Slowing housing market is hurting this plumbing and HVAC distributor's sales

By Tomi Kilgore

Quarterly profit beat expectations, but sales came up short and the full-year growth outlook was a bit downbeat

Plumbing, HVAC and appliance-products distributor Ferguson Enterprises Inc. reported fiscal fourth-quarter profit that beat expectations but sales that missed, citing "muted" residential end markets as housing activity weakened.

The company also provided a downbeat full-year sales growth outlook, as the "challenging near-term market environment" is expected to continue.

"We believe our residential end markets declined by approximately 7% due to a combination of weak new construction and softer repair, maintenance and improvement markets," said Chief Executive Kevin Murphy, according to an AlphaSense transcript of the post-earnings call with analysts.

"Nonresidential markets were slightly more resilient than residential, but were down approximately 4%," Murphy added.

But on the bright side, Murphy said Ferguson will continue to look to take advantage of "multi-year structural tailwinds, such as underbuilt and aging U.S. housing, non-residential large capital projects and our opportunity with the dual-trade plumbing and HVAC contractor."

The stock (FERG) rallied 3.3% in morning trading. That reversed a knee-jerk loss of as much as 3.9% in the premarket session, minutes after the results were reported.

With the gain, the stock has still lost 9% since it closed at a record $223.85 on April 5. In comparison, the iShares U.S. Home Construction ETF ITB has run up 12.8% since April 5, and was trading at a record high on Tuesday, while the S&P 500 index SPX has advanced 8.8% over the same time.

Ferguson reported net income for the fiscal fourth quarter to July 31 of $451 million, or $2.23 a share, down from $584 million, or $2.85 a share, in the same period a year ago.

Excluding nonrecurring items, such as deferred tax charges, adjusted earnings per share rose to $2.98 from $2.77 to beat the FactSet EPS consensus of $2.85.

Net sales grew 1.4% to $7.95 billion, but were below the FactSet consensus of $8.01 billion, as U.S. sales increased 1.3%.

"Residential end markets, representing approximately half of U.S. revenue, remained muted," the company said. "New residential housing start and permit activity weakened during the second half of our fiscal year."

For fiscal 2025, the company expects sales growth in the low-single-digit percentage range, while the current FactSet sales consensus of $31.14 billion implies 5.1% growth.

Chief Financial Officer Bill Brundage said the full-year outlook reflected "an ongoing, challenging near-term market environment."

"Our assumptions are based on our end markets declining in the low-single-digit range, inclusive of pricing being down slightly for the year, driven by continued commodity deflation, particularly as we enter the year," Brundage said.

-Tomi Kilgore

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

09-17-24 1107ET

Copyright (c) 2024 Dow Jones & Company, Inc.