Ferguson Outperforms The Market; Wolseley Demerger On Track

Ferguson has reported on trading for the three months ended 31st October, 2019, advising of continued market outperformance.

First-quarter highlights

−          Ongoing revenue 5.3% ahead of last year including 6.2% in the USA.
−          Continued tight cost control ensured good profit delivery.
−          Underlying trading profit of $433 million was $20 million ahead of last year.
−          Invested $62 million in acquisitions in Q1, healthy forward deal pipeline.
−          UK demerger progressing as planned.
−          Completed $400 million of the $500 million share buy back as at 31 October 2019.

Kevin Murphy, Group Chief Executive, commented: 

"Ferguson continued to take market share against a backdrop of flat US markets and we remain firmly focused on maximizing organic revenue growth, while tightly managing gross margins and costs. We are pleased that this disciplined approach enabled us to grow US trading profit in line with revenue growth in the quarter. Cash generation in the quarter was good and our balance sheet remains strong. We will continue to invest organically in our businesses and in selective bolt-on acquisitions which will be integrated into our network. 

 "We expect to make further good progress in the year ahead. While US market growth is currently broadly flat we remain confident of outperforming our end markets and our order books support continued modest revenue growth in the months ahead. This strong focus on growth with continued cost and margin discipline gives us confidence in our expectations for the full year which remain unchanged."

Group results 

The Group generated revenue of $5,208 million in the first quarter, 5.4% ahead of last year at constant exchange rates and 2.5% ahead on an organic basis. While gross margins were slightly lower at 29.7% in the quarter, operating costs were well controlled which led to a good overall trading performance. Underlying trading profit of $433 million was $20 million higher than last year. The impact of IFRS16 added a further $18 million to trading profit. Trading days were the same in Q1 compared to 2019.

Regional analysis 

USA 

Our US business continued to outperform with revenue growth of 6.2%, which comprised 3.1% organic growth and 3.1% from acquisitions. Price inflation during the quarter was about 1-2%. 

New residential housing starts and permits from the US Census Bureau improved in the quarter. The Architectural Billings Index, more closely linked to commercial markets, was lower in the quarter. Our order books have grown year-on-year consistent with continuing modest revenue growth over the coming months.

The major business units of Blended Branches, Waterworks and HVAC all continued to grow well. Revenue in Industrial was lower against strong comparators arising from two large capital projects last year. Gross margins were slightly lower mainly as a result of strong prior year comparators. Operating expenses were well controlled, up 3.8% compared to last year on a pre-IFRS16 basis. Underlying trading profit of $425 million was 6.3% ahead of last year.

We completed one small acquisition in the quarter, Process Instruments & Controls, a California based industrial business with annualised revenue of approximately $8 million. After the quarter end we acquired S.W. Anderson which provides HVAC equipment and supplies to residential and commercial contractors, retailers and commercial property owners. The company operates in the New York metro area, which is one of the largest and most attractive construction markets in the USA. In the year ended 31 December 2018 it generated revenue of approximately $90 million.

Canada 

Organic revenue in Canada was 6.4% lower. Residential markets remained weak as a result of government measures to restrict mortgage credit and the impact of foreign buyer taxes. Underlying trading profit of $19 million was $7 million below last year at constant exchange rates.

Non-ongoing operations 

The demerger process for Wolseley UK is on track and we expect to complete the transaction in 2020. Organic revenue declined 4.2% in the quarter against a backdrop of uncertainty in repair, maintenance and improvement markets where the majority of our revenue is generated. Trading profit of $15 million was $3 million lower than last year at constant exchange rates. We continue to actively manage the cost base in the UK given the challenging market environment and exceptional costs of $5 million were incurred, principally relating to the announced closure of a further distribution center in Worcester and headcount reductions. We completed one acquisition in the quarter, Continental Power Equipment, a high quality infrastructure business which has annualised revenue of around $60 million and contributed 2.0% of revenue growth in the quarter.

Outlook 

We expect to make further good progress in the year ahead. While US market growth is currently broadly flat we remain confident of outperforming our end markets and our order books support continued modest revenue growth in the months ahead. This strong focus on growth with continued cost and margin discipline gives us confidence in our expectations for the full year which remain unchanged.

Source : Ferguson

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