Ferguson (FERG) Q3 2026 earnings review
Ferguson's project sales grow faster, while buyout debt pauses buybacks
Ferguson, North America's largest plumbing and heating distributor, sped up its sales growth while its debt bill climbed. Sales from businesses owned a year ago rose 7%, as chief executive Kevin Murphy pointed to 15% growth in US commercial projects and a 6% gain in housing. The company raised its full-year sales outlook to about 7% growth after closing the FloWorks valve buyout, which by our math points to 10% total sales growth in the fourth quarter.
| Sales from businesses owned a year ago | +7.0% from a year ago (+3.8% in Q2) |
|---|---|
| Total net sales | $9,026M +9.5% from a year ago |
| Profit per share, excluding one-offs | $3.43 +7.9% from a year ago |
| Full-year sales outlook | Raised to ~7% growth (from ~5%) |
⚖️ Verdict: 🟢 Bullish
The story got better because both US commercial and residential sales accelerated against tough comparisons from last year, easing worries of a second-half slowdown. Tight control over branch overhead also kept operating margin excluding one-offs flat despite a dip in gross margin. The bad news: borrowing to buy FloWorks lifted net debt to $5.7 billion, paused share buybacks, and added $35 million to the full-year interest bill.
The question now is whether the 15% commercial sales jump marks a multi-year building wave or a late-cycle spike padded by newly bought branches. By our math, the fourth-quarter sales plan implies underlying growth will slow once a full quarter of FloWorks is stripped out. Fourth-quarter underlying sales on February 16 will show whether the commercial engine is holding its pace.
🐂 Bull Case
Commercial Projects Lifted Underlying Sales Growth to 7%
Ferguson relies on commercial and industrial projects to offset a slow housing market. That engine sped up this quarter after slowing in the first half. Chief executive Kevin Murphy said "non-residential sales up 15%" led the results, nearly doubling the 8% pace from last quarter. The plumbing and heating distributor also closed its purchase of FloWorks, which sells "highly technical valve and flow control solutions" across North America.
- Sales from businesses owned a year ago: up 7.0%, compared with 3.8% in the second quarter
- US non-residential sales: up 15%, compared with 8% in the second quarter and 12% in the first
- Acquisitions completed this year: 11 deals bringing about $1.5 billion in yearly sales
The jump matters because it beat a tough comparison from last year without relying only on newly bought companies. Underlying sales in the US rose 7.4%, while buyouts added 2.8 percentage points. Large capital projects stayed "healthy with growth in open order volumes and strong bidding activity", which supports Murphy's decision to lift the full-year sales outlook to about 7% growth.
What to watch: underlying sales growth in the fourth quarter, when FloWorks sits in the reported total for a full three months. By our math, the full-year outlook points to 10.1% total sales growth in the fourth quarter, so underlying growth above 5% would show commercial demand is holding up on its own.
US Housing Sales Accelerated Despite a Weak Market
Homebuilding and remodeling make up about half of Ferguson's US revenue, and high interest rates have kept that market slow for over a year. The release noted "weak new construction activity and continued softness in repair, maintenance and improvement work" across the country. Even so, the distributor grew its US residential sales by 6% from a year ago, stepping up from 2% growth in the second quarter and a 1% drop in the first.
The pickup shows Ferguson is taking business from smaller rivals, helped by its heating and cooling branches. The company also bought Rogers Supply Company during the quarter, adding 12 locations in Illinois and Indiana to serve contractors who install both plumbing and air conditioning. One strong quarter eases the housing concern, but only sustained growth into next year will settle it.
What to watch: US residential sales growth in the fourth quarter results on February 16. Another reading near 6% would show the housing recovery is sticking despite slow new home construction.
Cost Discipline Held Operating Margin Steady
Investors worried that profitability would fall in the second half because last year's third quarter had an unusually high gross margin of 31.3%, which the company said was "temporarily elevated by the timing and extent of supplier price increases". This quarter, the cost of making and buying the products rose 0.5 percentage points to 69.1% of sales, pulling gross margin down 0.4 percentage points to 30.9%.
Operating margin excluding one-offs still held flat at 10.7% because management kept branch and overhead costs tight. Selling, general and administrative expenses — the cost of running branches and paying staff — included $25 million of one-off fees to buy FloWorks. Excluding those deal fees, branch and overhead costs fell 0.4 percentage points to 19.5% of sales by our math, offsetting the gross margin dip.
What to watch: fourth-quarter operating margin excluding one-offs against the 8.6% level implied by the full-year outlook. Beating that mark would show the newly acquired FloWorks branches are not diluting company profitability.
🐻 Bear Case
FloWorks Debt Paused Buybacks and Lifted Interest Costs
Expansion through buyouts is Ferguson's main way to add specialist products, and buying FloWorks on August 31 was its largest deal in years. Yet the $1.7 billion spent on acquisitions this quarter came with a clear financial trade-off that limits cash returns to shareholders and raises borrowing bills.
- Net debt: $5.70 billion, up 72.7% from $3.30 billion a year ago by our math
- Net debt to operating cash profit (adjusted EBITDA): 1.7 times, up from 1.3 times last quarter
- Share buybacks in the third quarter: $0, down from $202 million in the second quarter by our math
- Full-year interest expense outlook: raised to about $235 million from about $200 million
To pay for FloWorks, the group issued $1.2 billion in notes and took a $900 million term loan. That pushed debt near the top of management's target range of 1 to 2 times operating cash profit, forcing a pause in share buybacks. Because interest costs rose $17 million from a year ago to $64 million, a bigger slice of operating profit now goes to lenders instead of per-share earnings.
What to watch: net debt to adjusted EBITDA at year-end. Management will only restart share buybacks as that ratio moves back toward 1.0 times.
Customer Bills and Inventory Cut Nine-Month Cash Flow
Strong commercial sales require Ferguson to stock more pipes, valves and heating units and extend credit to contractors on big jobs. Over the first nine months of 2026, cash from operations fell 21.9% from a year ago to $1.47 billion, even though net income rose 3.8% to $1.68 billion.
The cash went into unpaid customer bills and warehouse stock. Accounts receivable — money customers owe for delivered goods — absorbed $1.14 billion of cash over the nine months, compared with $718 million a year earlier. Inventories on the balance sheet reached $5.22 billion, up 13.7% from December by our math. If large commercial projects permanently require more stock on hand, Ferguson will convert less of its profit into cash.
What to watch: year-end inventory on the December 31 balance sheet. Chief executive Kevin Murphy previously expected seasonal heating and cooling stock to come down by the end of the year, which would release cash in the fourth quarter.
Large Project Backlog Size Remains Undisclosed
"While our markets remain mixed, our year-to-date performance and the addition of FloWorks enable us to raise our full year guidance," Murphy said. Two standing risks received no clear resolution in the release, and the fourth-quarter math cuts against the idea that underlying growth is still speeding up.
- Large capital project backlog: described as growing in open order volumes, but no dollar figure or growth rate is given.
- Fourth-quarter sales math: by our math, the 7% full-year outlook implies 10.1% fourth-quarter growth, which barely increases from 9.5% in the third quarter despite two extra months of FloWorks ownership.
- Canadian operations: total sales fell 4.5% to $405 million as residential markets stayed weak and divestments cut 3.2 percentage points.
What to watch: any dollar disclosure on large-project orders during the fourth-quarter review, which would show whether data center and industrial demand is still building or plateauing.
👓 Other Themes
Inflation Held Low as Commodity Deflation Faded
Falling prices for commodity pipes and fittings hurt Ferguson's sales and margins through much of last year. In the third quarter, overall price inflation across its products sat in the low to mid single digits, helping lift underlying sales without the sharp supplier price swings seen a year ago.
💲 Other KPIs
Profit per share excluding one-offs rose 7.9% from a year ago, stepping up from 5.3% growth in the second quarter. Reported diluted earnings per share fell 4.9% to $3.08 only because last year's third quarter included a $42 million one-time tax benefit from expired tax audits, compared with $4 million this quarter.
Average diluted shares fell 1.5% from 196.9 million a year ago because the distributor spent $438 million on buybacks in the first half of the year. The count barely moved from 194.0 million in the second quarter after management paused repurchases to pay for FloWorks.
🔮 Guidance
Raised. Management lifted the full-year sales plan by about 2 percentage points to include the third-quarter beat and four months of FloWorks ownership. It is the second raise this year: +1.5 points in the second quarter and +2.0 points now. By our math, the plan leaves 10.1% growth for the fourth quarter, up from 9.5% in the third.
Raised. The company lifted the bottom of the range by 0.1 percentage points, putting the middle of the range at 9.7%. That is the second small raise in two quarters: +0.05 points last quarter and +0.05 points now. By our math, the middle of the full-year plan leaves an 8.6% margin for the fourth quarter, a normal seasonal dip that sits 0.3 points above last year's fourth quarter.
Raised. The US group added $35 million to its full-year interest forecast after borrowing $2.1 billion across notes and a term loan to buy FloWorks. After $161 million of net interest expense in the first nine months, the outlook leaves about $74 million for the fourth quarter by our math, up from $64 million in the third.
Raised. Ferguson moved its capital spending plan to the top of the prior range, lifting the middle of the range by $25 million as it invests in supply chain centers and branches. With $342 million spent in the first nine months, the plan leaves about $83 million for the fourth quarter by our math, down from $108 million in the third.
Unchanged. Management kept its full-year tax rate plan excluding one-offs at about 26%, where it has sat all year.
❓ Key Questions
How much did FloWorks add to third-quarter sales?
FloWorks closed on August 31, so one month of its revenue sat inside the 2.7% acquisition contribution and the 15% US non-residential growth rate. Knowing its exact one-month contribution would show how fast Ferguson's older commercial branches grew on their own.
Why does the fourth-quarter outlook imply slower underlying growth?
By our math, the ~7% full-year sales outlook implies 10.1% growth in the fourth quarter, barely above the third quarter's 9.5% despite two extra months of FloWorks ownership. Did management build caution into the fourth-quarter plan, or are underlying orders slowing?
What is the dollar backlog for large capital projects?
The release says large capital project activity remained healthy with growing open orders, but gives no dollar total. A concrete backlog figure and the share tied to data centers would show how long the 15% non-residential growth rate can last.
Did seasonal heating and cooling inventory begin to clear?
Total inventory reached $5.22 billion at September 30, up $627 million from December, partly from acquired businesses. How much of that increase came from FloWorks versus unsold heating and cooling stock?