# Earnings call transcript: Ferguson posts Q2 2026 growth, lifts outlook By Investing.com

**By:** Investing.com  
**Published:** 2026-08-10T13:32:26.000+00:00  
**Source:** [Investing.com](https://www.investing.com/news/transcripts/earnings-call-transcript-ferguson-posts-q2-2026-growth-lifts-outlook-93CH-4849489)

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FERG+2.87%

Ferguson reported fiscal second-quarter 2026 results that showed solid sales growth and stronger operating trends, even as the company posted a sharply weaker-than-expected adjusted earnings figure. The plumbing and HVAC distributor said diluted earnings per share were $0.04, far below the $2.94 analysts had expected, while revenue reached $354.7 million. The stock rose 2.07% in premarket trading to $255.25 and was last up 0.93% at $259.08, near the top of its 52-week range.

Key Takeaways
Net sales rose 4.6% from a year earlier to $8.8 billion in the quarter ended June 30.
Diluted EPS increased 5.3% to $3.39 on a reported basis, according to the company’s earnings call summary, showing underlying operating strength.
Ferguson raised full-year revenue guidance to mid-single-digit growth from low- to mid-single-digit growth.
The company also lifted the low end of its operating margin outlook to a range of 9.5% to 9.8%.
Management said the pending FloWorks acquisition will expand the company’s addressable market and should be immediately accretive to adjusted EPS.
Company Performance
Ferguson said it continued to gain share in a mixed market, with strength in large capital projects, HVAC, commercial mechanical and industrial end markets. The company’s U.S. non-residential business grew 8% in the quarter, while HVAC revenue rose 11% and industrial revenue increased 18%.

The results suggest Ferguson is benefiting from its scale and its broad customer base. Management said the company is seeing broader demand beyond data centers, including power generation, chemicals, food and beverage, general manufacturing, mining and water treatment. Residential markets remain softer, but HVAC showed signs of recovery and the company said its dual-trade strategy is helping it win business.
Financial Highlights
Net sales: $8.8 billion, up 4.6% year over year.
Organic sales growth: 3.8%.
Acquisition growth: 1%.
Gross margin: 31%, down 20 basis points from a year earlier.
Operating profit: $932 million, up 2.9%.
Operating margin: 10.7%, down 10 basis points.
Diluted EPS: $3.39, up 5.3% from a year earlier.
First-half net sales: $16.2 billion, up 4.2%.
First-half operating profit: $1.6 billion, up 5.1%.
- First-half diluted EPS: $5.67, up 7%.
Full-year EPS forecast: $11.28, according to analyst estimates.
PEG ratio: 1.24, suggesting moderate valuation relative to growth.
InvestingPro Financial Health Score: "GOOD" overall rating.Earnings vs. Forecast
Ferguson’s reported EPS of $0.04 missed the $2.94 analyst forecast by $2.90 a share, or 98.6%. That is a very large gap on the surface.

The company’s call materials, however, pointed to stronger underlying operating performance, including year-over-year growth in sales, operating profit and EPS on a reported basis for the quarter ended June 30. The mismatch between the headline EPS figure and the call summary suggests investors may be weighing the company’s broader operating momentum and guidance more heavily than the single-quarter earnings figure.

Market Reaction
The stock moved higher after the results, rising 2.07% in premarket trading to $255.25 from $250.08. It later traded at $259.08, up 0.93% from the previous close of $256.69.

The shares are trading close to the top of their 52-week range of $207.64 to $271.64, which indicates that investors remain confident in the company’s longer-term position. The reaction was notable because it came after the large EPS miss, suggesting the market may be focusing on Ferguson’s raised guidance, broad-based sales growth and acquisition strategy.

Outlook & Guidance
Ferguson raised its full-year 2026 revenue outlook to mid-single-digit growth, citing stronger-than-expected first-half performance and a better second-half setup. Management said July sales were slightly better than the second quarter and that it expects third-quarter growth to be a bit stronger than Q2.

The company also raised the low end of its operating margin guidance and now expects full-year operating margin in a range of 9.5% to 9.8%. Gross margin is expected to remain in the 30% to 31% range, with some seasonal pressure in the summer quarter.

Other guidance points included:
Capital spending of $375 million to $425 million for the year.
Interest expense of about $200 million.
Effective tax rate of about 26%.
Quarterly dividend of $0.89 a share.
Buybacks to resume when leverage moves back toward the lower end of the company’s 1x to 2x target range.
Management said the pending FloWorks deal is expected to close in the third quarter and would not be included in current guidance. The acquisition is expected to add about $1.6 billion in enterprise value, generate about $45 million in synergies and lift net debt to EBITDA to about 1.8 times.

Executive Commentary
Chief Executive Kevin Murphy said, “Our associates continued to execute for our customers in the second quarter, delivering market outperformance with both revenue and profit growth.”

He also said the company is “well-positioned to leverage the long-term growth drivers of water infrastructure, large capital projects, climate and comfort, and aging and under-built housing.”

Chief Financial Officer Bill Brundage said the company expects large capital projects to remain a tailwind, adding that the category “will build into the future and will be a tailwind over the next couple of years.”

Those comments underline Ferguson’s strategy of using scale, local execution and acquisitions to grow in both residential and non-residential markets.

Risks and Challenges
Residential weakness: Ferguson said the residential market remains under pressure, especially in new construction and repair and maintenance.
Margin seasonality: Gross margin may face pressure in the third quarter as the company compares against a strong prior-year period.
Inventory build: Higher inventory in HVAC and large projects could weigh on working capital if demand slows.
Integration risk: The FloWorks acquisition will add scale, but it also brings integration and execution risk.
Macro uncertainty: Management said the market remains mixed, and broader economic conditions could affect demand in the second half.
Q&A
Analysts focused on several themes during the call, including large capital projects, inflation, margins and the FloWorks acquisition.

Questions centered on:
The pace of large capital projects and whether backlogs are still building.
Why inflation slowed from mid-single digits to low single digits.
How much of the stronger guidance came from year-to-date performance versus acquisitions.
Seasonal gross margin pressure in HVAC and Waterworks.
The strength of Ferguson’s HVAC strategy and the role of dual-trade contractors.
Tariff effects and whether vendor refunds could affect pricing.
Inventory levels and whether the company had pre-bought product.
The strategic value of FloWorks’ customer relationships and technical capabilities.
Management said large capital project backlogs remain above quarterly growth rates, HVAC growth is being driven by dual-trade contractors and greenfield expansion, and FloWorks brings both technical depth and customer relationships in valves, automation and flow control.

Full transcript - Ferguson PLC (FERG) Q2 2026:
Elliot, Conference Operator: Good morning, ladies and gentlemen. My name is Elliot, and I’ll be your conference operator today. At this time, I would like to welcome you to Ferguson’s second quarter results for the period ended June 30th, 2026 conference call. All lines have been placed on mute to prevent any interference with the presentation. At the end of the prepared remarks, there will be a question and answer session. To ask a question at that time, please press star and then the number one on your keypad. To withdraw your question, please press star and then the number two. Thank you. I would now like to turn the call over to Pete Kennedy, Ferguson’s Vice President of Investor Relations and Sustainability. You may begin your conference call.

Pete Kennedy, Vice President of Investor Relations and Sustainability, Ferguson: Good morning, everyone, welcome to Ferguson’s quarterly earnings conference call and webcast. Hopefully, you’ve had a chance to review the earnings announcement we issued this morning. The announcement is available in the Investors section of our corporate website and on our SEC Filings webpage. A recording of this call will be made available later today. I want to remind everyone that some of our statements today may be forward-looking and are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected, including the various risks and uncertainties discussed in our Form 10-K, available on the SEC’s website. Any forward-looking statements represent the company’s expectations only as of today, and we disclaim any obligation to update these statements. On today’s call, we will also discuss certain non-GAAP financial measures.

All references to operating profit, operating margin, diluted earnings per share, effective tax rates, and earnings before interest, taxes, depreciation, and amortization reflect certain non-GAAP adjustments. Please refer to our earnings presentation and announcements on our website for additional information regarding those non-GAAP measures, including reconciliations to their most directly comparable GAAP financial measures. With me on the call today are Kevin Murphy, our CEO, and Bill Brundage, our CFO. I will now turn the call over to Kevin.

Kevin Murphy, Chief Executive Officer, Ferguson: Thank you, Pete, welcome everyone to Ferguson’s second quarter results conference call. Today, I’ll cover our quarterly performance highlights, our results by end market and by customer group, discuss our recent announcement to acquire FloWorks. Bill will review our financials and our updated guidance before I wrap up with a few final comments. We’ll have time to take your questions at the end. Our associates continued to execute for our customers in the second quarter, delivering market outperformance with both revenue and profit growth. Sales of $8.8 billion increased 4.6% over prior year, principally driven by organic growth of 3.8% and acquisition growth of 1%. We’re pleased with our volume growth amid what continues to be a mixed market. Gross margin was strong at 31%, down just 20 basis points against a tough comparison.

We continued to drive productivity by balancing disciplined cost management with investments for future growth. Operating profit increased 2.9% to $932 million, driving a 5.3% increase in diluted earnings per share to $3.39. We remain focused on executing our capital priorities. We’ve now announced eight acquisitions year to date. This includes five acquisitions that closed in the second quarter, investing nearly $600 million. Post quarter end, we signed a definitive agreement to acquire FloWorks, a leading distributor of highly technical valves and flow control solutions. We also returned $375 million to shareholders through dividends and share repurchases, and our balance sheet remains strong with net debt to EBITDA of 1.3 times. While the economic environment remains uncertain, our performance year to date enables the upward revision of our full year guidance, which Bill will cover in more detail later on.

Turning to our performance by end market in the U.S., we delivered another strong quarter of non-residential performance with 8% growth on top of a 13% prior year comparable. Our associates drove meaningful share gains by leveraging our scale, multi-customer group approach, and value-added capabilities. Continued strong activity in large capital projects offset softer activity in traditional non-residential work. We also returned to growth in the residential market, up 2% in the quarter, despite persistent headwinds across both new construction and repair maintenance and improvement work. Our intentional balanced business mix continues to provide durable growth opportunities and resilience through market cycles. Moving next to the second quarter revenue performance across our customer groups in the U.S. Waterworks revenue grew 3% against a 15% prior year comparable. Our diversified exposure across large capital projects, public works, municipal activity, and metering technology helped offset weaker residential activity.

We continued to execute our waterworks diversification strategy with the acquisition of Hamlett Environmental Technologies, further expanding our capabilities in water and wastewater treatment. Commercial mechanical grew 15% on a 20% prior year comparable. This momentum was driven by the strong execution of our teams on large capital projects such as data centers, pharmaceutical production, biotechnology, and general manufacturing. Our scale, breadth of products, diversified supply chain, value-added capabilities, and our relationship with project stakeholders, including owners, engineers, general contractors, and our specialized customers, continued to drive market outperformance. Similarly, our industrial customer group performed very well with 18% growth on top of a 6% prior year comparable. We continue to see steady demand across key sectors that balance our industrial business, including life sciences, pharma, chemical, and power generation infrastructure that’s critical for supporting large capital projects.

Moving to our facility supply group, revenue increased 5%, while fire and fabrication declined 13%. In our residential customer groups, Ferguson Home declined 1%, and residential trade plumbing was relatively flat. Growth accelerated in our HVAC customer group, with revenue up 11% in the quarter. This was driven principally by healthy organic performance alongside contributions from M&A. Our ability to outperform the market is driven by our HVAC growth strategy that includes investment in dual trade, greenfield expansion, and acquisitions. The scale and breadth of our business across these customer groups positions us well to capitalize on the long-term tailwinds in our end markets. Let me share more about our recent announcement to acquire FloWorks, a leading industrial distributor and service provider of highly technical valves and flow control solutions.

Founded in 1961 in Houston, Texas, FloWorks has more than 65 years of history as a leading flow control distributor with approximately $1 billion in revenue in 2025 and more than 60 locations, including 25 service and repair centers across the U.S. and Canada. The acquisition will expand our specialty industrial flow control platform, adding technical depth, including valves, automation, pumps, fluid handling systems, and specialty pipe fittings and flanges. We also expect the acquisition to enhance our growth strategy with expanded end market and product exposure while adding significant recurring MRO-driven revenue. We are excited to welcome the more than 1,000 talented FloWorks associates to Ferguson. Their capabilities, geographic footprint, and portfolio of 15 brands will complement our offering, providing customers even more choice in their product and service selections. In addition, their culture embodies our philosophy with a focus on associate development, exceptional customer service, and operational excellence.

As one of our largest acquisition announcements to date, we expect to increase our total addressable market from $340 billion to $400 billion. FloWorks will strengthen our business as we add additional exposure to key growth areas with secular tailwinds, including large capital projects and water infrastructure. FloWorks will also support the balanced business mix in our industrial customer group and allow us to further engage with high-growth end markets like data centers, semiconductors, biotechnology and pharma, power generation, food and beverage, and general manufacturing while creating powerful cross-sell opportunities across our non-residential customer groups. We believe FloWorks will enhance our ability to drive market outperformance by playing an even larger part in the build-out happening across North America. Let me turn over to Bill, who will cover some of the financial aspects of the FloWorks acquisition, as well as provide more detail regarding our financial performance and updated guidance.

Bill Brundage, Chief Financial Officer, Ferguson: Thank you, Kevin, and good morning, everyone. We expect to complete the FloWorks acquisition in our third quarter and believe this transaction creates compelling value for our shareholders. The cash transaction values FloWorks at an enterprise value of approximately $1.6 billion, and we expect the deal to be immediately accretive to adjusted earnings per share. The total consideration represents an acquisition multiple of approximately 10 times EBITDA, including expected synergies of approximately $45 million. We expect to drive revenue synergies across industrial, commercial mechanical, and our Waterworks customer groups, as well as achieving certain cost synergies from network optimization, logistics, and technology. We expect our net debt to EBITDA leverage to increase from 1.3 times at the end of the second quarter to approximately 1.8 times upon closing the acquisition, keeping us within our stated leverage target of one to two times.

We are looking forward to a successful closing that further enhances our business. Now, let me highlight the financial performance of the business as well as our updated guidance. During the second quarter, net sales of $8.8 billion were 4.6% ahead of last year, driven by organic revenue growth of 3.8% and acquisition growth of 1%, partially offset by 0.2% from a divestment in Canada. During the quarter, we returned to volume growth as we saw the pace of inflation edge down to low single digits. Our gross margin was strong at 31%. This was 20 basis points down year-over-year, which was expected due to the timing and extent of supplier price increases in the prior period. We continued to drive productivity with 10 basis points of operating leverage while investing for future growth.

As a result, operating profit grew 2.9% to $932 million, delivering a 10.7% operating margin, which was 10 basis points below the prior year. Diluted earnings per share of $3.39 was 5.3% above last year, driven by operating profit growth and the impact of share repurchases. Our balance sheet remains strong at 1.3 times net debt to EBITDA. Moving to our segment results. Net sales in the U.S. grew 5%, with an organic increase of 4% and a 1% contribution from acquisitions. Operating profit of $925 million was 2.9%, or $26 million above the prior year, delivering an operating margin of 11.1%. In Canada, net sales decreased by 1.9%, with organic growth of 1.7% fully offset by 3.6% from a non-core business divestment. Markets have remained challenging in Canada, particularly in residential. Adjusted operating profit of $22 million was $1 million below last year.

Moving on to the half-year financials. Net sales of $16.2 billion were 4.2% ahead of last year, driven by organic revenue growth of 3.4% and acquisition growth of 0.9%, partially offset by 0.1% from foreign exchange and a Canadian divestment. Gross margin of 31% was flat year-over-year. We continued to drive productivity initiatives as we remain diligent on costs. Operating profit grew 5.1% to $1.6 billion, delivering a 9.7% operating margin with 10 basis points of expansion over the prior year. This profit growth, combined with the impact of our share repurchase program, drove a 7% increase in diluted earnings per share to $5.67. Turning next to cash flow for the first half of the year. EBITDA of $1.7 billion was up approximately $90 million on the prior year.

Operating cash flow was $716 million, down approximately $400 million on prior year, as we invested in working capital to support growth in areas such as HVAC expansion and large capital projects, and also due to the timing of tax payments, which will normalize through the year. We continued to invest in organic growth through CapEx, investing $234 million, principally in our supply chain expansion and optimization, branch network, and technology initiatives. The result was free cash flow of approximately $500 million. Moving to our capital allocation priorities. We continue to allocate capital across four clear priorities of organic growth, bolt-on geographic and capability acquisitions, sustainably growing our dividend, and returning surplus capital to shareholders when we’re in the low end of our target leverage range of 1 to 2 times net debt to EBITDA.

As discussed, we continue to organically invest in the business through CapEx to drive further above. We completed five acquisitions during the quarter that support our key strategic growth areas, including large capital projects, water infrastructure, and climate and comfort. To expand our multi-brand HVAC offering and dual trade capabilities, we acquired Carrier Great Lakes, a distributor of residential and commercial products with seven locations across Michigan and Ohio. We also added Dealers Supply Company, which brings HVAC equipment, parts and supplies, and fabrication services across 17 locations in the southeastern U.S. In our Waterworks customer group, we acquired Hamlett Environmental Technologies Company, which strengthens our water and wastewater process equipment expertise in Michigan. We continued to expand capabilities within our commercial mechanical customer group, acquiring New England Applied Products.

As a manufacturer’s representative of commercial HVAC systems, New England Applied Products supports a variety of traditional and large capital projects, including data centers, education, and healthcare systems. Within our industrial customer group, the acquisition of PRD Technologies Group further strengthens our product portfolio with highly technical valves, flow control, and process equipment with 10 locations across the United States. Subsequent to quarter end, we also announced our definitive agreement to acquire FloWorks, bringing our year-to-date announced acquisitions to eight. Collectively, these deals will expand and enhance our capabilities across water and wastewater treatment, HVAC, and industrial valves and flow control. Together, the eight acquisitions announced year to date represent approximately $1.4 billion in aggregate annualized revenue, and our overall acquisition pipeline remains healthy. Moving to the third bucket of our capital allocation priorities, our board declared a quarterly dividend of $0.89 per share.

Finally, we returned $438 million to shareholders via share repurchases year to date, reducing our share count by approximately 1.7 million. As previously discussed, we anticipate leverage will increase towards the upper portion of our target 1x-2x range upon closing the FloWorks transaction. As such, we would expect to resume buybacks when leverage moves back into the lower end of this range, consistent with our stated approach. Now I’ll cover our updated full year 2026 guidance. While our markets remain uncertain, our year-to-date results enable us to raise our full year guidance. 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%.

Looking at the rest of the P&L, interest expense remains unchanged at approximately $200 million. We’ve updated our CapEx estimate to a range of $375 million-$425 million to reflect the timing of our expected capital deployment. We anticipate an effective tax rate of approximately 26%. This guidance does not reflect the expected FloWorks acquisition. We expect to close the transaction in the third quarter, at which time we will update our guidance alongside our Q3 earnings. As we head into the second half of the year, we believe our strong balance sheet, agile business model, balanced end market exposure, and continued strategic investments keep us well-positioned to continue to outperform. Thanks. I’ll now pass back to Kevin.

Kevin Murphy, Chief Executive Officer, Ferguson: Thank you, Bill. Let me once again thank our expert associates who continue to serve our customers, driving market outperformance despite a challenging overall market environment. We remain focused on operational execution, while our cash-generative model and disciplined approach to capital allocation continue to drive shareholder value. We are well-positioned to leverage the long-term growth drivers of water infrastructure, large capital projects, climate and comfort, and aging and under-built housing. Our balanced business and our ability to deploy scale locally through our multi-customer group approach, world-class supply chain, value-added solutions, and expert associates drive productivity for the water and air specialized professionals as they build and maintain the infrastructure that keeps North America running. Thank you for your time today. Bill and I are now happy to take your questions. Operator, I’ll hand the call back over to you.

Elliot, Conference Operator: Thank you. For our Q&A, if you would like to ask a question, please press star followed by one on your telephone keypad now. If you change your minds, please press star followed by two. When preparing to ask a question, please ensure your device is unmuted locally. First question comes from Matthew Bouley with Barclays. Your line is open. Please go ahead.

Matthew Bouley, Analyst, Barclays: Morning, everyone. Thank you for taking the questions. Maybe start off on the large capital projects. Can see your commercial mechanical up 15% on that 20% prior year comp. Maybe just kind of dive into a little bit on what you’re seeing with the open order volumes and backlog. I know last quarter you had signaled the, I guess, difficulty of going up against these comps going forward, but obviously you still saw that growth here. What are some of the specifics, and maybe just kind of unpack how the large capital projects business is included in your guide for the year. Thank you.

Bill Brundage, Chief Financial Officer, Ferguson: Yeah, thanks for the question, Matt. This is Bill. Maybe I’ll start with that one. You’re right. We were incredibly pleased with the growth rates, not only in commercial mechanical, but also in our industrial business, with commercial up 15% on 20%, and industrial up 18% on a 6% comparable. We are seeing strength driven across that large capital project space. As we’ve talked about before, if we take a step back, large capital projects represent somewhere in the mid to high single-digit percentage of our total overall Ferguson revenue, and we continue to trend up within that range. 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. We continue to think and believe that the large capital project space will build into the future and will be a tailwind over the next couple of years. As we talked about, the gestation period of these projects is long. It’s difficult to predict the timing of revenue in any one quarter, but the overall trend is still quite positive.

Kevin Murphy, Chief Executive Officer, Ferguson: Matt, as Bill indicated, we’re pleased with that growth rate across industrial, commercial, mechanical, and even waterworks. As you look at the overall bidding activity and activity levels, they continue to be strong, not just in the data center activity, which is obviously the strongest, but across power generation and water infrastructure. As we look at that, one of the key drivers of our performance has been early engagement in the process to make sure that we can take care of the supply chain needs in order to meet the timelines of these projects. As we look forward, labor availability as well as overall supply chain pressure further enhances that need to be early in that process to make sure that we can deliver on those project timelines.

Matthew Bouley, Analyst, Barclays: Got it. Okay, perfect. Thank you for that color. Then, secondly, inflation, I guess the deceleration to low single-digit from mid-single-digits. I guess if you can kind of pick apart what’s going on there. I’m also curious, as we’ve seen kind of inflation pushing through the year into July and August, just how inflation is maybe tracking quarter to date and sort of everything going on there. Thank you.

Bill Brundage, Chief Financial Officer, Ferguson: Matt, as we set out at the beginning of the year, we thought that inflation overall was going to be somewhere in the low single-digit range for the year. We thought that coming into the year, we were going to be above that, then as we started to lap the comparables from last year, after that Liberation Day time period, that inflation would start to compress. When we talked to you at the end of the first quarter, we were in the midst of some additional price increase announcements, particularly with geopolitical events that were going on at that time, we talked about certain price increase announcements that were coming through, resin price leading to, or oil price increase leading to resin leading to PVC price increases.

We had flagged that we thought that inflation could be a touch above our original expectation, but still in that low single-digit range for the year. We’ve got another quarter under our belt, on the branded side of products, finished goods side of the products category, we’ve seen exactly what we expected. We have started to roll over those prior year price increases, we’ve seen that inflation compress, that inflation on finished goods is now down to the low single-digit range. On the commodity side, much like we flagged, some of those PVC price increases have 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 in the double-digit range for the quarter. As a basket, commodities were about flat in the quarter.

You put that together, it did tick down from mid-single digits to, I’d say, the upper portion of low single digits in the quarter. Difficult to predict where that goes from here, but again, I’d take a step back and say somewhere in that low single-digit range for the full calendar year is probably our best view at this point.

Matthew Bouley, Analyst, Barclays: All right. Thanks, Bill. Good luck, guys.

Bill Brundage, Chief Financial Officer, Ferguson: Thanks, Matt.

Elliot, Conference Operator: We now turn to John Lovallo with UBS. Your line is open. Please go ahead.

John Lovallo, Analyst, UBS: Good morning, guys. Thanks for taking my questions as well. The first one is, you raised the revenue outlook and increased the midpoint of the operating margin outlook for the full year. Is this primarily a function of the stronger year-to-date results and maybe the completed M&A? How would you characterize your expectations for organic growth in the second half relative to the second quarter?

Bill Brundage, Chief Financial Officer, Ferguson: Yeah. Thanks, John. To your point, if we take a step back again, we are really not seeing a change in the market and our market expectations for the full year. We came into the year expecting our markets would be broadly flat with more pressure on residential being down low to mid-single digits, and non-resi being up low to mid-single digits. 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. Then as we look towards the second half, we are expecting the second half to have a touch higher growth rate. That’s supported by not only our first half performance, our second quarter performance, but also the open orders that I talked about before during Matt’s question.

When we take a step back, we think revenue will be a bit stronger in the second half. We did raise, to your point, the low end of our operating margin guide, and we feel that we’ll deliver a pretty solid second half.

John Lovallo, Analyst, UBS: Okay, that’s helpful. The second question, just on the gross margin seasonality. Typically, HVAC and Waterworks mix would drive some pressure on gross margin during the summer months, and I think last quarter, you guys expected a step down below 31% in the summer. Second quarter gross margin was pretty flat quarter-over-quarter. What drove the strength there, and how are you thinking about the gross margin dynamic as we move through the third quarter?

Bill Brundage, Chief Financial Officer, Ferguson: Yeah. John, as we’ve said in the past, we believe our gross margin currently sits somewhere in that 30%-31% range right now. We were very pleased to deliver at the top end of that range this quarter. There was good execution by the teams. Executing on our pricing tools and technology, delivering on our product strategy, certainly driving strong own brand growth. All of that led to solid gross margins in the quarter. 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. As we look out to the second half, certainly we are about to comp against our strongest gross margin from last year. In Q3 last year, we delivered a 31.3% gross margin.

Again, we’d expect to be a bit down on that, but feel that our gross margins sit in a good spot, and we’re well positioned again to deliver the operating margin guidance that we’ve laid out.

John Lovallo, Analyst, UBS: Great. Thank you, guys.

Bill Brundage, Chief Financial Officer, Ferguson: Thanks, John.

Elliot, Conference Operator: We now turn to Phil Ng with Jefferies. Your line is open. Please go ahead.

Phil Ng, Analyst, Jefferies: Hey, guys. Congrats on a strong quarter. Bill, I guess a question for you to kick things off. You mentioned perhaps the back half top line growth to be a little stronger than the first half. What’s driving that? Is that mostly in the non-res side? Is that resi? Resi did inflect. On the non-res side of things, I guess question for you, Kevin, it just feels like the end markets are broadening out a bit outside of data centers. Any color in terms of some of the end markets that really stand out where you’re seeing a big inflection?

Bill Brundage, Chief Financial Officer, Ferguson: Yeah. Phil, we’d expect the non-res growth strength to continue. Again, going back to what we’re seeing not only in commercial mechanical, but what we’re also seeing in Waterworks and as we look at our open orders. We would expect the second half to deliver solid growth from non-res. As we set out at the beginning of the year, while resi is in a challenged spot, we did expect our resi performance to improve slightly as we moved throughout the year. We are seeing that. That’s principally driven on the HVAC side of the world. If you look at our 11% growth in the quarter, on top of a prior year growth rate of 1%, we were quite pleased with that return to very strong growth in HVAC.

As we look towards the second half, we would expect strong growth there, which will offset some of that very weak market conditions that we still see across the residential business.

Kevin Murphy, Chief Executive Officer, Ferguson: To build on that, Phil, we’re really pleased with the execution of the teams on the HVAC side of the business. We’ve talked in the past about that multi-pronged growth strategy that we have. We believe we’re a great solution for the growing dual trade contractor that does plumbing and HVAC. We believe that we are a very good solution for the consolidator that is either expanding the trade professional network in a regional or nationwide network. We’re focused on investing organically and expanding locations and counters, building equipment relationships, investing in talented associates. As you’ve seen, we’ve also complemented that with good M&A across the network, not the least of which is Dealer Supply and Carrier Great Lakes, as we talked about in the prepared remarks. We’re pleased with that HVAC outperformance at 11% growth.

If you go to your question around the non-residential side of the business, clearly it still is large capital construction projects that are driving the day. We haven’t seen a tremendous amount of improvement in that traditional core non-res activity like office, warehouse, to a lesser extent, around education and even hospitality. We do see good, broad-based, large capital construction project growth. Data center construction activity continues to be the strength of that sector, but we’re also seeing good growth, which are great projects for us, in areas like power generation, in areas like chemical, food and beverage, general manufacturing, mining and minerals, obviously water and wastewater treatment.

That broadening is driving results, and it really does play well to the business model that we’ve built over time, and to having a good, strong multi-customer group approach from water through industrial pipe, valve, and fitting, commercial, mechanical, and fire suppression.

Phil Ng, Analyst, Jefferies: That’s great color, Kevin. Pretty dynamic backdrop still on the inflation front. Lot of movement and noise around tariffs. Anything noteworthy callout that we should be mindful of? As we look out to pricing in the back half, part of the question I have is, we’ve seen some of your vendors, they’ve gotten tariff refunds back, and they’ve talked about reinvesting in the business. I don’t know what that means for Ferguson. Is that a good thing from a pricing margin standpoint or something just to be mindful of? Thank you.

Kevin Murphy, Chief Executive Officer, Ferguson: Phil, first off, from a pricing perspective, if you go back to my previous comments, we would expect pricing to be in that low single-digit range for the year. I’d probably expect somewhere in that range for the back half. Again, admittedly, it’s very difficult to call what’s going to happen on those commodity prices, which again, just for a reminder, commodities are about 15% of our overall revenue. In terms of tariffs, as you know, the vast majority of our purchases, over 90% of what we buy, are from branded manufacturers. We have not received any tariff refunds from those branded suppliers, and are not expected to. As we look forward, we’re the importer of record for a small portion of our own brand products.

We have sought tariff refunds where appropriate there, we’ve received what I would call a modest amount, but nothing material as we look out at the full year. As you recall, again, that 90%-plus of our purchases that are from branded suppliers, there were very little, if any, that would’ve highlighted tariff as the reason for that increase. They were more broad-based, including a variety of different operational inputs.

Phil Ng, Analyst, Jefferies: Great color, guys. Really appreciate it.

Kevin Murphy, Chief Executive Officer, Ferguson: Thanks, Phil.

Elliot, Conference Operator: We now turn to Sam Reid with Wells Fargo. Your line is open. Please go ahead.

Sam Reid, Analyst, Wells Fargo: Thanks so much, guys. Wanted to quickly touch on the inventory line item really quickly. I believe inventory days were up a little bit year-over-year. Just talk through any puts and takes on inventory. Was there any pre-buy activity or other more one-timers we should be mindful of?

Kevin Murphy, Chief Executive Officer, Ferguson: Yes, Sam. We have invested in inventory, as we said in our opening comments, particularly in a couple of areas. If you look at our HVAC business to support our dual trade growth initiatives, to support our organic growth initiatives, as well as in large capital projects inventory. From an HVAC standpoint, we did lean into inventory a bit seasonally. I would expect that to come off and to normalize as we go through the back half of the season. I’d expect that inventory, it’s a bit elevated right now, but I would expect that to normalize by the time we get to the end of the year. Our large capital projects inventory, that will continue to build. As you’ve seen in the revenue results, that is generating strong revenue growth. We have a great backlog, as we talked about earlier.

Overall, when you take a step back, while there’s a bit more inventory on large capital projects, the overall returns on capital are quite good there. I would expect us to be a little bit heavier on that large capital project inventory. Every day we’re continuing to work that and monitor that.

Sam Reid, Analyst, Wells Fargo: Quite helpful. Maybe switching gears here, fantastic performance on the HVAC line. You’ve talked about your desk rollouts as being one of the sources of success here. Clearly, that’s true. Are there opportunities to continue to roll out more HVAC desks and lean even deeper into your dual-pronged plumbing HVAC trade strategy? Would just love maybe some higher-level commentary here.

Kevin Murphy, Chief Executive Officer, Ferguson: Yeah. I would think about our business as being focused on that dual trade plumbing and HVAC trade professional overall. I would consider our company to be very pure in our purpose in terms of how we address the unique needs of that plumbing contractor as well as that HVAC contractor. As we go forward, we’ll look at the location landscape and make sure that we’re building out convenient locations that are close to customers’ jobs for both will call as well as delivery, and make sure that all of those locations that we’re dotting the landscape with are effectively addressing the dual trade and the plumbing and HVAC contractor specifically. Although we’ve completed that 650 counter rollout, all of our locations as we go forward in that blended traditional plumbing and HVAC space will continue to grow to service that contractor base.

Sam Reid, Analyst, Wells Fargo: Really appreciate it. Thank you so much.

Kevin Murphy, Chief Executive Officer, Ferguson: Thank you.

Elliot, Conference Operator: We now turn to Ryan Merkel with William Blair. Your line is open. Please go ahead.

Ryan Merkel, Analyst, William Blair: Hey, everyone. Thanks for the question. I want to start on organic growth and the shape of the quarter. It looks like it might have exited a little stronger than it started. How should we think about the back half 3Q organic growth? Can it be similar to what you just put up in the second quarter? Any color there?

Kevin Murphy, Chief Executive Officer, Ferguson: Yeah. Ryan, to your point, we saw a bit of growth strengthening during the quarter. When we look at our exit rate, if we look at the month of July, for example, that supports our expectation of a slightly stronger second half. July was a touch better than Q2. I would expect that revenue in the back half is stronger than the first half. I would expect that the Q3 growth rate is a bit stronger than the Q2 growth rate.

Ryan Merkel, Analyst, William Blair: Got it. All right. Second topic is on FloWorks. You mentioned it’s going to drive revenue synergies across a couple groups. Just expand on that a little bit, if you would.

Kevin Murphy, Chief Executive Officer, Ferguson: Yeah. If you look at the FloWorks acquisition, I’ll start off with saying it is a fantastic associate base and a very strong cultural fit to our organization. As we look to bring these companies together, the capabilities that FloWorks has is a great complement to the work that we’re doing in the marketplace around pipe flange and fittings, as well as valve and valve automation. Additionally, the relationships that they bring in some key areas like power generation, chip manufacturing. As we look at the traditional multi-customer group approach that we take on large capital construction projects with waterworks, commercial, mechanical, and industrial, this further strengthens that in some really key areas and the build-out of North American infrastructure around data centers, chip production, power generation, water, and also pharma and biotechnology.

You layer on a very strong MRO capability set that’s going to help us with an ever-growing install base. As we look forward, we think we can capitalize on some good revenue synergies as these two companies complement each other.

Ryan Merkel, Analyst, William Blair: That’s great. Appreciate that. All right, I’ll pass it on.

Elliot, Conference Operator: We now turn to David Manthey with Baird. Your line is open. Please go ahead.

Inara, Analyst, Baird: Hi, good morning. This is Inara on for Dave this morning. Nice job on the quarter, given the still choppy backdrop. First, with the prior cost program now lapsed, how should we think about OpEx growth in the back half of 2026? Does the margin progression embedded in the guide mainly reflect normal seasonality, or should price costs and the productivity actions you’ve discussed support better operating leverage?

Bill Brundage, Chief Financial Officer, Ferguson: Yeah. Inara, thanks for the question. To your point, we did take a fair number of cost actions as we restructured the field operations of our business last year in that April timeframe. We had talked about the fact that our growth rate on SG&A would step up from Q1 to Q2 just a bit, and that’s what we saw. We saw the SG&A step up to just over 4% growth rate in the second quarter. We did, however, still deliver 10 basis points of operating leverage in the quarter. As we think about the second half, I would expect similar growth rates. It might step up just a touch more as we continue to invest in the business. For example, we just brought in a trainee class of 200 associates in the summer, which is typical for us.

We’ll bring in some more trainees in September to fuel that pipeline of future talent, and to fuel our future growth. We’re still expecting to generate overall operating leverage for the year. When I take a large step back to the beginning of the year, we thought this year was going to be one where we might have a touch of gross margin compression for the year after some outsized gross margin last year, offset by some SG&A leverage. We think the cost base is in a good spot. We’re able to continue to invest for future growth, and we’re expecting a bit of leverage as we move to the back half.

Inara, Analyst, Baird: Great. Just as a quick follow-up. Yeah, contribution margin was around 7% in 2Q versus that sort of targeted 11%-14% rate. Should that improve in the back half? Is that more gross margin through mix and price cost or from that SG&A leverage you mentioned?

Bill Brundage, Chief Financial Officer, Ferguson: Yeah, that was really driven in the second quarter by the slight compression in gross margins, which again, gross margin was a bit outsized in both Q2 and Q3 last year. We expected a bit of operating margin compression in Q2 because of that gross margin year-over-year comparable. I think that could be similar as we go through Q3. Again, for the year, we would expect to deliver somewhere in that 9.5%-9.8% operating margin range and have a very strong year after last year, where operating margins stepped up from a 9.1%-9.6%. Another strong year, and good solid performance is our view for this year.

Inara, Analyst, Baird: Great. Appreciate the color. I will pass it back.

Elliot, Conference Operator: We now turn to Keith Hughes with Truist. Your line is open. Please go ahead.

Keith Hughes, Analyst, Truist: Thank you. Have you done any work in your residential business on HVAC and plumbing contractors? How many of your customer base actually do both trades and legitimate quantities?

Kevin Murphy, Chief Executive Officer, Ferguson: As we’ve said, we think that roughly two-thirds of the market is, or just about two-thirds of the market is engaged in that dual trade area. When we look at the work going forward, we think that that grows and doesn’t shrink in terms of what that percentage is.

Keith Hughes, Analyst, Truist: When you say two-thirds, are you saying two-thirds do at least some of both, or they’re really dual trade where they do a significant amount of work in both or can you measure it quite that close?

Kevin Murphy, Chief Executive Officer, Ferguson: I’m sorry. It’s about one-third of our overall customer base is doing dual trade today, and we expect that to grow over time. We don’t get down to the granularity of each individual customer who will do HVAC and plumbing work. There are certain dual trade customers that are engaged with specific groups inside their company that we would tag as dual trade. That crossover does happen even at the local one to two truck plumber/HVAC technician work, which we don’t capture as accurately as those that have some scale.

Keith Hughes, Analyst, Truist: Okay. One other question on FloWorks. A lot of the products they sell, I think about you already selling, is it the customer relationships? Is that the real advantage of the acquisition?

Kevin Murphy, Chief Executive Officer, Ferguson: It’s really the customer relationships as well as the capabilities. When you look at their valve and automation capabilities, their rotating equipment and pump capabilities, overall flow control valve repair. They accelerate our ability to compete in this landscape quite quickly as we look at the build-out of, like I said, chemical, downstream oil and gas, general manufacturing, mining, and et cetera. We’re pleased with both the capability set as well as the relationships, especially in areas like power generation.

Keith Hughes, Analyst, Truist: Okay, great. Thank you.

Elliot, Conference Operator: Ladies and gentlemen, that’s all the time we have for questions. I’ll now hand back to Kevin Murphy for any final remarks.

Kevin Murphy, Chief Executive Officer, Ferguson: Yeah, again, thank you for your time today and maybe end as we began, with a thank you to our associate base. They continue to have solid execution that drove results in our second quarter. Our business model and the ongoing investments that we’re making in some key growth areas really continue to drive our performance. Not just on the non-residential space with large capital projects, but also in the residential side of the world with our HVAC and our expansion of that HVAC business across our plumbing footprint. The scale deployed locally business model that we represent together with a multi-customer group approach continues to pay dividends. We thank you for your time, and we look forward to talking to you very soon.

Elliot, Conference Operator: That concludes today’s call. I’d like to thank you all for your participation. You may now disconnect your lines.

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