Ferguson Enterprises Inc Q1 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Keith Hughes - Truist - Analyst : There was a good bit of SG&A deleverage in the quarter. If you could talk about that, what that would look like for the remainder of the fiscal year.

Question: Keith Hughes - Truist - Analyst : Okay. One other question on margins. Price is down, about what it's been for several quarters. Gross margin flipped from -- we were seeing some modest improvements in gross margin, only down 10 basis points, but the improvement stopped. Anything specific in this quarter that caused a little more compression with the same pricing environment?

Question: Keith Hughes - Truist - Analyst : Okay. Thank you.

Question: Philip Ng - Jefferies - Analyst : I guess piggybacking on Keith's question on op margins. When I look at 1Q on balance, top line was pretty much down the line, and gross margins were pretty impressive despite deflation. It was the op margin that was a little lighter. It's closer to the low end of your full-year guide. And certainly, Q1 and Q4 are typically your bigger margin quarters, I guess. So kind of, Bill, help us kind of think through how do you envision your op margins kind of shaking out more towards the midpoint? Is it a function of some of these investments you've talked about on the HVAC counter side of things kind of paying more, I guess, dividends to your results? Are you taking more OpEx? And then perhaps maybe pricing could look a little better in the back half. Help us think through how do you envision the op margin progression through the year? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 10, 2024 / 1:30PM, FERG.N - Q1 2025 Ferguson Enterprises Inc Earnings Call

Question: Philip Ng - Jefferies - Analyst : Okay. That's great color, Bill. It's very encouraging to hear and see the shrink in your civil and infrastructure markets in the quarter. You've also talked about how bidding activity for some of these heavy mega projects have been pretty good. So that's encouraging. We've heard from some of our private -- into the companies we cover calling out the larger projects potentially put on pause ahead of the election. Curious if you see -- if you saw that, and have you seen bidding activity perhaps stepped up post-election? And with a Trump presidency, how do you kind of see it impacting your different businesses, end markets, whether it's US manufacturing, which is probably a good guy. But perhaps on the other end, maybe [EDRA] stuff might be more hampered. Help us think through what you're seeing and what a Trump presidency could bring.

Question: Philip Ng - Jefferies - Analyst : Really appreciate the color, guys. Thank you.

Question: Matthew Bouley - Barclays - Analyst : Thank you for taking the questions. I wanted to ask back on the OpEx side with that sort of 5% year-over-year growth. Is there a scenario where you would either kind of pull back on that depending on how the end markets end up shaking out? Or is there a case that maybe some of these investments from a timing perspective happens to be a little more front-loaded? Just curious, I mean just if we're thinking about a 5% year-over-year growth in OpEx, how that plays into the full year operating margin guide. So

Question: Matthew Bouley - Barclays - Analyst : Got it. That's super helpful color. And secondly, zooming into the price side, I guess on the commodity side, are you still seeing any kind of sequential declines in commodity or has it been a little more stable? And then conversely, as we think about your guide on the finished goods side, I guess roughly what level of finished good inflation are you guys assuming in order to get to kind of the full-year guide?

Question: Matthew Bouley - Barclays - Analyst : All right. Thanks, Bill. Thanks, Kevin. Good luck, guys.

Question: Matthew Johnson - UBS - Analyst : This is actually Matt Johnson on for John. I guess first, sorry if you guys already hit on this, but could you just talk about how organic sales trended through the quarter and into November, both a volume and pricing basis?

Question: Matthew Johnson - UBS - Analyst : Appreciate that. And then, I guess, just touching on M&A. So you guys completed one acquisition in the quarter. Could you guys just give us an update on how the pipeline and valuation expectations look today relative to this time last year and if you guys are expecting any sort of ramp-up in activity into 2025?

Question: Matthew Johnson - UBS - Analyst : Thanks, guys.

Question: David Manthey - Robert W. Baird & Co., Inc. - Analyst : Just to hit on the progression here in the guidance again. If OpEx grew 5% on 2% volume growth and flattish overall revenues this quarter without any major unusual expense items in OpEx, should we then assume that as we look forward here, OpEx is going to grow something in that mid-single-digit rate, give or take, through the remaining quarters of the year? And what your outlook assumes is that revenue growth accelerates in the back half of your fiscal year and then leverages those operating expenses. Am I hearing that right?

Question: David Manthey - Robert W. Baird & Co., Inc. - Analyst : But is it safe to say that you're looking for at least a bit of revenue growth acceleration as we move through the year. Is that correct?

Question: David Manthey - Robert W. Baird & Co., Inc. - Analyst : Okay. And then you pointed out one fewer day in the third quarter. Could you talk about what month that hits just so we get an idea of how impactful that is from a revenue standpoint? And then is there anything else, Bill, we should keep in mind as it relates to expenses and margins,

Question: David Manthey - Robert W. Baird & Co., Inc. - Analyst : Okay. Thanks very much.

Question: Brian Biros - Thompson Research Group - Analyst : It's actually Brian Biros on for Kathryn. Thank you for taking my questions today. On the gross margin performance, can you touch on the things that are in your control to help margins that have private label? I think it's that 10% of sales, and you have some other internal margin initiatives. I think it would be helpful to hear how those are helping to offset the downward pressures that you mentioned of what is out of your control.

Question: Brian Biros - Thompson Research Group - Analyst : Yeah. And then last one on the HVAC expansion plans, maybe can you explain how that's progressing here and like in a down residential environment and kind of what that could look like already starts to come back more meaningfully? I think it was up 10% in the quarter, I assume, in a tough end market. So just trying to think about we have an easier environment, what does that look like? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 10, 2024 / 1:30PM, FERG.N - Q1 2025 Ferguson Enterprises Inc Earnings Call