What are the current inflation trends, particularly the deceleration to low single digits, and how is inflation tracking quarter-to-date?

Inflation for the full calendar year is expected to be in the low single-digit range. Finished goods inflation has compressed to low single digits, while commodities (15% of revenue) were about flat in the quarter, with PVC still experiencing double-digit deflation. It's difficult to predict future commodity prices, but the overall low single-digit range remains the best view. “On the commodity side, much like we flagged some of those PVC price increases has struggled a bit to stick in the marketplace. And PVC is still very much in deflation. If you look in the quarter, PVC is still down about double-digit about in the double-digit range for the quarter.”

Is the raised revenue outlook primarily due to stronger year-to-date results and M&A? How do you characterize organic growth expectations for the second half?

The market outlook hasn't changed, but H1 performance was better than expected. The second half is anticipated to have a slightly higher growth rate, supported by H1 performance and open orders. Q3 growth rate is expected to be stronger than Q2. “What has changed to your point is our performance for the first half has been a bit better than our expectations. And then as we look towards the second half, we are expecting the second half to have a touch higher growth rate.”

Given the strong Q2 gross margin, what drove this strength, and how do you view gross margin dynamics for Q3, especially with expected seasonal pressure?

Gross margin is expected to be in the 30-31% range. Q2's 31% was strong due to team execution, pricing tools, and product strategy. While there was some expected seasonal compression, the overall execution was pleasing. Q3 will comp against a strong 31.3% gross margin from last year, so some year-over-year decline is expected, but the company is well-positioned to meet operating margin guidance. “To your point, we did see a touch of expected seasonal underlying gross margin compression there are always some puts and takes in the quarter, and I'd just go back to the fact that we were quite pleased with the overall execution.”

FERG

Ferguson (FERG) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Industrials· Aug 10, 2026

Source: earnings call transcript

Executive summary

Ferguson Q2 FY26 — Strong Performance Drives Upward Guidance Revision

Ferguson delivered a strong second quarter, outperforming in a mixed market with robust revenue and profit growth, particularly in nonresidential and HVAC. The company announced a significant acquisition, FloWorks, expanding its industrial footprint and raising its full-year guidance, while maintaining a disciplined capital allocation strategy focused on organic growth, M&A, and shareholder returns.

Highlights

Sales increased 4.6% to $8.8 billion, driven by 3.8% organic growth and 1% acquisition growth.
Operating profit grew 2.9% to $932 million, resulting in a 10.7% operating margin.
Diluted EPS increased 5.3% to $3.39.
Announced 8 acquisitions year-to-date, investing nearly $600 million, including the $1.6 billion FloWorks acquisition.
Raised full-year net sales guidance to mid-single digits and operating margin guidance to 9.5%-9.8%.

Concerns

Gross margin was down 20 basis points year-over-year to 31% due to tough comparisons.
Operating cash flow was down approximately $400 million to $716 million year-to-date due to working capital investment and tax timing.
Markets in Canada remained challenging, particularly in residential, with net sales decreasing 1.9%.

Guidance & targets

Category	Target	Timeline	Confidence
Full-year net sales growth	mid-single digits high materiality	FY26	High
Full-year operating margin	9.5% to 9.8% high materiality	FY26	High
Interest expense	approximately $200 million medium materiality	FY26	High
Capital expenditure	$375 million to $425 million medium materiality	FY26	High
Effective tax rate	approximately 26% medium materiality	FY26	High

Segment performance

Segment	Revenue	YoY	QoQ	Margin
United States Strong nonresidential performance with 8% growth, residential returned to 2% growth. Organic increase: 4%Acquisition contribution: 1%Operating margin: 11.1%	—	5%	—	$925 million
Canada Markets remained challenging, particularly in residential. Organic growth: 1.7%Divestment impact: -3.6%	—	-1.9%	—	$22 million
Waterworks Diversified exposure across large capital projects, public works, municipal activity, and metering technology helped offset weaker residential activity. Acquired Hamlet Environmental Technologies.	—	3%	—	—
Commercial Mechanical Momentum driven by strong execution on large capital projects such as data centers, pharmaceutical production, biotechnology, and general manufacturing.	—	15%	—	—
Industrial Steady demand across key sectors including life sciences, pharma and chemical, and power generation infrastructure.	—	18%	—	—
Facility Supply Group	—	5%	—	—
Fire and Fabrication	—	-13%	—	—
Ferguson Home	—	-1%	—	—
Residential Trade Plumbing	—	relatively flat	—	—
HVAC Driven principally by healthy organic performance alongside contributions from M&A. Growth strategy includes investment in dual trade greenfield expansion and acquisitions.	—	11%	—	—

Deals & partnerships

FloWorks Leading industrial distributor and service provider of highly technical valves and flow control solutions. ~$1.6 billion

Founded 1961 in Houston, TX. Approximately $1 billion in revenue in 2025 with >60 locations, including 25 service and repair centers across the US and Canada. Expands specialty industrial flow control platform, adding technical depth in valves, automation, pumps, fluid handling systems, and specialty pipe, fittings, and flanges. Enhances growth strategy with expanded end market and product exposure, adding significant recurring MRO-driven revenue. Increases total addressable market from $340 billion to $400 billion.

Carrier Great Lakes Distributor of residential and commercial HVAC products.

7 locations across Michigan and Ohio. Expands multi-brand HVAC offering and dual trade capabilities.

Dealer Supply Company HVAC equipment, parts, supplies, and fabrication services provider.

17 locations in the Southeastern United States.

Hamlet Environmental Technologies Company strengthening water and wastewater process equipment expertise.

Strengthens water and wastewater process equipment expertise in Michigan.

New England Applied Products Manufacturer's representative of commercial HVAC systems.

Supports a variety of traditional and large capital projects, including data centers, education, and health care systems.

PRD Technologies Group Provider of highly technical valves, flow control, and process equipment.

10 locations across the United States. Further strengthens product portfolio within the industrial customer group.

Risks & headwinds

Economic uncertainty

Uncertain economic environment

Mitigation:Agile business model, balanced end market exposure, continued strategic investments.

Residential market headwinds

Persistent headwinds across both new construction and repair, maintenance and improvement work

Mitigation:Intentional balanced business mix, strong HVAC performance offsetting weakness.

Challenging Canadian markets

Markets have remained challenging in Canada, particularly in residential

Labor availability and supply chain pressure

Labor availability as well as overall supply chain pressure

Mitigation:Early engagement in the process to meet project timelines.

Commodity price volatility (PVC) Q2 FY26

PVC is still very much in deflation... down about double-digit

Mitigation:Commodities as a basket were about flat; overall inflation in low single digits.

What to watch in Q3 FY26

Large Capital Projects Backlog Conversion

Next quarter

Current Backlogs building, above current growth rates in commercial mechanical, industrial, and Waterworks.

Target Continued strong revenue growth in commercial mechanical, industrial, and waterworks.

Why it matters

Large capital projects are a key growth driver and tailwind for the next couple of years, and their conversion into revenue is critical for sustained performance.

the backlogs, the open orders continue to build, both if you look at commercial mechanical and industrial and even Waterworks, which had a bit of a lumpier quarter this quarter. You see those backlogs building and those backlogs continuing to be above what those growth rates were for the quarter.

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Q&A highlights

Can you elaborate on the strong performance in large capital projects, particularly commercial mechanical, and how open orders and backlog contribute to future guidance?

Management confirmed strong growth in commercial mechanical (15% on a 20% prior-year comp) and industrial (18% on a 6% comp), driven by large capital projects. Backlogs and open orders continue to build, exceeding current growth rates, indicating a tailwind for the next couple of years. Early engagement in the supply chain is crucial for project timelines.

“the backlogs, the open orders continue to build, both if you look at commercial mechanical and industrial and even Waterworks, which had a bit of a lumpier quarter this quarter. You see those backlogs building and those backlogs continuing to be above what those growth rates were for the quarter.”

asked by Matthew Bouley · answered by Bill Brundage

2 min read 5 chapters

Detailed narrative

Nonresidential Strength and Diversification

Ferguson's nonresidential segment demonstrated robust performance, growing 8% year-over-year, building on a 13% comparable from the prior year. This growth was primarily fueled by strong activity in large capital projects, including data centers, pharmaceutical production, biotechnology, and general manufacturing. The company's scale, diversified supply chain, and early engagement in project processes enabled significant market share gains, effectively offsetting softer activity in traditional nonresidential areas.

Residential Market Recovery Driven by HVAC

Despite persistent headwinds in new construction and repair, maintenance, and improvement (RMI) work, the residential market returned to growth, increasing 2% in the quarter. This recovery was largely attributed to the strong performance of the HVAC customer group, which saw an 11% revenue increase.

Strategic investments in dual trade greenfield expansion and acquisitions, such as Carrier Great Lakes and Dealer Supply Company, underpinned this HVAC outperformance.

Strategic Acquisitions and Expanded Market Reach

Ferguson announced 8 acquisitions year-to-date, with 5 closing in the second quarter, representing an investment of nearly $600 million. The most significant is the definitive agreement to acquire FloWorks for approximately $1.6 billion. This acquisition is expected to expand Ferguson's total addressable market from $340 billion to $400 billion, adding technical depth in industrial flow control and enhancing exposure to high-growth end markets like data centers, semiconductors, and power generation.

Disciplined Capital Allocation and Strong Balance Sheet

The company continues to prioritize capital allocation towards organic growth, bolt-on acquisitions, sustainably growing dividends, and returning surplus capital to shareholders. Ferguson invested $234 million in CapEx for supply chain and technology initiatives and returned $375 million to shareholders in Q2 through dividends and share repurchases.

The balance sheet remains strong with net debt to EBITDA at 1.3x, projected to rise to 1.8x post-FloWorks, staying within the target range of 1x to 2x.

Inflation Management and Gross Margin Stability

Inflation decelerated to the upper portion of low single digits in the quarter, with finished goods in the low single-digit range and commodities (representing 15% of revenue) remaining flat, notably with PVC in double-digit deflation. Despite tough prior-year comparisons, gross margin remained strong at 31%, down only 20 basis points year-over-year, reflecting effective execution of pricing tools and product strategy.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.