Ferguson Enterprises Inc Q4 2024 Earnings Call Summary

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

Question: John Lovallo - UBS - Analyst : Good morning, guys. Thanks for taking my questions. The first one is just maybe a little bit more color on deflation. I mean, what does deflation look like so far in August and September for finished goods and commodities? And it sounds like the expectation might be for an inflection, a positive inflection at some point in the second half of the year? Can you confirm if that is what you guys are thinking and specifically when that might occur in your view?

Question: John Lovallo - UBS - Analyst : Understood. Okay. And then, in the quarter what was the gross margin benefit from the decrease in inventory reserve? And then in terms of your full year outlook for operating margin of 9% to 9.5%, how are you sort of thinking about the upper and lower end of the range and what may drive each of those?

Question: John Lovallo - UBS - Analyst : Great. Thanks very much guys.

Question: Matthew Bouley - Barclays - Analyst : Morning everyone. Thank you for taking the questions. Maybe I'll kind of follow up there around the kind of growth expectations for next year. You know, from an end market perspective, I think you spoke about some challenges persisting even as the as the two-year stack eases a little bit. I guess specifically within each end market, what are those kind of building blocks around that low, single digit decline for FY25? And also curious if you can update us on how the year has started from an organic growth perspective quarter to date? Thank you.

Question: Matthew Bouley - Barclays - Analyst : Got it. Okay. Thank you for that, Kevin and Bill. It's very helpful. So I guess just kind of picking up on some of that, the views around '25. You know, as you mentioned, I mean, there's clearly a lot of cross currents, right? It sounds like you're speaking to a lot of the kind of current data being relatively soft around starts and permits and ABI, as you mentioned at the same time that now it seems like interest rates are moving lower. So I just wanted to confirm number one that, your guidance is basically assuming sort of current market conditions that you're not really assuming much improvement related to lower interest rates, that's number one. And number two, in your experience when you do have lower interest rates, I guess I'd be curious, you know, where do you see it first? How does that tend to play out in your own business? And, you know, what are you kind of hearing from customers? You know, if there is any potential optimism around that? Thank you.

Question: Matthew Bouley - Barclays - Analyst : Great. Thanks Kevin. Good luck guys.

Question: Philip Ng - Jefferies - Analyst : Hey, guys. Congrats on a solid quarter. I guess a question for Bill. If I look at your pricing the last two quarters, it's been down about 2%. And your gross margins, if you kind of strip out the inventory dynamics was kind of flattish, right? So it kind of feels like your commodity headwind is stabilizing here, but you're calling for margin compression for 2025, is that more on the gross margin side or S&A? And then are you seeing commodity deflation and any pockets accelerate in the first half? Because it sounds like you're a little more cautious on margins to start the first half and perhaps a further price degradation from here.

Question: Philip Ng - Jefferies - Analyst : So we should assume gross margins holding up relatively well. The margin compression is largely s and a driven and more in the first half. Am I hearing you guys? Right?

Question: Philip Ng - Jefferies - Analyst : Okay. And then pivoting on your non-res business. Obviously, investments and you're pivoting to these mega projects and capital projects has been a good guy. It sounds like you're seeing team momentum there. What about your traditional commercial side of things, the light commercial side of things? Kevin, Bill, are you guys seeing any stabilization? Any green sheets? There seems like the head of your side of things with the capital side of things that you're seeing continued momentum there. Some of the companies we covered have called out project delays ahead of the election. Contractors holding back on some of the stuff ahead of rate cuts. It doesn't sound like you're seeing any of that, but any color would be helpful.

Question: Philip Ng - Jefferies - Analyst : Okay, appreciate the call you guys.

Question: Anthony Pettinari - Citi - Analyst : Hi, good morning. Can you talk about progress on own brands or private label in fiscal '24 and maybe what you're you know, targeting in '25 in terms of end markets where that could product categories where that could move the needle and any kind of rough way to think about sort of rule of thumb on the margin benefits?

Question: Anthony Pettinari - Citi - Analyst : Okay. That, that's very helpful. And then just -- sorry if I missed this, but on the fiscal '25 guide the tax rate, I think a point above what you did in '24 any driver there or anything you'd call out?

Question: Anthony Pettinari - Citi - Analyst : Got it. Got it. Thank you. I'll turn it over.

Question: Sam Reid - Wells Fargo Securities, LLC - Analyst : Awesome, thanks so much. Wanted to touch again on pricing here. I appreciate all the commentary on the commodity side of the business. I wanted to talk about the other part of your business, your finished goods pricing. Any sort of notable category call-outs we should be mindful of, any potential outliers either above or below expectations on finished goods. Thanks.

Question: Sam Reid - Wells Fargo Securities, LLC - Analyst : That's helpful and then maybe switching gears, talking SG&A. Just looking at the growth in SG&A on an absolute basis. It looks like it was up maybe a percent during the quarter and that's a bit of an improvement versus last quarter. Maybe just talk through some of those efficiencies that you are generating on the SG&A line and perhaps bucket out SG&A kind of including and excluding acquisitions. Thanks.

Question: Mike Dahl - RBC Capital Markets - Analyst : Great. Thanks for taking my questions. First of all, I wanted to ask about free cash flow and capital allocation as you contemplate fiscal '25. How should we be thinking about free cash conversion rates, any moving pieces in working cash we should be thinking about? And then from a capital allocation standpoint, obviously continue to produce healthy cash flow, the balance sheets in good shape. You've got different outcomes, when we think about macro for this next year, but if we're if we end up kind of skirting through in it in a healthier way, is this the time in the cycle that you look to kind of lean in from an M&A standpoint? How would you characterize your pipeline and your willingness and desire to kind of push more M&As through the system in the coming year, just any commentary you can give on how you're thinking about how this shapes up.

Question: Mike Dahl - RBC Capital Markets - Analyst : That's great. Thank you for that. Just the second question, picking up on the HVAC comment, you know, HVAC has remained a nice source of growth and, and a good vertical for you. Obviously, you're trying to do a lot of things both organically and via M&A there. I may have missed this but in the 9% growth in 4Q, can you help us understand kind of what was organic? And then when you're thinking about fiscal '25 and that set up, there's some tailwinds from the HVAC market, potentially. You've got your growth initiatives, you've obviously got some additional carry over M&A there, help us frame up kind of what type of contribution you'd expect from HVAC in the coming year.

Question: Mike Dahl - RBC Capital Markets - Analyst : Great. Thanks, Kevin. Thanks. Bill. David Manthey, Baird.

Question: Will Jones - Redburn Atlantic - Analyst : Thanks. Good morning. A couple from me please. Firstly maybe on the large capital projects I had in mind a couple of years ago you talked about addressable market around $30 billion and you mentioned $50 billion today. Am I right in that? And is it just that more projects have kind of kicked off since that point in terms of the increase? And as a judgment, how far through the [$50 billion] do you would say we are?

Question: Will Jones - Redburn Atlantic - Analyst : Thanks. And the second one, hopefully just a quick one, but on dual trade, when you look across the landscape, do you think there are many distributors that are either able or even trying to do similar to you on that front or do you think you're the leader there? Thanks.

Question: Will Jones - Redburn Atlantic - Analyst : Thank you.