Ferguson announced its second quarter 2023 earnings. 

Second quarter highlights:

• Sales growth of 4.9%, with 2.7% organic growth, on top of a 31.8% total prior year comparable;
• Gross margin of 30.2%;
• Delivered solid operating margins of 8.0% (8.5% on an adjusted basis) in the quarter, with first half operating margins of 9.4% (9.8% on an adjusted basis);
• Diluted earnings per share of $1.80 ($1.91 on an adjusted basis);
• Strong net cash provided by operating activities of $1.2 billion on a fiscal year to date basis;
• Declared quarterly dividend of $0.75, implying an annualized increase of 9% over the prior year;
• Completed four acquisitions during the quarter with aggregate annualized revenues of approx. $300 million;
• Share repurchases of $198 million during the quarter;
• Balance sheet remains strong with net debt to adjusted EBITDA of 1.1x; and
• Full year net sales and adjusted operating margin guidance remain unchanged.

Kevin Murphy, Ferguson CEO, commented "The year is unfolding as we expected and our associates continue to deliver solid results by leveraging our scale and core strengths to help our customers deliver their complex projects. We continue to appropriately manage costs to position the business for challenging end markets. Importantly, working capital management led to strong cash generation which enables us to continue investing for organic growth, consolidating our fragmented markets through acquisitions and returning capital to shareholders.

"Looking forward, our balanced exposure to both residential and non-residential end markets, combined with an agile business model, positions us well for near term uncertainties. Our financial guidance continues to reflect market outperformance, both organically and from acquisitions, and we believe our scale and advantaged platform position us to capture growth from emerging structural trends in our end markets."

Summary of financial results:

Second quarter

Net sales of $6.8 billion were 4.9% ahead of last year, with a sequential step down in growth rates from the first quarter as expected, against a prior year comparable growth of 31.8%. Organic revenue growth was 2.7% with a further 2.6% contribution from acquisitions, partially offset by a 0.3% adverse impact from foreign exchange rates and 0.1% impact from one fewer sales day in Canada. Inflation in the second quarter was approximately 10%.

Gross margins of 30.2% were 40 basis points lower than last year driven primarily by very strong prior year comparables. 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 $549 million (8.0% operating margin), 1.1% lower than last year. Adjusted operating profit of $582 million (8.5% adjusted operating margin) was 1.0% lower than last year, during our seasonally weakest quarter.

Reported diluted earnings per share was $1.80 (Q2 2022: $1.97), a decrease of 8.6%, and adjusted diluted earnings per share of $1.91 decreased 1.0% with the decrease due to slightly lower adjusted operating profit and higher interest expense, partially offset by the impact of share repurchases.

USA - second quarter

The US business grew net sales by 5.4%, driven by 2.6% organic growth with a further 2.8% from acquisitions.

Residential end markets, which comprise just over half of US revenue, slowed meaningfully during the quarter as expected. New residential housing start and permit activity declined while repairs, maintenance and improvement ("RMI") work remained more resilient. Overall, residential revenue grew by approximately 1% in the second quarter.

Non-residential end markets, representing just under half of US revenue, experienced continued growth. Non-residential revenue grew by approximately 11% in the second quarter.

Adjusted operating profit of $579 million was 0.5% or $3 million ahead of last year.

We completed four acquisitions during the quarter that included Airefco, a leading regional HVAC distributor serving customers in the Pacific Northwest across 11 locations and Guarino Distributing Company, an HVAC distributor operating in Louisiana and Mississippi. Additionally, we acquired Pipelines, a waterworks distributor serving markets in Eastern Ohio and Western Pennsylvania; and Power Process Equipment, an industrial distributor strengthening our position in the upper Midwest. In aggregate these four businesses generate annualized revenues of approximately $300 million and the annualized revenues of the five businesses acquired year to date is approximately $330 million.