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Ferguson PLC (FERG) Reports First Quarter Earnings Amid Market Headwinds

  • FERG reports a 2.8% decline in sales but maintains a solid operating margin of 9.6%.

  • Diluted earnings per share stand at $2.54, with adjusted EPS at $2.65.

  • Operating cash flow rises to $557 million, marking a $59 million increase year-over-year.

  • The company declares a quarterly dividend of $0.79, a 5% increase from the previous year.

On December 5, 2023, Ferguson PLC (NYSE:FERG) released its 8-K filing, detailing the company's financial performance for the first quarter. Despite a challenging economic environment, FERG demonstrated resilience with a steady operating margin and increased cash flow, while continuing to execute its growth strategy through acquisitions and share repurchases.

Financial Performance Overview

Ferguson PLC (NYSE:FERG) faced a challenging quarter with a 2.8% decline in sales compared to the previous year, which had seen a significant 16.6% growth. The company's operating margin remained robust at 9.6%, with an adjusted margin of 10.0%. The diluted earnings per share (EPS) for the quarter was reported at $2.54, with an adjusted EPS of $2.65, reflecting a 10.6% and 10.2% decrease, respectively, from the prior year.

Income Statement Highlights

The income statement revealed that net sales dipped to $7.7 billion, a 2.8% decrease year-over-year, primarily due to a decline in residential sales, which was partially offset by growth in non-residential sales. The gross margin contracted slightly by 30 basis points to 30.2%, affected by commodity categories. Operating expenses were carefully managed, and the reported operating profit was $739 million, an 11.1% decrease from the previous year. Adjusted operating profit stood at $773 million, a 10.5% decrease.

Cash Flow and Balance Sheet Strength

Ferguson PLC (NYSE:FERG) reported a strong operating cash flow of $557 million, an increase from the previous year, demonstrating the company's robust cash-generative business model. The balance sheet remains solid with a net debt to adjusted EBITDA ratio of 1.0x. The company also continued its shareholder-friendly activities with share repurchases totaling $108 million during the quarter.

Dividend and Acquisition Activities

The company declared a quarterly dividend of $0.79 per share, which is a 5% increase over the prior year, underscoring its commitment to returning value to shareholders. Additionally, FERG completed one acquisition during the quarter, further expanding its market presence.

Segment Performance

In the United States, net sales declined by 2.7%, with organic revenue decreasing by 5.0%. The residential market remained subdued, while non-residential markets showed stability with a 2% growth. In Canada, net sales decreased by 5.0%, with organic revenue declining by 3.3%. Adjusted operating profit in the US was down by 9.3%, and in Canada, it decreased by 30.3%.

Management Commentary

"The year has started in line with our expectations. I would like to thank our associates for their strong execution in delivering solid results with continued market outperformance against a challenging backdrop. 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," said Kevin Murphy, Ferguson CEO.

Outlook and Guidance

Ferguson PLC (NYSE:FERG) reaffirmed its full-year guidance, expecting net sales to be broadly flat and an adjusted operating margin between 9.2% and 9.8%. The company remains confident in its market position and its ability to leverage structural tailwinds over the medium and long term.

Overall, Ferguson PLC (NYSE:FERG) has navigated the first quarter with a strong balance sheet and cash flow, despite a slight downturn in sales. The company's strategic acquisitions and commitment to shareholder returns, coupled with a stable dividend increase, position it well for future growth opportunities.

Explore the complete 8-K earnings release (here) from Ferguson PLC for further details.

This article first appeared on GuruFocus.