Ferguson plc (FERG) | The Buildout — AI Infrastructure
The Verdict
Ferguson is a value-added distributor serving water and air specialized professionals across North American residential and non-residential construction. Its AI exposure is indirect: the company supplies the mechanical, water, and flow-control infrastructure around data-center and adjacent power and semiconductor construction. It does not sell GPUs, servers, software, or data-center IT equipment. Instead, Ferguson distributes commercial HVAC, pipes, valves, fittings, waterworks, fire protection, pumps, and flow-control products into large capital projects.
| Market Cap | — |
| Revenue (TTM) | $31.6B |
| Revenue Growth | +4.7% |
| EBITDA Margin (TTM) | 10.4% |
| Net Debt | $5.3B |
| Earnings Beats | 4 of 6 |
| P/E (TTM) | — |
| EV/EBITDA (TTM) | — |
What We Like
- Commercial/Mechanical grew +15% in the June 2026 quarter on a 20% prior-year comparable.
- Industrial grew +18% on a 6% prior-year comparable in the same quarter.
- US residential returned to growth at +2% despite management calling the market pressured.
- Large capital projects are mid-to-high single digits of total company revenue; data centers are over 50% of that, with backlogs and open orders building.
- The FloWorks deal expands total addressable market from $340B to $400B and adds ~$1B revenue plus recurring MRO-driven flow-control service.
What We’re Watching
- Whether FloWorks closes in Q3 2026 and integrates cleanly; guidance does not yet include it.
- H1 2026 operating cash flow was down roughly $400M year over year on inventory and tax timing; HVAC inventory is expected to normalize by year-end.
- PVC remains in double-digit deflation as of the June 2026 quarter.
- Fire & Fabrication fell 13% in the June 2026 quarter and was not explained in the source material.
The thesis is strengthening: the portfolio is visibly tilting toward large capital projects, industrial flow control, and HVAC recovery while management raised guidance without upgrading macro assumptions. The open question is whether the accelerated M&A program and FloWorks integration can be absorbed without eroding cash flow or margin discipline.
Earnings Beat
Ferguson reported revenue of $7,472M with gross margin of 31.0% in the quarter ended March 31, 2026. EBITDA was $709M, or 9.5% of revenue. Net income was $414M.
| Metric | Q3 FY2026 | Q2 FY2026 | Q3 FY2025 | YoY |
|---|---|---|---|---|
| Revenue | $7.5B | $7.5B | $7.6B | −2.0% |
| Gross margin | 31.0% | 29.4% | 31.0% | +0bps |
| EBITDA | $709M | $691M | $700M | +1.3% |
| EPS | $2.13 | $1.99 | $2.07 | +2.9% |
We now expect net sales to grow mid-single-digits, an increase from our prior expectations of low-to mid-single-digit growth. We’re also raising the lower-end of our operating margin guidance, which we now expect to be in the range of 9.5%–9.8%.— Bill Brundage, Chief Financial Officer, August 10, 2026
Management tone: Management's tone shifted from balanced caution in December 2025 to more execution-first in August 2026. It attributed better performance to its own actions, not an improving market, and corrected its dual-trade penetration figure from roughly two-thirds to about one-third of its customer base.
Management Guidance
Management now expects calendar 2026 net sales to grow mid-single digits, up from its prior low-to-mid single-digit expectation. It raised the lower end of adjusted operating margin guidance to 9.5%–9.8%, reaffirmed interest expense at ~$200M and adjusted effective tax rate at ~26%, and raised CapEx to $375M–$425M. The FloWorks acquisition is excluded from guidance and is to be updated alongside Q3 earnings.
Trajectory
Revenue in the audited quarterly sequence moved from $8,497M in July 2025 to $8,169M in October, $7,495M in December, and $7,472M in March 2026, while gross margin held near 30%–31%. EBITDA margin compressed from 10.6% in the October 2025 quarter to 9.5% in March 2026. The later June 2026 call described a return to volume growth and inflation decelerating to low single digits.
The Model
The model's locked projections are FY+1 revenue of $34,300M and EBITDA of $3,704M, a 10.8% margin, and FY+2 revenue of $35,700M and EBITDA of $3,927M, an 11.0% margin. The near term is anchored by mid-single-digit revenue guidance excluding FloWorks and the shift toward large projects and HVAC. FY+2 reflects modest continued revenue growth and stable margins as the portfolio re-mix advances.
| Metric | FY2025 | Next FY (E) | Following FY (E) |
|---|---|---|---|
| Revenue | $30.8B | $34.3B | $35.7B |
| YoY Growth | — | +11.5% | +4.1% |
| EBITDA | $3.0B | $3.7B | $3.9B |
| EBITDA Margin | 9.7% | 10.8% | 11.0% |
Projections are the median of 5 independent model runs. The model’s revenue sits 2.2% below analyst consensus.
Management now expects calendar 2026 net sales to grow mid-single digits, up from its prior low-to-mid single-digit expectation. It raised the lower end of adjusted operating margin guidance to 9.5%–9.8%, reaffirmed interest expense at ~$200M and adjusted effective tax rate at ~26%, and raised CapEx to $375M–$425M. The FloWorks acquisition is excluded from guidance and is to be updated alongside Q3 earnings.
What Could Go Right — and Wrong
- FloWorks closes in Q3 2026 and cross-sell into commercial mechanical, industrial, and waterworks appears quickly.
- Large-capital-project backlog converts faster and management begins disclosing a dollar backlog.
- Residential strength broadens beyond HVAC into residential trade plumbing and Ferguson Home.
- PVC deflation ends and commodity pricing turns neutral, restoring price to the growth algorithm.
- Working capital normalizes by year-end and free cash flow conversion improves.
- Data-center or large-project orders pause or cancel after a long cycle.
- FloWorks integration disappoints or dilutes margin across its 60+ locations and 15-brand portfolio.
- Residential growth fades if HVAC's +11% proves comp-driven or pull-forward.
- Working capital does not normalize; large-project inventory stays heavier and cash flow suffers.
- Fire & Fabrication weakness persists and proves competitive rather than timing.
Looking Ahead
The next twelve months center on the FloWorks close in Q3 2026 and the first full reporting cycle for an acquisition program that added eight deals year-to-date. Management expects the second half of 2026 to be stronger than the first, Q3 growth a bit stronger than Q2, and buyback resumption once leverage returns to the lower end of the 1x–2x range after FloWorks.
- Q3 2026FloWorks acquisition close — Initial contribution and integration start; deal excluded from current guidance.
- Q3 2026 earningsGuidance updated for FloWorks — Revised revenue and margin inputs alongside Q3 results.
- H2 2026Back half stronger than first — Management expects H2 revenue growth above H1.
- Year-end 2026HVAC inventory normalization — Working-capital release if seasonal inventory unwinds as guided.
- When leverage reaches lower endBuyback resumption — Tied to the 1x–2x leverage range after FloWorks close.
Financials
Annual Summary
| Metric | FY2024 | FY2025 | TTM | YoY |
|---|---|---|---|---|
| Revenue | $29.6B | $30.8B | $31.6B | +3.8% |
| Gross Margin | 30.5% | 30.6% | 30.7% | +10bps |
| EBITDA | $3.0B | $3.0B | $23.5B | -0.3% |
| EBITDA Margin | 10.1% | 9.7% | 10.4% | 40bps |
| Net Income | $1.7B | $1.9B | $2.1B | +7.0% |
| Free Cash Flow | $1.5B | $1.6B | $10.6B | — |
| Net Cash | — | — | — | — |
Key Ratios (Trailing)
- P/E TTM—
- EV/EBITDA TTM—
- EV/Revenue TTM—
- Price/FCF TTM—
- Gross Margin (TTM)30.7%
- EBITDA Margin (TTM)10.4%
- Net Margin (TTM)6.6%
- ROIC20.6%
- FCF Conversion30.7%
- SBC / Revenue0.3%
The Company
Ferguson is the largest value-added distributor serving water and air specialized professionals in a North American construction market management sizes at $340 billion. It sells plumbing, HVAC, appliances, lighting, pipes/valves/fittings, water and wastewater solutions, and fire protection through distribution centers, branches, counter service, showroom consultants, and e-commerce. It is not an AI hardware company; it supplies the mechanical, water, and flow-control content of large capital projects such as data centers.
Ferguson operates two reportable segments, the US under the Ferguson brand and Canada under the Wolseley brand. Its physical network includes 10 US regional distribution centers, 5 US market distribution centers, 1,519 US branches, and 227 Canadian branches. Management frames the local scale and multi-customer-group approach as a competitive advantage, letting commercial mechanical, industrial, waterworks, and fire groups serve the same project.
Business Segments
Competitive Landscape
Ferguson describes itself as the largest value-added distributor serving water and air specialized professionals. Its stated competitive advantage is local scale through a multi-customer-group model where the same large project can pull through commercial mechanical, waterworks, fire, and industrial groups. The distribution industry is highly fragmented, and management has cited acquisition valuations toward the upper end of a 7–10x EBITDA range.
Supply Chain
Ferguson sits between branded manufacturers and contractor customers across residential and non-residential construction. The captured 10-K supply evidence was empty, with no sole-source or supplier-capacity disclosures captured.
More on FERG: Earnings recap