Ferguson plc (FERG) | The Buildout — AI Infrastructure
The Verdict
Ferguson is a distributor, not a manufacturer. It buys plumbing, HVAC, appliances, lighting, pipes, valves and fittings, and water and wastewater products from manufacturers, stocks them across a branch network, and sells them, with value-added services, to the contractors, engineers, and municipalities building and maintaining North American construction. Its role in the AI buildout is indirect: the mechanical, piping, flow-control, and water content inside data centers, semiconductor plants, and power generation projects is specified and bought locally, and Ferguson supplies it. Management frames the opportunity as large capital projects and the build-out across North America, not as an AI strategy.
| Market Cap | — |
| Revenue (TTM) | $31.9B |
| Revenue Growth | +3.7% |
| EBITDA Margin (TTM) | 10.2% |
| Net Debt | $6.0B |
| Earnings Beats | 4 of 6 |
| P/E (TTM) | — |
| EV/EBITDA (TTM) | — |
What We Like
- Large capital projects are a mid- to high-single-digit share of total Ferguson revenue and trending up, with data centers a bit over 50% of that bucket (CFO, December-2025 call Q&A).
- The project-linked groups grow at multiples of the company average: commercial mechanical +15% and industrial +18% in the June-2026 quarter, against 4.6% company sales growth.
- Management says backlog and open orders are building 'above what those growth rates were for the quarter' across commercial mechanical, industrial, and waterworks.
- Full-year guidance was raised on execution, not market: revenue to mid-single-digits and the operating-margin floor to 9.5%-9.8%, with the CFO saying the market view had not changed.
- FloWorks closed 2026-08-31 at a ~$1.6B enterprise value with ~$1B of 2025 revenue, lifting the company's stated addressable market from $340B to $400B.
What We’re Watching
- HVAC's +11% growth was not split between organic and acquired; the materiality read calls this the single most important unresolved question from the call.
- Q3 gross margin is guided 'a bit down' against last year's 31.3%, and contribution margin printed ~7% versus a stated 11%-14% target that management did not dispute or reaffirm.
- First-half operating cash flow was $716M, down about $400M year over year, on working capital and tax timing; large-project inventory is expected to keep building.
- FloWorks lifts leverage from 1.3x to ~1.8x and pauses buybacks until leverage returns to the low end of the 1x-2x range; the path back is unspecified.
The thesis strengthened on execution but changed shape. Ferguson converted a mix-and-capability strategy into reported growth while simultaneously shifting capital allocation toward M&A — eight deals representing ~$1.4B of annualized revenue plus FloWorks — with leverage rising toward the top of its 1x-2x range and buybacks paused. The open question is whether the HVAC and residential improvement holds without the acquisition contribution, because that split has not been disclosed.
Earnings Beat
In the quarter ended June 30, 2026, Ferguson reported net sales of $8.8B, up 4.6% year over year, with organic growth of 3.8%. Gross margin held at 31%, down 20 basis points against a tough prior-year comparison. Operating profit rose 2.9% to $932M. The standout was HVAC, up 11% on a 1% prior-year comparable after declining 6% two quarters earlier, and U.S. residential returned to growth at +2%.
| Metric | Q4 FY2026 | Q3 FY2026 | Q4 FY2025 | YoY |
|---|---|---|---|---|
| Revenue | $8.8B | $7.5B | $8.5B | +3.0% |
| Gross margin | 31.0% | 31.0% | 31.7% | -70bps |
| EBITDA | $992M | $709M | $1.0B | −2.9% |
| EPS | $3.43 | $2.13 | $3.51 | −2.3% |
We are really not seeing a change in the market and our market expectations for the full-year… Our view of the market really hasn't changed much. What has changed, to your point, is our performance for the first half has been a bit better than our expectations.— Bill Brundage, Chief Financial Officer, 2026-08-10
Management tone: The tone on the 2026-08-10 call was constructive and confident, but explicitly not a market call — the CFO attributed the guidance raise to company performance rather than a better market. Versus the December-2025 call, the tone improved on HVAC, residential, and inflation, and changed to a paused buyback pending deleveraging. Management answered quantitative questions directly, with one self-correction: the CEO revised a dual-trade statistic mid-answer from 'roughly two-thirds of the market' to about one-third of the customer base.
Management Guidance
For FY2026, management guides net sales growth to mid-single-digits (raised from low-to-mid single digits) and operating margin to 9.5%-9.8% (lower end raised). On shape, second-half revenue is expected to grow faster than the first half and Q3 growth 'a bit stronger than' Q2's rate, with Q3 gross margin 'a bit down' against the 31.3% prior-year figure and second-half SG&A growth similar to Q2 or a touch higher. Management still expects overall operating leverage for the year.
Trajectory
The model's trailing signals read revenue as accelerating, with gross margin stable and operating and EBITDA margins compressing. Reported growth moved from 3.6% in the March-2026 quarter to 4.6% in June 2026, but the mix underneath shifted toward project and water work: commercial mechanical +15% and industrial +18% against a 4.6% company average, while Fire & Fabrication fell 13% and Canada sales declined 1.9%. Gross margin has held at the top of a stated 30%-31% range, but operating margin is compressing against strong prior-year comparisons — 10.7% in the June quarter, down 10 basis points — and Q3 gross margin is already guided lower.
The Model
The model projects FY+1 revenue of $35,250M and EBITDA of $3,719M, a 10.55% margin. For FY+2 it projects revenue of $37,250M and EBITDA of $4,004M, a 10.75% margin. The near-term anchor is the raised full-year guide and the large-capital-project backlog management says is building; FY+2 assumes continued project and non-residential growth plus the FloWorks contribution, with margin drifting modestly higher.
| Metric | FY2026 | Next FY (E) | Following FY (E) |
|---|---|---|---|
| Revenue | $31.9B | $35.2B | $37.2B |
| YoY Growth | — | +10.5% | +5.7% |
| EBITDA | $3.3B | $3.7B | $4.0B |
| EBITDA Margin | 10.2% | 10.6% | 10.8% |
Projections are the median of 4 independent model runs. The model’s revenue sits 4.1% above analyst consensus.
For FY2026, management guides net sales growth to mid-single-digits (raised from low-to-mid single digits) and operating margin to 9.5%-9.8% (lower end raised). On shape, second-half revenue is expected to grow faster than the first half and Q3 growth 'a bit stronger than' Q2's rate, with Q3 gross margin 'a bit down' against the 31.3% prior-year figure and second-half SG&A growth similar to Q2 or a touch higher. Management still expects overall operating leverage for the year.
What Could Go Right — and Wrong
- HVAC returned to +11% growth on a +1% prior-year comparable, reversing the -6% print from two quarters earlier.
- Large-capital-project backlog converts, keeping commercial mechanical and industrial growth above the company average.
- FloWorks adds flow-control and automation capability pointed directly at data centers, chip manufacturing, and power generation.
- The residential recovery broadens beyond HVAC, with Ferguson Home and residential trade plumbing both turning positive.
- Leverage returns to the low end of the 1x-2x range and buybacks resume.
- Contribution margin stays near 7% instead of returning toward the 11%-14% target, so operating margin falls short of the guide even if revenue lands.
- Q3 gross margin declines more than the guided 'a bit down' against the 31.3% prior-year comp.
- Residential rolls back over if the +2% and +11% figures were comp- and M&A-driven rather than share-driven.
- A data-center or large-project deferral pushes revenue timing out; Waterworks already swung from +14% to +3%.
- Working capital stays strained: operating cash flow down ~$400M year over year with large-project inventory still building.
Looking Ahead
The next twelve months turn on the Q3 FY2026 report — the first guide to include FloWorks, the new debt, and leverage of ~1.8x. Management has said second-half revenue will grow faster than the first half and Q3 growth will be a bit stronger than Q2's rate, and that large capital projects will be a tailwind over the next couple of years. The tests are whether backlog keeps building faster than revenue, whether the HVAC rebound proves organic, and whether leverage comes back down enough to restart buybacks.
- Q3 FY2026Guidance update with FloWorks — First guide to include the deal, new debt, and ~1.8x leverage.
- Q3 FY2026Q3 gross margin test — Guided a bit down against last year's 31.3%.
- 2H FY2026Second-half revenue shape — Management expects Q3 growth a bit stronger than Q2's +4.6%.
- End of yearHVAC inventory normalization — Seasonal HVAC inventory expected to come off by year-end.
- Over the next couple of yearsLarge-project backlog converts — Management calls large capital projects a multi-year tailwind.
- Not disclosedLSE listing cancellation — Intention announced 2026-06-16; effective date not disclosed.
Financials
Annual Summary
| Metric | FY2025 | FY2026 | TTM | YoY |
|---|---|---|---|---|
| Revenue | $30.8B | $31.9B | $31.9B | +3.7% |
| Gross Margin | 30.6% | 30.5% | 30.5% | 10bps |
| EBITDA | $3.0B | $3.3B | $3.3B | +9.3% |
| EBITDA Margin | 9.7% | 10.2% | 10.2% | +53bps |
| Net Income | $1.9B | $2.0B | $2.0B | +9.9% |
| Free Cash Flow | $1.6B | $1.3B | $1.3B | — |
| Net Cash | — | — | — | — |
Key Ratios (Trailing)
- P/E TTM—
- EV/EBITDA TTM—
- EV/Revenue TTM—
- Price/FCF TTM—
- Gross Margin (TTM)30.5%
- EBITDA Margin (TTM)10.2%
- Net Margin (TTM)6.4%
- ROIC18.6%
- FCF Conversion38.8%
- SBC / Revenue0.3%
The Company
Ferguson is the largest value-added distributor serving the water and air specialized professional in the North American residential and non-residential construction market, a market the 10-K sizes at $340 billion — raised to $400 billion after FloWorks. It does not make what it sells; it buys plumbing, HVAC, appliances, lighting, pipes, valves and fittings, and water and wastewater products from manufacturers and sells them, with value-added services, to contractors, engineers, and municipalities. Its relevance to the AI buildout is indirect but real: the mechanical, piping, flow-control, and water content inside data centers, chip plants, and power generation projects is bought locally, and Ferguson is one of the distributors supplying it.
Ferguson operates two reportable segments: the United States, trading as Ferguson, and Canada, trading as Wolseley. The U.S. is the overwhelming majority — at March 31, 2026, segment assets were $15,872M in the U.S. versus $929M in Canada, plus $988M corporate. Distribution runs through a three-tier network: 10 U.S. regional distribution centers, 5 U.S. market distribution centers, and 1,519 U.S. branches, plus 1 Canadian regional distribution center, 1 Canadian market distribution center, and 227 Canadian branches. The U.S. business is tracked across eight customer groups, with Waterworks at 23% of U.S. revenue and Ferguson Home at 21% the largest.
Business Segments
Competitive Landscape
The source describes Ferguson's competitive position mainly through management's own framing: a multi-customer-group distributor that says it continues to outperform the markets and competes on branch density, product breadth, and early engagement with owners, engineers, and general contractors. Management argues that scarce trade labor and tight supply chains make early engagement more valuable, converting a constraint into a moat argument. The named competitor set comes only from a supply-chain wiring map and is not discussed on the calls.
- Core & Main (CNM)Named in the wiring map as a waterworks and fire-protection distributor; not discussed on the calls.
- Dnow (DNOW)Named in the wiring map as a plumbing and HVAC distributor; not discussed on the calls.
- DXP Enterprises (DXPE)Named in the wiring map as an MRO and industrial distributor; not discussed on the calls.
- Watsco (WSO)Named in the wiring map as an HVAC/R distributor; not discussed on the calls.
- Home Depot (HD)Named in the wiring map as an MRO, plumbing, and HVAC facility-maintenance competitor; not discussed on the calls.
Supply Chain
Ferguson sits between manufacturers and contractors: it buys plumbing, HVAC, and water products — over 90% from branded manufacturers — and sells them through branches to builders, engineers, and municipalities. The filings name no suppliers and quantify no supplier dependence.
More on FERG: Earnings recap