Ferguson CEO talks earnings, construction activity, and commercial demand
Ferguson CEO Kevin Murphy joins Yahoo Finance Live to discuss company earnings, construction activity, affordability, recessionary risks, and the outlook for growth.
Video Transcript
- We're watching shares of Ferguson today after the home improvement company reported first-quarter earnings that showed a 16% rise in net sales year-over-year and 17% growth in its US business. Ferguson CEO Kevin Murphy joins us now in studio. Kevin, good to see you finally in person, in our studio.
KEVIN MURPHY: Good to see you. Good to be with you in person.
- Look, we got some good news from a home improvement retailer in Lowe's this morning here saying demand is stable. Is that what you're seeing in your business, too?
KEVIN MURPHY: Yeah, demand was supportive. The quarter, we couldn't be more proud of the remarkable work of our associates driving that over 16% revenue growth and then controlling costs and driving through operating profit expansion. But if you look at what our business is, it's just over half residential, just under half nonresidential. And both were supportive. We know we're going to have some headwinds on the new res side. But we're mostly RMI.
- Yeah, go further into that new residential side, because we were just discussing both homebuilding and then what that construction process even looks like. For Ferguson, where does that start to dovetail through to your business? And where do you see those impacts most notably or earliest on?
KEVIN MURPHY: Yeah, clearly rate and the price of housing and affordability will start to get pressured. And we'll see that play out as we go through our fiscal year. We're starting to see a little bit of it now.
It's only about 18% of what we do. And there's a great deal of activity that's already in play. And you think about the starts and permit activity that happened months ago, that's starting to get built through. And we're involved in everything from the underground infrastructure, the water, the wastewater, the stormwater, all the way up through rough plumbing, finished plumbing, HVAC, appliances, and lighting. So we'll see that play out as we go through the year. But it'll be a soft spot for us as we go through our fiscal year.
- And let's zoom out a little bit because we've been hearing from a lot of CEOs over the past couple of days in particular who have been speaking publicly about the chances of a recession. So you guys are, obviously, you see what's going on in terms of economic activity out there. What do you think?
KEVIN MURPHY: Yeah, so I'll leave the recession prediction to the economists. We will see, we know we'll see some pressure on new residential construction because, as we talked about, affordability is going to be pressured as we go through our year. But for us, when we look at the balance that's out there, there's a lot of nonresidential activity that will continue to be supportive.
Sure, knock on, build off commercial activity after residential. But for us it's also some of the mega work that's going on right now, really large projects in things like LNG, pharma, what we see with the CHIPS Act and what's happening with semiconductor production. Those are huge projects for us that have miles of piping, valves, HVAC systems, fire protection and the like.
- And do you see any delays in starting new projects or even approving new projects because of what's going on with rates as well? Because the projects you're talking about, companies, organizations, governments are borrowing in order to do those projects.
KEVIN MURPHY: Yeah, just a touch of delay in some spots around the country around knock-on commercial activity. But again, some of these large nonres projects, these $400 plus million projects, like what we heard around the chip side of the world with the CHIPS and Science Act. They're already well underway and will provide a good boon for construction.
- And you're involved in those?
KEVIN MURPHY: Absolutely. Absolutely. We're involved across water, wastewater, stormwater on the off-site and on-site, all the way up through the production facility.
- You've been very acquisitive. Do you just wish the Federal Reserve would stop hiking rates? Because they're making your acquisitions more expensive here, Kevin.
KEVIN MURPHY: Yeah, so we look at acquisitions over the long haul. We're in an industry that's a highly fragmented one, over 10,000 plus competitors, local, small to medium-size, independently held companies. And we consolidate that market. And, quite frankly, that's the fuel for our organic growth because this is a great organic growth.
- But are there deals you just won't do because the cost of capital has gone up?
KEVIN MURPHY: There are deals that we're not doing because of cost of capital. Right now, what we're seeing is deal activity going to slow because people may look at what past pricing was out there, past valuations, past multiples that maybe have excessive expectations. But right now, the deal flow's good. We'll continue to use that as a part of our growth out.
- All right, let's get you out of here because I know you got a busy day on tap. Ferguson CEO Kevin Murphy, good to see you in studio. Appreciate it.
KEVIN MURPHY: Great. Good to be with you. Thank you.
