Ferguson Shares Slip Post Q3 Results, Margins Decline, Buybacks Increase By $500M

Ferguson PLC FERG reported a third-quarter FY23 sales decline of 2% year-over-year to $7.14B, beating the consensus of $7.1 billion.

• The sales decline was driven by a 1.9% adverse impact from one fewer sales day and foreign exchange. Organic revenue declined 2.5% Y/Y.
• The gross margin for the quarter contracted by 30 bps to 30%, and the operating margin contracted by 280 bps to 7%. Adjusted operating margin contracted by 110 bps to 9.2%.
• Adjusted EPS was $2.20 (-12% Y/Y), above the consensus of $2.12.
• Adjusted EBITDA declined by 11.3% Y/Y to $705 million for the quarter, and the margin contracted by 104 bps to 9.9%.
• During the quarter, FERG recorded a charge of $20 million related to the closure of 44 smaller, underperforming branches, along with a non-cash impairment charge of $107 million.
• Net cash provided by operating activities for the nine months totaled $1.80 billion, compared to $681 million a year ago.
• Net debt at April 30 was $3.3 billion. Cash and cash equivalents totaled $625 million—net debt to adjusted EBITDA of 1.1x.
• Dividend: Ferguson declared a quarterly dividend of $0.75 (transitioned from a semi-annual distribution), implying an annualized increase of 9% over the prior year. Dividend will be paid on August 4, 2023, to shareholders on the register as of June 16.
• Buyback: FERG repurchased shares worth $220 million during the quarter and increased the program by a further $500 million.
• M&A: The company signed a definitive purchase agreement to acquire S. G. Torrice, an HVAC business with 15 locations in the Northeast.
• FY23 Guidance: Ferguson sees Net sales low single-digit growth and an Adjusted operating margin of 9.4% - 9.8%.

Price Action: FERG shares are trading lower by 3.37% at $142 premarket on Tuesday.

Image: Courtesy of Ferguson