10-Q: Ferguson Reports Strong Q1 Growth, EPS Up 23.9%

Ferguson Enterprises Inc. announced robust first-quarter results, with net sales increasing 5.1% and diluted earnings per share rising 23.9% driven by strong non-residential market performance in the U.S.

Summary

• Net sales for the three months ended October 31, 2025, increased by 5.1% to $8.2 billion, compared to $7.8 billion in the prior year.
• Operating profit grew by 15.9% to $771 million, up from $665 million in the same period last year.
• Net income rose 21.3% to $570 million, compared to $470 million in the first quarter of fiscal 2025.
• Diluted earnings per share increased by 23.9% to $2.90, from $2.34 in the prior year.
• Adjusted diluted earnings per share (non-GAAP) increased by 15.9% to $2.84.
• Net cash provided by operating activities increased by $85 million to $430 million.
• The U.S. segment saw net sales increase by 5.3% to $7.8 billion, driven by non-residential markets (up approximately 12%) and acquisitions.
• The Canada segment's net sales increased by 2.2% to $412 million, primarily due to acquisitions and price inflation, but adjusted operating profit decreased by $7 million to $16 million due to higher operating costs.
• Gross profit as a percentage of sales improved to 30.7% from 30.1%, reflecting management actions to capture value.
• SG&A expenses as a percentage of sales decreased to 20.1% from 20.4%, indicating operating leverage.
• The effective tax rate decreased to 19.9% from 24.7%, mainly due to the release of uncertain tax positions.

Sentiment

Score: 8

Explanation: The company delivered strong financial results with significant increases in net sales, operating profit, and EPS, driven by effective pricing and non-residential market strength. While residential markets show weakness, overall performance and liquidity remain robust, indicating a very positive outlook despite some regional challenges.

Positives

• Net sales increased by 5.1% to $8.2 billion, driven by price inflation, acquisitions, and higher sales volume.
• Operating profit increased by 15.9% to $771 million.
• Net income grew by 21.3% to $570 million.
• Diluted EPS increased by 23.9% to $2.90.
• Gross profit margin improved by 0.6% to 30.7%, reflecting effective management actions.
• SG&A as a percentage of sales decreased to 20.1%, demonstrating operating leverage.
• Net cash provided by operating activities increased by $85 million to $430 million.
• Strong performance in the U.S. non-residential markets, with sales up approximately 12%.
• Effective tax rate decreased to 19.9% from 24.7% due to the release of uncertain tax positions.
• Maintained strong liquidity with $2.4 billion of available undrawn debt facilities.
• In compliance with all debt covenants.

Negatives

• Residential markets in the U.S. decreased approximately 1% due to weak housing starts, permit activity, and soft repair, maintenance, and improvement (RMI) work.
• Canada segment's adjusted operating profit decreased by $7 million to $16 million, primarily due to higher operating costs, despite increased net sales.
• Cash and cash equivalents decreased from $674 million at July 31, 2025, to $526 million at October 31, 2025.
• Net cash used in financing activities increased significantly to $(448) million from $(214) million in the prior year, partly due to dividend payments in the current quarter versus none in the prior year's comparable quarter (due to timing of corporate structure change).

Risks

• Weakness in the economy, market trends, uncertainty, and other conditions in the markets, including inflation/deflation, recession, labor and wage pressures, trade restrictions, interest rates, and geopolitical conditions.
• Failure to rapidly identify or effectively respond to direct and/or end customers' wants, expectations, or trends, including costs and potential problems with new or upgraded information technology systems or the ability to timely deploy new omni-channel capabilities.
• Decreased demand for products due to highly competitive industries, declines in residential and non-residential markets, and challenges in inventory management.
• Changes in competition, including market consolidation, new entrants, vertical integration, or competitors responding more quickly to emerging technologies (e.g., generative AI).
• Failure of a key information technology system or process, as well as payment-related risks, including exposure to fraud or theft.
• Privacy and protection of sensitive data failures, including due to data corruption, cybersecurity incidents, network security breaches, or the use of AI.
• Ineffectiveness of or disruption in the domestic or international supply chain or fulfillment network, including delays in inventory availability, increased delivery costs, or lack of availability due to loss of key suppliers.
• Failure to effectively manage and protect facilities and inventory or to prevent personal injury to customers, suppliers, or associates, including from workplace violence.
• Unsuccessful execution of operational strategies.
• Failure to attract, retain, and motivate key associates.
• Exposure of associates, contractors, customers, suppliers, and other individuals to health and safety risks and fleet incidents.
• Risks associated with acquisitions, partnerships, joint ventures, other business combinations, dispositions, or strategic transactions.
• Risks associated with sales of private label products, including regulatory, product liability, and reputational risks, and adverse impact on supplier relationships and rebates.
• Failure to achieve and maintain a high level of product and service quality or comply with responsible sourcing standards.
• Inability to renew leases on favorable terms or at all, as well as any remaining obligations under a lease when a facility is closed.
• Changes in, interpretations of, or compliance with tax laws and accounting standards.
• Access to capital, indebtedness, and changes in credit ratings and outlook.
• Fluctuations in product prices/costs (e.g., commodity-priced materials, inflation/deflation, trade restrictions, failure to qualify for/maintain supplier rebates) and foreign currency.
• Funding risks related to defined benefit pension plans.
• Legal proceedings in the ordinary course of business, and failure to comply with domestic and foreign laws, regulations, and standards.
• Occurrence of unforeseen developments such as litigation, investigations, governmental proceedings, or enforcement actions.
• Failure to comply with obligations associated with being a public company listed on the NYSE and LSE, and associated costs.
• Costs and risk exposure relating to sustainability matters and disclosures, including regulatory or legal requirements and disparate stakeholder expectations.

Future Outlook

The company anticipates that its current cash position, coupled with cash flow from operations and access to capital, will be sufficient to meet operating cash requirements for the next 12 months and fund acquisitions, capital expenditures, dividends, share repurchases, and debt payments for several fiscal years. It also expects to be able to obtain alternative financing if needed.

Management Comments

• The increase in net sales was primarily driven by price inflation of approximately 3%, incremental sales from acquisitions of 1.0% and higher sales volume, partially offset by the impact of foreign exchange rates and an immaterial divestment in Canada.
• The year-over-year change [in operating profit] was driven by higher sales and the associated gross profit, partially offset by higher variable costs.
• Diluted earnings per share was $2.90 (adjusted diluted earnings per share: $2.84), increasing 23.9% (15.9% on an adjusted basis) compared with the first quarter of fiscal 2025 due to higher net income and the impact of share repurchases.
• Net cash provided by operating activities increased to $430 million in the current quarter compared with $345 million in the first quarter of fiscal 2025, primarily reflecting higher net income after adjusting for non-cash items.
• The increase in gross profit as a percentage of sales primarily reflected specific management actions to better capture the value provided to customers.
• The decrease in SG&A as a percent of sales primarily reflects operating leverage of the Company's cost base, partially offset by the impact of performance driven variable incentive costs.
• The increase in net sales [in the U.S. segment] was due to price inflation of approximately 3%, incremental sales from acquisitions of 0.9% and higher sales volume.
• Net sales in non-residential markets, representing approximately half of revenue in the United States, increased approximately 12% compared with the first quarter of fiscal 2025. This increase was driven by waterworks and commercial/mechanical, including large capital project activity.
• Net sales in residential markets decreased approximately 1% compared with the first quarter of fiscal 2025 in light of weak housing starts and permit activity, along with soft repair, maintenance and improvement (RMI) work.
• 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 will 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.

Industry Context

Ferguson operates as a value-added distributor in the North American construction market, serving both residential and non-residential sectors. The strong performance in the U.S. non-residential market, particularly in waterworks and commercial/mechanical, suggests resilience and growth in infrastructure and large-scale projects. Conversely, the decline in the residential market reflects broader industry headwinds such as weak housing starts and RMI activity, which are influenced by factors like interest rates and economic uncertainty. The company's ability to increase gross profit margin and achieve operating leverage despite these mixed market conditions indicates effective operational management and pricing strategies within a competitive landscape.

Corporate Governance

Legal Proceedings

• The company is involved in various legal proceedings in the ordinary course of business related to products supplied, contractual disputes, and employee disputes.
• Provisions are made for probable liabilities based on current information and professional advice.
• The company does not expect any pending legal proceedings to have a material adverse effect on its results of operations, financial position, or cash flows.

Stakeholder Impact

• Shareholders: Positive impact due to strong earnings growth (21.3% net income, 23.9% diluted EPS), continued share repurchases ($208 million in the quarter), and consistent dividend payments ($164 million).
• Employees: Potential positive impact from performance-driven variable incentive costs, indicating rewards for strong company performance.
• Customers: Continued provision of a wide range of products and services, with management actions to better capture value, suggesting a focus on service quality and pricing.
• Suppliers: Participation in a supplier financing program, allowing early payment at a nominal discount, which can benefit shipping and logistics providers.
• Creditors: Strong liquidity position with $2.4 billion in undrawn debt facilities and compliance with all debt covenants, indicating low credit risk.

Next Steps

• Continue to evaluate the impact of new accounting standards (ASU No. 2024-03 and ASU No. 2025-06) on disclosures and consolidated financial statements.
• Fiscal year 2026 will commence on January 1, 2026, following the transition period.
• Continue share repurchases under the authorized $5.0 billion program, with $761 million remaining as of October 31, 2025.
• Manage debt obligations as they become due, including the 2031 Senior Notes.

Key Dates

Recommendation

Ferguson's Q1 2026 results demonstrate exceptional financial health and operational efficiency, significantly exceeding prior year performance across key metrics. Net sales grew 5.1%, operating profit jumped 15.9%, and diluted EPS surged 23.9%. The company successfully expanded gross profit margins and achieved operating leverage, even amidst a challenging residential market. Strong performance in the U.S. non-residential sector, coupled with strategic acquisitions and effective pricing, underpins this growth. Robust cash flow from operations and substantial available liquidity further strengthen its financial position. The ongoing share repurchase program also signals confidence in future value creation. Despite some weakness in the residential segment and higher operating costs in Canada, the overall trajectory is highly positive, suggesting continued strong performance and shareholder returns.

Keywords

Ferguson Enterprises, FERG, 10-Q, Quarterly Report, Financial Results, Net Sales, Operating Profit, EPS, North American Construction Market, Plumbing, HVAC, Waterworks, Residential Market, Non-Residential Market, Supply Chain, Acquisitions, Share Repurchase, Debt, Liquidity, Corporate Governance, Risk Factors