same

And we for then that as manufacturing why on our which we to go annualized is Bill's back is the costs year, going increases from fiscal we're that further to through structural place we'll that flow be around inside seeing then floor a will portion do side price are to that what we where point, start there And believe finished goods to think pricing environment get broadly is is a goods labor finished And business. of catalyst and that inflation abnormal of the XX% neutral. do, price which principally that play of of we think out. we through any our don't business, real there

Michael Dahl

Okay. very That's Got helpful. it.

Second guess, business. with playing capital across some know verticals on just size question, I opportunities. lot and of M&A I of of in terms activity, see recent kind to types deployment. a a of the lot good It's the you're of of different both

of on emphasis want to need so focus kind that frame you you you plenty things some pick but up points help just choose, of necessarily do don't and maybe on. got capital, of have us to You've --

additional you about and the when terms you and the talk where being of kind relative deals So healthy. businesses types on focus kind are -- again color then of or of in size? pipeline of mix of Any size seeing

Kevin Murphy

about Bill over talk with to seeing. that it that pipeline then pass little start bit I'll Mike, we're and to a the

and forward. If our a geographies our strategic of as as all need then we, right to during focus take if outperform that course relationships well organically finding customer and where take the step groups, go back where invest a process our and make we our XX to where over focused look we are HVAC good local are good at we both really different different to capabilities country months that HVAC that relationships sure plumbing be wherever we on sure making trade manufacturer continue the XX last across on HVAC they'll we're that and and for acquisitions that of of allows as be, to focused driven to can and have looking OEM at we plumbing contractor have of the But organically M&A to expertise the market. so areas you at through in think have growth we entirety HVAC business, important of look our that us you have been the marketplace so the all dual to planning the that is we

customers the not specification offers them from been and to whole where storm look further incredibly on We're urban focused strategy the they like strong just areas great it water, may an Waterworks diversification you and capture us that engineers opportunity us, also already green Waterworks to have business complement these us our when with of an business that at allow in infrastructure soil project. drive products, are stabilization buying the buying the gives to a us

those Maybe us as where we're So areas focus for we seeing the can pipeline. Bill X real go forward. strong on are touch

Bill Brundage

Yes, the a size quite still a pipeline mix is It and both acquisitions. is from capability full range. Most healthy. good geographic of and

in that add the revenue in range. as are fiscal through going but at any the outlook about one out it X% can in we to as one As quarter past, that, $XX our year. we revenue And consolidating $XXX that's of targets today. industry growth to we call we good over any X% feel most the pipeline or million we it, in our you've annualized to medium-term time. markets between feel still look look, Certainly, look pretty the at seen positive flow ebb and million

Operator

Blair. with Our next William from question Merkel Ryan comes

Ryan Merkel

to the unpack Guys, more. in follow-up single just My digits. bit that little about the quarter. is a for low what outlook you you a said earlier congrats just on question Can first nonres 'XX, down

bidding increased the activity. that? nonres mentioned you I then do but softness think How think traditional we mega seeing you're about in projects

Kevin Murphy

Yes, that's right, exactly Ryan.

discussed nonres at across and what what's that they're seeing seen out concerns natural and you after residential stretched is mega office, opportunity after some on the country look that it would like are good, and really rate the project And in areas on these office tailwinds, seeing. we've going do that we interest strong knock side. out. We're nonres we then but with tailwind around and we're with pressure commercial, obviously, to think things residential happening some there As that's have traditional bit a build-out retail as a really generational the of there overall, those traditional be previously, of environment

gap, in between through, likely We're we're that market are is peak call we're what be these bidding see in across a pick but and the that long-term it pickup ramping probably a see that if look and to life from activity And a at looks the we projects, that will to data digits, low our down won't why like. will starting but with what you're in up that working to that And seeing we're X terms as mega up groups together years we that's as ramp-up, slowdown But right at forth, there. experience from large These our start now 'XX perspective, owners, there think multiple starting what cycle traditional projects. be well is you what and see will 'XX. of customer single will, commercial air plus that substantial rate. seeing you until, pretty it, revenue engineers if and play so

Ryan Merkel

Got sense. it. Makes

Okay. And SG&A. a then question on

job 'XX? you good about really How in controlling are a thinking SG&A done You've expenses.

Kevin Murphy

to with flex Yes, the the that. pleased been We've for Ryan, ability cost thank pretty base. you

If both well as the equation the took during at side actions on job. the labor nice you teams side equation. the the of of the The a we look year, as really non-labor did

First off, importantly, actions, over full-time some with managing labor. down managing temporary time FTEs, permanent and both down but more equivalents,

organic you if at we is were at look decline So in year, with look we down about where exited right you the full-time where year-on-year, and line which was. volume X%, equivalents,

And down, acquisitions. that X% was excluding

and perspective spot year good labor the in managing So from we cost from that headcount like perspective. feel we're a a entering

still we single-digit step has range the we it, It's expect through way last pressure. in be inflation X been As mid- as that step Wage to the years. call the through that to X continue been to that, in somewhere to still. facing for year. year, range wage We'd that high we're

manage be to we're So guidance, can to in flat revenue our do a we going everything to environment out that recognizing we the broadly discretionary operating that we're in for manage going year. we as headcount, volume think set metric spend,

operating through SG&A get from supportive you'll little the we're to half more a And markets. likely back in the as of in perspective see future. year-on-year we So better markets, to then expecting first get leverage bit challenging to back expect as pressure a we'd more

Operator

The next question Lovallo UBS. comes from John with

John Lovallo

X.X% back for one the going first outlook operating is just to on margin The of X.X%.

Just point curious what high and basis expectation the XX for flat end the of really that kind given range, drives sales. relatively low of

Bill Brundage

the an an commodity of into a facing we supportive fiscal of and about bit now that little side range a activity pressure maybe expect short of if of If as tailwind and that top a The of bit from then lot sure. market of we bit pressure bit end a world we talked and would a more on can't in end, get bottom quicker a deflation and more through be that margin maybe easing a we're the we commodity coming the At contemplate bit stabilization SG&A operating market. fully that pricing the right commodity more the more pressure perspective. Kevin Yes, a get mega term step projects. of some John, year. offset the would more

end guidance. frames bottom kind that operating the top the that so of margin and of both And

John Lovallo

more And there's payments of you savings starting think factors. how Have discretionary the curious That's resuming. far? seen helpful. of dwindle, obviously the the reports lot in been Okay. a media impact about then credit guys would you student of loan more impact any, about card you portfolio? so was if any there categories balances on rising, these consumer to expect And sort impact, I'm

Kevin Murphy

digital have it consumer relates of our Yes, the residential the particularly some on John, pressure seen to in business, commerce we area business. as our

speaking, we markets. generally project, of good it normal in And we've RMI that a pressure the we bit remodel saw having through then continued play to business. the side and saw skew But You of remodel higher or that seen supportive the end quarter-on-quarter. tend towards

If we builder, in custom our showroom. growth activity, remodeler at you good look the custom see still

see still a not it's and we're that XX% QX Yes, a frenetic still like. that in X% plus The modeler good it's like showroom plus ringing pace with and custom seeing for a and group with good on the pace building growth. customer pleased builder pretty previously, and in we're that phone looks to being it remodel comp, activity was good is but what

Operator

comes question Baird. next from David Manthey Our with

David Manthey

that right of hear be what should of you be margin gross expected you feel that the you Is because would coming gross XX% the margin. less can revenue that the mainly Kevin, guidance end on hold low did that how than would end I we read better-than-expected higher in the and range you line said?

Bill Brundage

Bill. that. Dave, I'll Yes, take it's

commodities move more low inflationary to a towards had and would versus margin us of up. is highlighting So from margin outcomes operating of term, guide. normalized on end and that a margin bit have general on midpoint a top pointed that the us down operating then we could impact gross would pressure perspective guide if pressure a bit. broadly commodity the move more flat look, of margins line And that commodity that if around the a side in both is more guidance stabilize would certainly move range operating probably benefit a environment, there either really pressure the or bit help short fact in more return This wide revenue more

and combination a margin of that that bit of impact outcomes a margin it's both could guidance. So revenue operating gross

David Manthey

prices And where still? year? fiscal on extended where then today? any on stabilized need lead enter you're seeing related And commodity guess, sequentially? the they basket, times have And levels? new they as Are I inventory be you Okay. falling categories they then to Or are the still

Bill Brundage

Yes, the Dave, I'll on take back want We inventories. supply the second inventories question or second where portion of have do to the that's our be, branches we question them day, first, and chain care and to on and for that of they making we're sure customers right same next that sure take make of focused we're to day. inventory levels can having

are, pressures we they If you have supply discussed areas quarter, still in of look last as at we normalized. we quarter, the pretty last where called were Even much some where normalized. And have pressure. chain those out seeing a couple key

think just challenges. of groups. are believe business take have on luxury we're supply at And have and generally did commodities may speaking, that the different There do customer of and that market still of side when chain we we're good some moving but for products velocities a don't But a an handful we've appliance in won't a that, from end. the the look I the be we perspective. you inventory place we necessarily seen seeing say that, portions different I at some different point seen stabilization. that to commodities,

some the areas areas being seeing even through announced increases of flowing we're where marketplace. We where see then pipe, in PVC the and

being framed perspective the year, we the that for guidance commodity deflationary broadly think the to fiscal right we and a to going have pricing inside basket. believe we we're encompasses from So see what that neutral

Operator

Kathryn from comes Research question next Thompson with Thompson Our Group.

Kathryn Thompson

on mix you focus that step look has light end what more had if the color within historically But been commercial. back U.S. traditional the nonres could you at for mega the on projects market and and the Appreciate your

historically, post -- what projects? So understanding where residential that mix And lot is additional any a where larger construction today? of follow-on these quantification is you're the that of of where is

Kevin Murphy

Yes.

the if side the business. as landscape mega Kathryn, out of that projects you contractors. nonresidential These roughly quite is those it, commercial larger of look market, what and resources. overall performed out we do are well So the we playing historically you if at of complex nonres it call piece that playing require relates to knock-on have some from is with sophisticated look at project that where XX%

on our mega And knock who well projects to so that who have customers that now historically build-out on focused plays like. commercial drifted those look are to what

water, part piping and to we And at storm product specification And infrastructure, the mechanical the suppression wastewater, from is. us think as underground those us, up unlock systems, that what engineer catalyst for water mega industrial that, with getting through allows what are. a strategy really is capabilities look the and we growth driving owner, Ferguson closer and it valve projects and fire good catalyst to fitting that pipe for

to us come. large those partnering that think work, will this so with for contractors And we serve in years well

Kathryn Thompson

terms how fit think strategy with of And mix? that your strategy does you targeted into resi HVAC, of about versus bifurcating in kind then your nonres the as to Very helpful. outlined expanding

Bill Brundage

years. portion HVAC residential HVAC under When being with nonresidential of the build of at half, in for a of over we just just business half do business, we've the look that number out, we been the what

we In solid our being fact, over driven that states. XX have good of just really in We've business. and that need we're plumbing but currently expertise have trading to all standard got exposure, throughout operations

think contractor. the see doing But we multi-trade And residential so that with where a M&A at look towards balance think it's gravitating organic and dual us is you we that of trade trade you if going, growth. repair market

to valuable that expertise with platform plumbing partnership that well out with manufacturers, a in professional. which that good think market, we quite unitary building both and see consolidation plays in We capabilities for contractor think national that will be for and we're a HVAC we trade and allows that ductless very equipment

Operator

Our from next Ng question Jefferies. Phil comes with

Philip Ng

to single correctly, expecting your mid- Bill, if business you you're I heard XXXX, down digits. high for to resi be

Looking certainly on kind was and to sounds starting builder like for orders fourth trend from projects. X%. of little would quarter that at because it starts a little you color and I are bad a side, about help down rates more mean Can R&R things provide could just expect unpack flux. to be in that higher the remodeling what us a the commentary, less

and the year broadly color resi business Any just how the of your think helpful. shape more to about be would

Bill Brundage

our a with QX me But to a we similar stepping We're to in resi right resi X%, in exited mid-single perspective, question. that. day the growth down about now, to the point, I share digits, down it. into Yes, very to digit range high for of the we talking which clarify, And against look where take we're continue let down that was in you Certainly, our sales of that and our view if Phil, your had environment. mid- a from look, single trading year market, performance. view not was would thanks expect when

seen new million So start to yes, perspective, saw a stabilized we've from XX% around seem that in starts bit, X.X starts as year-over-year. we have dropped and August, down a permits range

the choppy down continued play being a for total But side. of environment, and bit impact rates exactly resi a we're a year it's single digits new rising new of still predict where that the that will given it's difficult to what with on resi So us to to year how the resi bit more mid- given pressured. market high and out, expect entering we be

year. today, our and we certainly best provide the guidance throughout the world and we'll view go of as That's updates

for and of our On that held the comparables And tougher forecast consumer, business. pressure at that larger is we be bit year. the there. the a half in index, digital pointed you our improvement consumer consumer has towards step for of the we've more remodel down And There's home for was remodeling and X some up in quite quarters And side, there's example, our if that as of look first next RMI business market just of the projects. pressure, well. higher-end about this commerce that side fiscal negative indicators, being some building we talked through as the that seen just and take to the no highlighted, second Kevin while doubt,

negative better for So the we in resi, year but new will it think than still be down territory.

Kevin Murphy

tough housing. And we for especially diminished. home the some turnover as repetition, inside Bill signs indicated, as demand of Phil after on that that good which said, we're continued we like. results new existing involved seen pipe Bill remodel with like that's against commodity to business in Waterworks uptick comps of pieces got has stabilization, been And on we've the have had that as slightly side, risk see But residential good and res coming indicated, do of and PVC really first and new the up that plumbing rough to side, the exposure our will be it building business

of signs a we're cautious though we're so And green shoots bit stabilization. seeing even and

Philip Ng

think any RMI you mean to the pressure market? and are you on shoots How seeing under Is flat How existing things it rates it's do you're on sales of of are that green remain stable more I And a RMI year? about side some picking Kevin, the debate seeing next more just because high. homes side? color things? Or up.

Kevin Murphy

think what market we're some although shift. perspective, be down do there's We as not as a down going the been think RMI res. is from in to seeing new that We

overall remodel our pressured like exposure, particularly exposure showroom said, HVAC movement we're than terms the in seeing of break for side to well, what perspective from of 'XX, on when some just from serves to seeing in you we're I of look the portion those a from that bigger fix serves us maybe system 'XX, the that just us that the less well at business take remodel end you of If the replace, in market, smaller side. business, saw a example, seeing But of like starting take We're repair. maybe we consumer higher jobs. to a

the you group residential we're those plumbing traffic higher-end start seeing and the when still good as look do they pretty and remodel Pro showrooms inside so pretty with trade remodel good traffic And our at those side, of to projects.

Philip Ng

one. last One helpful. you. That's Got

managing how certainly how the more on any capital front? very deployment? about should the On think capital on How flow inventory. we in about color do impressive this more think Bill, free in you generation, we past have did working job the cash should much down free And a cash year, XXXX? great flow

Bill Brundage

Yes.

going $XXX First still off, manage sustainably priorities, And capital to our no as the for change growth, bolt-on dividend, of M&A. we investing Xx a expectations. and in you come about that we really bounce we terms pleased with we're heavily organic after of low share a thought Xx our normalize. on last capital had end million inventory to about our were then in inventory, through of in would saw, authorization, growing quite ahead buyback bit to deployment left $XXX the maybe net We back that We debt-to-EBITDA year the million actually cash investing through about delivery, talking pandemic free range. of our have

That we And million came through we decline, the what through more $XXX million by for acquisitions inventory a the bit move that organic offset year. like did year. $XXX as is

So seasonality, pleased fairly to as as generation the to the about into bit couple environment. a look, a We delivery inventories cash we years, think draw step next during if months typically, normalized then over a highlighted, fiscal through build we of back with of and income you our think we Kevin would operating back year have of about fall. get our XXX% we think inventory we're normalized would in net first step summer of just the the part the little down as into we and

environment But you generation very should normalized much a and flow think as more it working now. about capital cash

Operator

Our from final question comes [indiscernible] today with Raymond James.

Unknown Analyst

like you margins first be the there us particularly pricing? Could help decremental negative understand in may some given what look half, might year-over-year

Bill Brundage

operating don't mean, out it's half look, margins. I to really set and guide year difficult we quarterly or Yes. on

margin range. call we particularly growth that year, the, last highlighted into If margin, QX exited from our year, we organic at nearly peak already mid-single-digit XX.X% decline with XX% to that step perspective. back, delivering would on you absolutely operating as expect as in down revenue with QX operating take we the a be a year the And seasonal in it, we a step

year-on-year through we will pressure have as half. first we on step the margin more So operating

some And then through comparables as pricing past stabilization get expect we'd of second we to back a we those step difficult and as from more half. stabilize standpoint, roll some markets to the

Unknown Analyst

you Can Okay. negative mentioned would down that helpful. you us quantification Got give seeing any on any that And pricing. Is kind you then X%, could of magnitude? X%, down be year-over-year you're slight it. give that

Bill Brundage

first, difficult -- dramatic, the over again, through digits low Nothing that so, Yes. X we as we To but comparables. date, that I'd it's the rolling or inflation very of call say continuation weeks year. a whatever, single trend commodity very it, those into we're stepped saw more

Operator

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

Kevin Murphy

again in, for customers to more making I and get environment back cash just well thank was base, ourselves fund business dedication you, as in In capital business our to Thank thank time say with to their and for. with an believe macro addition, agile thankful whole and working their RMI normalizing a generating want we're And the we you balanced really cost serving cash, associates, very we to your execution challenging closing, and construction, Yes. the today. that new find it's traditional priorities. patterns successful business res, a nonres, And positioned and something capital our a their sustainable. to during to the customers' the ordering despite our generating is complex simple, projects flexible you our profile mix, really model and a quarter year good

past we what it So first half, of halves, like saw it's of as guess, be half, the almost looks inverse this tale go we best through the year, X going to our year. a second

soon. come. So what to nonresidential forward appreciate both us Very to your well to associates and Thank looking and serve go that for leverage it, talk the structural we're some our to we've built can years model residential after much in time. will do trends for that you we'll our markets

Operator

lines. That concludes and now your the disconnect Ferguson like you Year-end I'd for your Fourth Quarter thank to participation, Call. and Conference you Results may

Ferguson (FERG) 26 Sep 232023 Q4 Earnings call transcript