Ferguson Enterprises Inc. (FERG) shares dropped Tuesday despite reporting quarterly results that exceeded Wall Street's expectations, illustrating how markets sometimes focus on the clouds rather than the silver linings. The plumbing and HVAC distributor posted sales of $8.169 billion for the quarter ended October 31, 2025, up 5.1% year over year and comfortably ahead of the $8.031 billion analysts expected.
The sales increase came from multiple sources: 4.2% organic growth, 1.0% from acquisitions, with small headwinds from foreign exchange fluctuations and a Canadian divestment shaving off 0.1%. Price inflation contributed roughly 3% to the top line, meaning the company saw real volume growth underneath.
Here's where things get interesting. Gross margin expanded 60 basis points to 30.7%, and operating margin jumped 80 basis points to 9.4% on a reported basis, or 9.9% when adjusted. That kind of margin expansion while growing sales shows operational discipline. Diluted earnings per share surged 23.9% to $2.90 on a GAAP basis, and adjusted EPS climbed 15.9% to $2.84, crushing the $2.57 consensus estimate.
Reported operating profit came in at $771 million, with adjusted operating profit reaching $808 million and adjusted EBITDA hitting $867 million. Management credited the margin gains to "disciplined execution" by associates and continued vigilance on cost management to generate operating leverage.
Tale of Two Markets
The segment breakout tells the real story. U.S. operations grew sales 5.3%, but that headline number masks a divergence underneath. Residential revenue fell 1% during the quarter, reflecting the well-documented housing market slowdown. Meanwhile, non-residential revenue surged 12%, buoyed by waterworks activity and commercial/mechanical projects, including large capital undertakings. U.S. adjusted operating profit jumped 15.6% to $806 million, showing the company's ability to mix-shift toward more profitable work.
Canada presented a tougher picture. Sales inched up just 2.2%, essentially driven by acquisition growth while fighting headwinds from currency translation and a non-core business divestment. Management noted that Canadian markets "have remained subdued, particularly in residential." Canada's adjusted operating profit registered $16 million for the quarter.
On the capital allocation front, Ferguson completed its acquisition of Moore Supply Company and repurchased $208 million worth of shares. The board also declared a quarterly dividend of 89 cents per share, representing a 7% increase from the prior year. The dividend will be paid February 27, 2026, to shareholders of record as of January 2, 2026.
Looking Ahead
CEO Kevin Murphy struck an optimistic tone about the company's positioning: "We are poised to deliver a strong calendar year 2025 performance, and we remain confident in our markets over the medium term. While we continue to operate in an uncertain environment, we will stay focused on leveraging multiyear tailwinds in both residential and non-residential markets as we support the complex project needs of the water and air specialized professional."
Ferguson raised its calendar 2025 outlook, now projecting net sales growth of approximately 5% with an adjusted operating margin between 9.4% and 9.6%. That's an upgrade from previous guidance calling for mid-single-digit sales growth and margins of 9.2% to 9.6%. The tightened and raised margin guidance suggests growing confidence in execution.
The company expects interest expense around $190 million, capital expenditures of roughly $350 million, and an adjusted effective tax rate near 26% for 2025.
One administrative note: Ferguson is transitioning its fiscal year-end from July 31 to December 31. The company will report results for a five-month transition period covering August through December 2025, then shift to calendar-year reporting starting January 1, 2026.
Despite the earnings beat and raised guidance, Ferguson shares fell 3.82% to $236.42 at the time of publication Tuesday, perhaps reflecting concerns about the residential market drag or simply profit-taking after a strong run.
