Ferguson plc Reports FY2023 Fourth Quarter and Year End Results
Strong Performance in Continued Challenging End Markets
Fourth quarter highlights
- Sales decline of 1.7% (with organic decline of 5.3%) against a 21.4% prior year growth comparable.
- Operating margin of 10.0% (10.4% on an adjusted basis).
- Diluted earnings per share of $2.85 ($2.77 on an adjusted basis).
- Declared quarterly dividend of $0.75 per share, implying an annualized increase of 9% over the prior year.
- Completed three acquisitions during the quarter, generating annualized revenue of approximately $450 million.
- Share repurchases of $124 million during the quarter with an outstanding balance of approximately $500 million remaining under the current share repurchase program at July 31, 2023.
Full year highlights
- Sales growth of 4.1%, on top of a 25.3% prior year growth comparable, with continued market share gains.
- Operating margin of 8.9% (9.8% on an adjusted basis).
- Diluted earnings per share of $9.12 ($9.84 on an adjusted basis).
- Net cash provided by operating activities of $2.7 billion, an increase of $1.6 billion over the prior year.
- Total dividends declared of $3.00 per share representing 9% growth over the prior year.
- Completed eight acquisitions during the year, generating annualized revenue of approximately $780 million.
- Share repurchases of $908 million during the year.
- Balance sheet remains strong with net debt to adjusted EBITDA of 1.0x.
Kevin Murphy, Ferguson CEO, commented “Our teams continued to execute, delivering strong full year results with continued market outperformance, as our balanced business mix served us well in challenging markets. I would like to thank our associates for their unwavering commitment to help make our customers’ complex projects simple, successful and sustainable. As expected, disciplined working capital management drove excellent cash flow in the year. Our cash generative model and strong balance sheet allow us to invest for organic growth, sustainably grow our dividend, consolidate our fragmented markets through acquisitions and return capital to shareholders.
“FY2024 financial guidance reflects a continued challenging market backdrop, particularly in the first half of our fiscal year against strong prior year comparables. Our balanced end market exposure positions us well to leverage emerging multi-year structural tailwinds such as non-residential megaprojects. We remain confident in the strength of our markets over the medium and longer term and expect to capitalize on attractive growth opportunities.”
|Total Company||2024 Guidance|
|Net sales*||Broadly flat|
|Adjusted operating margin**||9.2% – 9.8%|
|Interest expense||$190 – $210 million|
|Adjusted effective tax rate**||Approximately 25%|
|Capital expenditures||$400 – $450 million|
|* Net sales guidance assumes mid-single digit market decline with continued Company market outperformance, contribution from already completed acquisitions and one additional sales day. Overall impact of price inflation estimated to be broadly neutral for the year.|
|** The Company does not reconcile forward-looking non-GAAP measures. See “Non-GAAP Reconciliations and Supplementary information”.|
Summary of financial results
Net sales of $7.8 billion were 1.7% below last year. Organic revenue declined 5.3%, partially offset by acquisition growth of 2.2% and 1.4% positive net impact from one additional sales day and the impact of foreign exchange rates. The Company’s decrease in net sales was mainly driven by declines in residential, partially offset by growth in non-residential sales compared to the prior year period. As expected, price inflation stepped down from approximately 5% in the third quarter to approximately 1% in the fourth quarter.
Gross margin of 30.6% was 10 basis points ahead of last year. Operating expenses continued to be diligently managed and we remain focused on productivity and efficiencies while investing in core capabilities for future growth.
Reported operating profit was $782 million (10.0% operating margin), 3.9% lower than last year. Adjusted operating profit of $814 million (10.4% adjusted operating margin) was 4.1% lower than last year.
Reported diluted earnings per share was $2.85 (Q4 2022: $2.73), an increase of 4.4%, while adjusted diluted earnings per share of $2.77 decreased 2.8% with the reduction due to lower adjusted operating profit and higher interest expense, partially offset by the impact of share repurchases.
Net sales of $29.7 billion were 4.1% ahead of last year, 1.5% higher on an organic basis with an additional 2.5% from acquisitions. An additional selling day contributed 0.4% to growth while the adverse impact of foreign exchange rates was 0.3%. Average inflation during the year was approximately 8%.
Gross margin of 30.4% was 30 basis points lower than last year and operating expenses continued to be well controlled. Reported operating profit was $2.7 billion (8.9% operating margin), 5.7% lower than last year. Adjusted operating profit of $2.9 billion (9.8% adjusted operating margin) was 1.2% lower than last year.
Reported diluted earnings per share was $9.12 (FY2022: $9.59), a decrease of 4.9%, while adjusted diluted earnings per share of $9.84 increased 0.8% due to the slightly lower adjusted operating profit and higher interest expense, offset by the impact of share repurchases.
USA – fourth quarter
Net sales in the US business declined 1.5%, with an organic revenue decline of 5.5% partially offset by 2.4% from acquisitions and a 1.6% positive impact from one additional sales day.
Residential end markets, which comprise just over half of US revenue, slowed further during the quarter as expected. New residential housing start and permit activity has remained relatively stable on a sequential basis but remains below prior year levels, while repair, maintenance and improvement (“RMI”) work remained more resilient. Overall, residential revenue declined by approximately 4% in the fourth quarter.
Non-residential end markets, representing just under half of US revenue, continued to moderate with non-residential revenue growing by approximately 2% in the fourth quarter. Industrial and non-residential waterworks projects saw continued strength in the quarter on top of difficult prior year comparables and, as expected, we are seeing increased levels of megaproject related bid activity.
Adjusted operating profit of $804 million was 3.0% or $25 million behind last year.
We completed three acquisitions during the quarter that included Bruce Supply Corp., a plumbing distributor in the New York City Metro operating from 6 locations and The Kennedy Companies, a waterworks distribution business in the mid-Atlantic region with 9 locations. Additionally, we completed the acquisition of S. G. Torrice, an HVAC distributor in the New England region with 15 locations. In aggregate these businesses generate annualized revenue of approximately $450 million.
Canada – fourth quarter
Net sales compressed by 5.1%, with an organic revenue decline of 2.7%, a 1.6% positive impact from one additional sales day, and a further 4.0% due to the adverse impact of foreign exchange rates. Similar to the US segment, non-residential end markets have been more resilient than residential end markets. Adjusted operating profit of $22 million declined by $13 million compared to last year.
Net debt to adjusted EBITDA at July 31, 2023 was 1.0x and during the year we invested $0.4 billion in capital expenditures, paid $0.7 billion of dividends, invested $0.6 billion in eight acquisitions, and repurchased 7.0 million of our outstanding shares equating to $0.9 billion. We have a remaining outstanding balance of $0.5 billion under the current share repurchase program at July 31, 2023.
We have declared a quarterly dividend of $0.75, having transitioned from a semi-annual distribution schedule earlier in the fiscal year. This implies a 9% increase, as compared to a quarter of the prior year’s total dividend, and will be paid on November 15, 2023 to shareholders on the register as of October 6, 2023. This brings the full year dividend to $3.00, a growth of 9% for the year.
There have been no other significant changes to the financial position of the Company.
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Ferguson plc (NYSE: FERG; LSE: FERG) is a leading value-added distributor in North America providing expertise, solutions and products from infrastructure, plumbing and appliances to HVAC, fire, fabrication and more. We exist to make our customers’ complex projects simple, successful and sustainable. Ferguson is headquartered in the U.K., with its operations and associates solely focused on North America and managed from Newport News, Virginia. For more information, please visit www.corporate.ferguson.com or follow us on LinkedIn https://www.linkedin.com/company/ferguson-enterprises.
Source: Ferguson plc