Ferguson (LON:FERG) reported calendar year 2025 results that management described as a “strong year” despite what it characterized as a challenging market, and it outlined expectations for broadly flat end markets in calendar 2026 with continued outperformance. The company also used its earnings call to provide a broader strategic update focused on long-term growth drivers across large capital projects, water infrastructure, climate and comfort, and housing.
Leadership and corporate updates
CEO Kevin Murphy noted that Investor Relations head Brian Lantz plans to retire in May. Murphy credited Lantz with contributing to Ferguson’s transition from the United Kingdom to the United States, establishing a New York Stock Exchange listing, and building an investor relations presence in the U.S. The company also announced that Pete Kennedy has been promoted to Vice President of Investor Relations, based in Virginia.
Full-year 2025 results: revenue up 5%, operating margin expands
CFO Bill Brundage said revenue growth reflected 4.5% organic growth and 1% acquisition growth, partially offset by 0.4% from one fewer sales day and 0.1% from foreign exchange and a divestment in Canada. Price inflation was described as low single digits for the year, with finished goods pricing improvements offset by deflation in certain commodity-related categories.
Gross margin increased 70 basis points to 31%, which Brundage said was driven by disciplined execution and the timing and extent of supplier price increases. The company ended the year with net leverage of 1.1x net debt to EBITDA.
End market and customer group trends
In the United States, net sales grew 5%. Management said residential end markets—about half of revenue—remained challenged, citing declines in housing starts and permit activity and continued softness in repair, maintenance, and improvement (RMI). Despite that, the company said its residential revenue was flat for the year, which it attributed to outperformance versus weak markets.
Non-residential end markets were stronger, and Ferguson reported non-residential revenue up 11% for the year. Murphy said large capital project activity “remains good,” with solid shipments and growth in open order volumes and bidding activity.
By U.S. customer group for the full year, management highlighted the following:
- Waterworks revenue grew 13%, with strength across large capital projects, public works, general, municipal, and metering technology, offsetting weakness in residential.
- Ferguson Home grew 1% in a challenging new construction and remodel market, with management citing a combined showroom and digital experience for higher-end projects.
- Residential trade plumbing declined 3%, reflecting headwinds in new construction and RMI.
- HVAC declined 1% against a strong prior-year comparable, with management citing the industry’s transition to new efficiency standards, weak new residential construction, and a pressured consumer.
- Commercial mechanical grew 18%, driven by large capital projects such as data centers, partially offset by weaker traditional non-residential activity.
Brundage said the calendar fourth quarter showed similar patterns. Fourth-quarter net sales were $7.5 billion, up 3.6%, with gross margin of 30.6% and operating margin of 8.3%. Residential revenue was down 2% in the quarter, while non-residential revenue was up 10%.
Cash flow, capital allocation, and shareholder returns
Ferguson generated $2.2 billion of operating cash flow in calendar 2025, up $110 million from the prior year, and reported $1.9 billion of free cash flow. Brundage said working capital investments increased to $294 million as the company selectively invested to support growth areas.
During the year, the company invested $354 million in capital expenditures and $276 million in M&A. It returned $1.6 billion to shareholders through dividends and share repurchases, including $656 million in dividends and $902 million to repurchase 4.5 million shares. The company declared a quarterly dividend of $0.89, payable in April.
In its longer-term capital allocation framework, management said it has moved bolt-on acquisitions ahead of the dividend in priority order, describing the change as a better reflection of the company’s growth focus and the returns expected from acquisitions. Brundage added that the company has not historically had to choose between acquisitions and sustainably growing the dividend.
2026 outlook and strategic themes
For calendar 2026, management expects end markets to be “broadly flat” overall, with residential down low to mid-single digits and non-residential up low to mid-single digits. Against that backdrop, Ferguson guided to low to mid-single-digit revenue growth and an operating margin range of 9.4% to 9.8%. The company expects interest expense of approximately $200 million, CapEx of about $350 million to $400 million, and an effective tax rate near 26%.
On the call, Brundage explained that operating margin guidance reflects, in part, normalization from “outsized” gross margin benefits earlier in 2025 tied to supplier price increases. He said the company expects some year-over-year gross margin pressure in 2026, with SG&A leverage expected to offset it.
Management also commented on early first-quarter trends, saying revenue was “a touch weaker than Q4” and trending in the low single digits, citing ongoing new residential weakness, HVAC pressure, and a year-over-year impact from severe storms in January and February. The company said it expects modest improvement as the year progresses, consistent with its full-year guidance.
As part of its strategy update, Ferguson framed its addressable North American residential and non-residential construction market opportunity at $340 billion and emphasized its “multi-customer group approach” and ability to provide “end-to-end solutions” across water and air applications. Management highlighted four structural trends it believes will support growth over time:
- Large capital projects: Ferguson cited more than 4,000 projects planned through 2031 and estimated $6 trillion of projected spend, describing an approximately $90 billion opportunity across its customer groups.
- Water infrastructure: Management pointed to aging U.S. water systems and demand for modernization, including metering and monitoring technologies.
- Climate and comfort: The company discussed demand for more efficient equipment, changing regulations, and a shift toward dual-trade capabilities; Ferguson said it has over 650 full-service dual-trade HVAC and plumbing locations.
- Aging and underbuilt housing: Management said older housing stock and a housing shortage underpin long-term demand for RMI and new construction.
Murphy and Brundage said the company’s long-term model assumes market growth of roughly 2% to 4% annually, plus 300 to 400 basis points of above-market organic growth and 1% to 3% incremental growth from acquisitions, resulting in a long-term total annual growth expectation of 6% to 11%. Brundage said Ferguson targets incremental operating margin expansion of about 10 to 30 basis points per year over time, supported by initiatives including analytics and dynamic pricing, expansion of value-added solutions, own-brand and vendor mix, productivity investments including technology and AI, and supply chain optimization.
In Q&A, management said large capital projects tend to have “slightly lower gross margins” but also “slightly lower cost to serve,” with “very strong” net operating margins and returns on capital. The company also said it does not anticipate deflation, noting it continues to see normal annual finished goods price increases, while PVC pipe remained in deflationary territory.
Murphy closed by thanking associates, customers, and suppliers, and said management remains encouraged by opportunities tied to large capital projects, water and wastewater infrastructure, climate and comfort, and an eventual residential rebound.
About Ferguson (LON:FERG)
Ferguson plc distributes plumbing and heating products in the United States and Canada. It offers plumbing and heating solutions to customers in the residential, commercial, civil/infrastructure, and industrial end markets. The company also provides expertise, solutions, and products, including infrastructure, plumbing, appliances, fire, fabrication, and others, as well as heating, ventilation, and air conditioning products under the Ferguson brand name. In addition, it supplies pipes, valves, fittings, plumbing supplies, water and wastewater treatment products, and refrigeration products under Wolseley brand name.
