Ferguson (LON:FERG) raised its full-year sales outlook after third-quarter revenue rose 9.5% to $9 billion, supported by demand for industrial products and large capital projects and the acquisition of FloWorks.
The company now expects approximately 7% sales growth for 2026, up from its previous forecast of mid-single-digit growth. It also raised the lower end of its adjusted operating margin guidance, projecting a range of 9.6% to 9.8%.
Chief Executive Officer Kevin Murphy said markets remained mixed, with strength in non-residential projects offsetting a weak residential backdrop. The company’s U.S. non-residential sales grew 15% in the quarter ended September 30, while residential sales increased 6%.
Industrial Growth Leads Quarterly Results
Third-quarter revenue growth included 7% organic growth and a 2.7% contribution from acquisitions, partly offset by divestments in Canada. Adjusted operating profit rose 8.9% to $962 million, while adjusted diluted earnings per share increased 7.9% to $3.43.
Gross margin was 30.9%, down 40 basis points from a year earlier. Chief Financial Officer Bill Brundage said the decline was expected because of the timing and extent of supplier price increases in the prior-year period. Operating cost leverage helped keep the adjusted operating margin flat at 10.7%.
Industrial revenue increased 55%, including 32% organic growth. Murphy said organic industrial growth was roughly evenly divided between large capital projects and maintenance, repair and operations. Power generation, refining, mining and minerals were among the main project-related drivers.
Brundage said industrial open orders and backlog continued to grow, although he cautioned against expecting 32% organic growth every quarter. “We are quite bullish on the future of our industrial business, particularly as we look into next year,” he said.
Elsewhere, commercial mechanical sales rose 17%, supported by projects including data centers, pharmaceuticals and manufacturing. HVAC sales grew 15%, while Waterworks increased 5%. Fire and fabrication sales declined 8%, which Murphy attributed to a difficult prior-year comparison and an ongoing vendor transition.
Project Backlog Grows as Residential Pressure Persists
Murphy said large capital projects represent a mid- to high-single-digit percentage of Ferguson’s revenue, with data centers accounting for roughly half of that project business. The company has not seen material project pauses or cancellations, he said, but it is early to assess how potential changes could play out.
Brundage said Ferguson’s non-residential open-order book generally provides visibility six to nine months ahead. He said the company was optimistic about large capital projects but more pessimistic about new residential construction, where weaker permits and starts have already affected Waterworks.
That pressure could spread further into Ferguson’s residential customer groups next year, Brundage said. Murphy noted that just under 25% of Waterworks business is tied to new residential construction.
Despite the difficult residential market, Ferguson Home and residential trade plumbing each grew 3%. Murphy cited strength in Ferguson Home’s showroom channel, particularly at the higher end of the remodeling market, and said the trade plumbing business benefited from its connection with HVAC.
FloWorks and Capital Allocation
Ferguson invested $1.7 billion in three acquisitions during the quarter, including FloWorks, which closed on August 31 and expanded its industrial flow-control capabilities. The company also acquired Brax Company and Rogers Supply Company during the quarter, followed by Canyon Systems after quarter end.
Brundage said the 11 acquisitions completed this year represent approximately $1.5 billion in aggregate annualized sales. He said FloWorks adds capabilities in specialized valves, automation and flow control, and increases Ferguson’s estimated total addressable market to $400 billion from $340 billion.
Murphy said it was still early in the FloWorks integration but that the company was encouraged by customer reception and collaboration between the teams.
Net debt stood at 1.7 times adjusted earnings before interest, taxes, depreciation and amortization, within Ferguson’s target range of one to two times. The company paused share repurchases in connection with the FloWorks acquisition. Brundage said buybacks could resume sometime next year as leverage falls, depending on acquisition opportunities.
Fourth-Quarter Outlook
Brundage said the full-year sales forecast implies fourth-quarter total growth in the high-single-digit to low-double-digit range, including a full quarter of FloWorks. Organic growth is expected to be similar to the third quarter’s rate, though it could be slightly higher or lower.
Ferguson increased its expected annual interest expense to approximately $235 million from roughly $200 million, reflecting debt used to finance acquisitions. It expects capital expenditure of approximately $425 million and an adjusted effective tax rate of approximately 26%.
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.
