Ferguson Enterprises Inc Q2 2024 Earnings Call Summary

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

Question: Matthew Bouley - Barclays - Analyst : You all mentioned current open orders and sales per day is supporting second half improvement. I guess what exactly are you seeing around orders and daily sales? And maybe help -- if you can kind of help us with the cadence of growth through fiscal Q2? How did

Question: Matthew Bouley - Barclays - Analyst : Perfect. Very helpful. Second one, the deflation of 2% in the quarter, it sounded like that was all commodity. I think you said finished goods was slightly positive. And so to get to your full year guide of broadly neutral inflation, are you starting to see any kind of incremental finished goods inflation and price increases to support that? Or is it really just kind of the year-over-year comps as you get to the second half, kind of what takes inflation positive in the second half to get to your guide?

Question: John Lovallo - UBS Investment Bank - Analyst : The first one is, you guys do have a pretty agile cost structure. I think it's highly variable, around 80% to 90% incrementals are generally kind of 10% to 13%-ish. Now recognizing pricing was a bit of a headwind in the quarter, why were decremental margins so high at close to 40%?

Question: John Lovallo - UBS Investment Bank - Analyst : That's helpful. And then on the Industrial segment in particular, down 6% year-over-year, understanding the comp was tough at around 24%. I'm just curious, I mean, the first quarter faced a similar comp. It was actually up, I think, 3% year-over-year in the quarter. So was there anything in particular in the quarter outside of the tough comps that challenged industrial?

Question: Philip Ng - Jefferies - Analyst : Kevin, looking at your non-res business, certainly some puts and takes on the heavy side. Clearly, you're upbeat about that. Like commercial, could be a little softer. But just kind of help us unpack in the back half. Do you expect growth? And the bidding activity you're seeing in some of these mega projects, do you expect that to kind of ripple through in the second half? And conversely, have you seen light commercial bottom out here?

Question: Philip Ng - Jefferies - Analyst : Kevin, you beat me to the punch. I was going to ask you what percentage of your business on data centers is your non-res business just because it's very much involved with that AI dynamic. But any color on the data center portion of your business for non-res?

Question: David Manthey - Robert W. Baird & Co. Incorporated - Analyst : First question for Kevin maybe. On slide 5, when you look at your US end markets in the second quarter, they're mostly flattish year-over-year, give or take. After this quarter, which of these end markets leave you more encouraged for the second half of the year and on which ones are you more cautious following recent results?

Question: David Manthey - Robert W. Baird & Co. Incorporated - Analyst : Yeah. A quick one for Bill. Mathematically, if we think about the new M&A deals that you've announced and the roll-off of prior acquisitions, what percentage contribution to growth should we expect in the third and fourth quarters?

Question: Ryan Merkel - William Blair & Company L.L.C. - Analyst : I wanted to ask on gross margins, really solid result this quarter. Can you remind us of gross margin seasonality as we think about modeling 3Q? And any reason not to use normal seasonality?

Question: Ryan Merkel - William Blair & Company L.L.C. - Analyst : And just a follow-up there, if inflation turns positive, is that a helper to your gross margins as we think about the second half?

Question: Ryan Merkel - William Blair & Company L.L.C. - Analyst : Got it. That's helpful. And just for my follow-up. Anything to think about for March and April when we think about last year in terms of modeling? I know there was some weather last March. Just curious what -- if the comparisons get a little bit easier and if there's anything to think about.

Question: Mike Dahl - RBC Capital Markets - Analyst : First question, just looking at kind of category performance. Digital has been soft even as we've gotten against easier comps, I think, double digits off of -- comping off a double-digit decline and you're now down to about 8% of sales from 10%. Obviously, that ties at least partially with your comments around RMI, but just wondering if you can give a little more color there and give us an update on how you're planning to invest and expand the digital effort here.

Question: Mike Dahl - RBC Capital Markets - Analyst : That's helpful. And then shifting gears back on to kind of capital allocation and M&A. It seems like there's been a significant uptick in broader M&A activity across virtually everything, distribution, manufacturing, a lot of things housing-related, industrial-related. Can you talk to -- obviously, you closed the three acquisitions, but just the pipeline you're seeing, kind of composition, has that changed at all as you've gone through the past few months? And any kind of medium to larger size things taking roost? Or are you still -- or would you still expect kind of similar cadence as we've seen?

Question: Kathryn Thompson - Thompson Research Group - Analyst : Just a clarification from earlier in the Q&A. Could you remind us what percentage of cost of goods sold are commodity products? And how has this balance changed today versus, say, three to four years ago?

Question: Kathryn Thompson - Thompson Research Group - Analyst : And we find that there are some building product categories with other companies that were -- you're able -- you're better able to pass through pricing on commercial projects then on residential. How does that play through for you in terms of pricing power, particularly taking into account larger scale projects that are a greater relative mix versus historic levels?

Question: Kathryn Thompson - Thompson Research Group - Analyst : Okay. And finally, last week, the largest annual residential construction and end market trade show, the International Builders' Show wrapped up. What, if any, trends can you share with us that could give just some additional broader color into that important residential end market for you? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 05, 2024 / 1:30PM, FERG.N - Q2 2024 Ferguson Enterprises Inc Earnings Call

Question: Patrick Baumann - JPMorgan - Analyst : Just wanted to jump back to gross margins. You mentioned, I think, in the commentary that pricing and product strategy are drivers of expansion in the quarter. Can you just flesh out what you mean by that? Because on pricing, you're seeing deflation. So are you getting some price cost benefit? I think you said like discipline from your associates from a price perspective. And then on product strategy, is this own brand contribution? Is this -- or it's something else from a services perspective?

Question: Patrick Baumann - JPMorgan - Analyst : Makes sense. Helpful. And then on the -- my follow-up is on the commodity product pricing side. You mentioned some increase in res as a good sign for PVC pipe, I suppose. I'm wondering if you could comment on any differences you're seeing in the smaller diameter like plastic water pipe for resi trade versus like the bigger diameter stuff for the waterworks business. You said something about like a 20% decline overall, I think. I'm just wondering if you could give any color on differences between the types of PVC pipe.

Question: Patrick Baumann - JPMorgan - Analyst : Helpful. And then if I could fit one more in here. I know I'm the last question, so I'm just going to fit one more in. On the -- your MDC rollout, any update kind of on how that's going relative to your expectations? Like what are kind of the plans for this year from an MDC perspective? And any kind of financial metrics you could share with us on how it's impacting the business?