Ferguson (FERG) Q4 2025 earnings review
Non-Residential Boom Fuels Strong Q4 Beat; Stable Growth Guided for Calendar 2025
Ferguson closed its fiscal year with a strong Q4, posting 6.9% revenue growth driven by a robust 15% surge in its non-residential business. This performance, fueled by large capital projects, offset persistent flatness in residential markets. Profitability showed a remarkable recovery, with adjusted operating margin expanding 60 bps YoY to 11.4% on the back of significant gross margin gains. The company is shifting to a calendar year-end and guided for mid-single-digit revenue growth and modest margin expansion in CY2025, signaling confidence in continued market share gains despite a mixed macro environment.
🐂 Bull Case
The non-residential segment grew an impressive 15% in the quarter, driven by large capital projects like data centers. Key segments like Commercial Mechanical (+21%) and Waterworks (+15%) showed significant momentum.
After compressing in H1, adjusted operating margin recovered strongly to 11.4% in Q4, up 60 bps YoY. This was driven by a 70 bps expansion in gross margin, reflecting successful pricing actions and cost management.
Guidance for calendar year 2025 projects continued mid-single-digit revenue growth and adjusted operating margin expansion to 9.2%-9.6%, indicating management's confidence in extending the current momentum.
🐻 Bear Case
The residential segment, representing half of US revenue, was flat in the quarter. Key areas like Residential Trade Plumbing (-2%) and HVAC (slightly down) showed weakness, acting as a drag on overall growth.
Management noted the stellar 31.7% Q4 gross margin included a 'temporary benefit' and expects it to normalize back to the 30-31% range, suggesting the record profitability level may not be sustainable.
⚖️ Verdict: 🟢
Bullish. The strong execution in Q4, particularly the acceleration in non-residential and the significant margin recovery, is impressive. While the residential market remains a headwind, the solid guidance for CY2025 suggests the company's strategic initiatives are creating a durable growth engine that can outperform a mixed market.
Key Themes
Non-Residential Growth Engine Firing on All Cylinders
Ferguson's non-residential business was the standout performer, growing 15% in the US. This growth was propelled by strong demand for large, complex capital projects such as data centers, life science facilities, and infrastructure upgrades. The company's multi-customer group approach is proving effective, with Commercial Mechanical revenue surging 21% and Waterworks growing 15%. This segment is successfully offsetting the weakness in traditional non-residential markets and the entire residential space.
Sharp Margin Recovery Signals Execution Payoff
After a challenging first half, profitability recovered sharply. Gross margin expanded 70 bps YoY to 31.7%, the highest level of the year. Management credited pricing discipline and the benefits of streamlining actions taken earlier in the year. This resulted in an adjusted operating margin of 11.4%, a 60 bps YoY improvement, demonstrating strong operating leverage as revenue accelerated.
Residential Markets Remain Subdued
The residential side of the business, roughly half of US revenue, remains a significant weak spot with flat overall growth. Key customer groups are underperforming, with Residential Trade Plumbing declining 2% and the strategic HVAC segment down slightly. This weakness in both new construction and RMI markets continues to cap the company's overall growth potential.
Q4 Gross Margin Peak May Not Be Sustainable
While the 31.7% gross margin was a highlight, management commentary suggests this level is not the new normal. During the call, CFO Bill Brundage noted a 'temporary benefit in the quarter based on the timing and the extent of supplier price increases' and stated an expectation to 'settle back down into that [30-31%] range'. This contradicts the positive margin narrative by suggesting the peak performance was partly timing-related and not fully structural.
Strategic Investments in Waterworks and HVAC Yielding Results
Despite a soft quarter for HVAC, the company's multi-year strategic investments continue to drive market share gains. For the full fiscal year, HVAC revenue grew 8% and Waterworks grew 10%. The Waterworks diversification strategy is particularly successful, expanding into process equipment and wastewater treatment solutions, which helped drive 15% growth in Q4. These initiatives provide a durable platform for outperformance.
Transition to Calendar Year Reporting
The company announced a significant change, shifting its fiscal year-end from July 31 to December 31. Management stated this move allows associates to focus on customers during the busiest season. This will result in a five-month transition period from August to December 2025, with the new fiscal year beginning January 1, 2026. All future guidance will be provided on a calendar year basis.
Other KPIs
Ferguson's business model remains highly cash-generative, producing $1.9 billion in operating cash flow for the full fiscal year. After investing $305 million in CapEx, the company generated over $1.65 billion in free cash flow. This enabled a substantial return of capital to shareholders, including $948 million in share repurchases and nearly $500 million in dividends, while maintaining a strong balance sheet with net leverage at 1.1x.
Organic growth showed a strong accelerating trend throughout the fiscal year, turning positive in Q2 and strengthening each subsequent quarter. The 5.8% growth in Q4, driven by approximately 4% volume growth and 2% price inflation, marks the strongest performance of the year and suggests solid underlying business momentum heading into the new calendar year.
Guidance
Stable. This implies approximately 4-6% growth on the CY2024 base of $29.8 billion. This represents a slight deceleration from the hot 6.9% pace of the most recent quarter but is an acceleration compared to the 3.8% growth for the full fiscal year 2025. Management noted on the call they expect the second half of the calendar year to be a touch softer than the first.
Improving. The midpoint of 9.4% implies a 30-basis-point expansion compared to the 9.1% margin achieved in calendar 2024. This signals management's confidence in their ability to leverage costs and maintain pricing discipline even in a modest growth environment.