ferg-20240131

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended January 31, 2024


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-40066

Ferguson plc
(Exact name of registrant as specified in its charter)


Jersey, Channel Islands						98-1499339
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

1020 Eskdale Road, Winnersh Triangle, Wokingham,

Berkshire, RG41 5TS, United Kingdom

(Address of principal executive offices and zip code)

+44 (0) 118 927 3800

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)


Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Ordinary Shares of 10 pence	FERG	New York Stock Exchange
		London Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

As of February 29, 2024, the number of outstanding ordinary shares was 202,813,401.

TABLE OF CONTENTS


			PAGE


CERTAIN TERMS			1
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS			1
PART I – FINANCIAL INFORMATION			3
Item 1. Financial Statements			3
Condensed Consolidated Statements of Earnings			3
C ondensed C onsolidated Statements of Comprehensive Income			4
C ondensed C onsolidated Balance Sheets			5
C ondensed C onsolidated Statements of Shareholders’ Equity			6
C ondensed C onsolidated Statements of Cash Flows			8
Notes to the Condensed Consolidated Financial Statements			9
Note 1: Summary of significant accounting policies			9
Note 2: Revenue and segment information			11
Note 3: Weighted average shares			12
Note 4: Income tax			13
Note 5: Debt			13
Note 6: Assets and liabilities at fair value			14
Note 7: Commitments and contingencies			14
Note 8: Accumulated other comprehensive loss			14
Note 9: Retirement benefit obligations			15
Note 10: Shareholders’ equity			16
Note 11: Share-based compensation			16
Note 1 2 : Acquisitions			17
Note 1 3 : Related party transactions			19
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			20
Item 3. Quantitative and Qualitative Disclosures About Market Risk			27
Item 4. Controls and Procedures			27
PART II - OTHER INFORMATION			28
Item 1. Legal Proceedings			28
Item 1A. Risk Factors			28
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			28
Item 6. Exhibits			29
SIGNATURES			30

CERTAIN TERMS

Unless otherwise specified or the context otherwise requires, the terms “Company,” “Ferguson,” “we,” “us,” and “our” and other similar terms refer to Ferguson plc and its consolidated subsidiaries. Except as otherwise specified or the context otherwise requires, references to years indicate our fiscal year ended July 31 of the respective year. For example, references to “fiscal 2024” or similar references refer to the fiscal year ended July 31, 2024.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain information included in this quarterly report on Form 10-Q (“Quarterly Report”) is forward-looking, including within the meaning of the Private Securities Litigation Reform Act of 1995, and involves risks, assumptions and uncertainties that could cause actual results to differ materially from those expressed or implied by forward-looking statements. Forward-looking statements cover all matters which are not historical facts and include, without limitation, statements or guidance regarding or relating to our future financial position, results of operations and growth, projected interest in and ownership of our ordinary shares by investors including as a result of inclusion in North American market indices, domiciling our ultimate parent company in the United States, plans and objectives for the future including our capabilities and priorities, risks associated with changes in global and regional economic, market and political conditions, ability to manage supply chain challenges, ability to manage the impact of product price fluctuations, our financial condition and liquidity, legal or regulatory changes, and other statements concerning the success of our business and strategies.

Forward-looking statements can be identified by the use of forward-looking terminology, including terms such as “believes,” “estimates,” “anticipates,” “expects,” “forecasts,” “intends,” “continues,” “plans,” “projects,” “goal,” “target,” “aim,” “may,” “will,” “would,” “could” or “should” or, in each case, their negative or other variations or comparable terminology and other similar references to future periods. Forward-looking statements speak only as of the date on which they are made. They are not assurances of future performance and are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Therefore, you should not place undue reliance on any of these forward-looking statements. Although we believe that the forward-looking statements contained in this Quarterly Report are based on reasonable assumptions, you should be aware that many factors could cause actual results to differ materially from those in such forward-looking statements, including but not limited to:

•the Merger (as defined herein), which would domicile our ultimate parent company in the United States, may be delayed, cancelled, suspended or terminated;

•unexpected costs for us and any unanticipated or other adverse consequences to us or our shareholders relating to the Merger;

•weakness in the economy, market trends, uncertainty and other conditions in the markets in which we operate, and other factors beyond our control, including disruption in the financial markets and any macroeconomic or other consequences of political unrest, disputes or war;

•failure to rapidly identify or effectively respond to direct and/or end customers’ wants, expectations or trends, including costs and potential problems associated with new or upgraded information technology systems or our ability to timely deploy new omni-channel capabilities;

•decreased demand for our products as a result of operating in highly competitive industries and the impact of declines in the residential and non-residential markets, as well as the repair, maintenance and improvement (“RMI”) and new construction markets;

•changes in competition, including as a result of market consolidation or competitors responding more quickly to emerging technologies (such as generative artificial intelligence (“AI”));

•failure of a key information technology system or process as well as exposure to fraud or theft resulting from payment-related risks;

•privacy and protection of sensitive data failures, including failures due to data corruption, cybersecurity incidents or network security breaches;

•ineffectiveness of or disruption in our domestic or international supply chain or our fulfillment network, including delays in inventory availability at our distribution facilities and branches, increased delivery costs or lack of availability;

•failure to effectively manage and protect our facilities and inventory or to prevent personal injury to customers, suppliers or associates, including as a result of workplace violence;

•unsuccessful execution of our operational strategies;

•failure to attract, retain and motivate key associates; exposure of associates, contractors, customers, suppliers and other individuals to health and safety risks;

•inherent risks associated with acquisitions, partnerships, joint ventures and other business combinations, dispositions or strategic transactions;

•regulatory, product liability and reputational risks and the failure to achieve and maintain a high level of product and service quality;

•inability to renew leases on favorable terms or at all, as well as any remaining obligations under a lease when we close a facility;

•changes in, interpretations of, or compliance with tax laws in the United States, the United Kingdom, Switzerland or Canada;

•our indebtedness and changes in our credit ratings and outlook;

•fluctuations in product prices (e.g., commodity-priced materials, inflation/deflation) and foreign currency;

•funding risks related to our defined benefit pension plans;

•legal proceedings as well as failure to comply with domestic and foreign laws, regulations and standards, as those laws, regulations and standards or interpretations and enforcement thereof may change, or the occurrence of unforeseen developments such as litigation;

•our failure to comply with the obligations associated with being a U.S. domestic issuer and the costs associated therewith;

•the costs and risk exposure relating to environmental, social and governance (“ESG”) matters, including sustainability issues, regulatory or legal requirements, and disparate stakeholder expectations;

•adverse impacts caused by a public health crisis; and

•other risks and uncertainties set forth under the heading “Risk Factors” in this Quarterly Report and in our Annual Report on Form 10-K for the fiscal year ended July 31, 2023 as filed with the Securities and Exchange Commission (the “SEC”) on September 26, 2023 (the “Annual Report”) and in other filings we make with the SEC in the future.

Additionally, forward-looking statements regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future. Other than in accordance with our legal or regulatory obligations, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

Part I - FINANCIAL INFORMATION

Item 1.Financial Statements

Ferguson plc

Condensed Consolidated Statements of Earnings

(unaudited)


	Three months ended		Six months ended
	January 31,		January 31,
(In millions, except per share amounts)	2024	2023	2024	2023
Net sales	$6,673	$6,825	$14,381	$14,756
Cost of sales	(4,644)	(4,763)	(10,021)	(10,273)
Gross profit	2,029	2,062	4,360	4,483
Selling, general and administrative expenses	(1,469)	(1,432)	(2,981)	(2,941)

Depreciation and amortization	(83)	(81)	(163)	(162)
Operating profit	477	549	1,216	1,380
Interest expense, net	(44)	(47)	(89)	(88)
Other expense, net	—	(7)	(3)	(5)
Income before income taxes	433	495	1,124	1,287
Provision for income taxes	(111)	(121)	(283)	(318)


Net income	$322	$374	$841	$969


Earnings per share - Basic	$1.58	$1.81	$4.13	$4.66




Earnings per share - Diluted	$1.58	$1.80	$4.12	$4.64



Weighted average number of shares outstanding:
Basic	203.4	207.1	203.6	207.9
Diluted	203.9	207.8	204.2	208.8

See accompanying Notes to the Condensed Consolidated Financial Statements.

Ferguson plc

Condensed Consolidated Statements of Comprehensive Income

(unaudited)


	Three months ended		Six months ended
	January 31,		January 31,
(In millions)	2024	2023	2024	2023
Net income	$322	$374	$841	$969
Other comprehensive income (loss):
Foreign currency translation adjustments	21	18	(14)	(18)
Pension adjustments, net of tax expense of ($2) ($3), ($2) and ($1), respectively.	4	8	5	7
Total other comprehensive income (loss), net of tax	25	26	(9)	(11)
Comprehensive income	$347	$400	$832	$958

See accompanying Notes to the Condensed Consolidated Financial Statements.

Ferguson plc

Condensed Consolidated Balance Sheets

(unaudited)


	As of
(In millions, except share amounts)	January 31, 2024	July 31, 2023
Assets
Cash and cash equivalents	$639	$601
Accounts receivable, less allowances of $37 and $27, respectively	3,092	3,597
Inventories	3,968	3,898
Prepaid and other current assets	891	953
Assets held for sale	26	28
Total current assets	8,616	9,077
Property, plant and equipment, net	1,675	1,595
Operating lease right-of-use assets	1,523	1,474
Deferred income taxes, net	300	300
Goodwill	2,264	2,241
Other intangible assets, net	755	783
Other non-current assets	554	524
Total assets	$15,687	$15,994

Liabilities and shareholders’ equity
Accounts payable	$2,985	$3,408
Short-term debt	150	55
Current portion of operating lease liabilities	379	366
Other current liabilities	1,274	1,600
Total current liabilities	4,788	5,429
Long-term debt	3,595	3,711
Long-term portion of operating lease liabilities	1,165	1,126
Other long-term liabilities	721	691
Total liabilities	10,269	10,957

Shareholders’ equity:
Ordinary shares, par value 10 pence: 500,000,000 shares authorized, 232,171,182 shares issued	30	30
Paid-in capital	842	809
Retained earnings	9,018	8,557
Treasury shares, 29,168,420 and 27,893,680 shares, respectively at cost	(3,575)	(3,425)
Employee Benefit Trusts, 0 and 274,031 shares, respectively at cost	—	(46)
Accumulated other comprehensive loss	(897)	(888)
Total shareholders' equity	5,418	5,037
Total liabilities and shareholders' equity	$15,687	$15,994

See accompanying Notes to the Condensed Consolidated Financial Statements.

Ferguson plc

Condensed Consolidated Statements of Shareholders’ Equity

(unaudited)


	Three Months Ended January 31, 2024
(In millions, except per share data)	Ordinary Shares	Paid-in Capital	Retained Earnings	Treasury Shares	Employee Benefit Trusts	Accumulated Other Comprehensive Loss	Total Shareholders’ Equity
Balance at October 31, 2023	$30	$828	$8,858	($3,433)	($1)	($922)	$5,360
Share-based compensation	—	12	—	—	—	—	12
Net income	—	—	322	—	—	—	322
Cash dividends declared ($0.79) per share	—	—	(160)	—	—	—	(160)
Other comprehensive income	—	—	—	—	—	25	25
Share repurchases	—	—	—	(143)	—	—	(143)
Shares issued under employee share plans	—	—	(2)	1	—	—	(1)
Other		2	—		1		3
Balance at January 31, 2024	$30	$842	$9,018	($3,575)	$—	($897)	$5,418


	Six months ended January 31, 2024
(In millions, except per share data)	Ordinary Shares	Paid-in Capital	Retained Earnings	Treasury Shares	Employee Benefit Trusts	Accumulated Other Comprehensive Loss	Total Shareholders’ Equity
Balance at July 31, 2023	$30	$809	$8,557	($3,425)	($46)	($888)	$5,037
Share-based compensation	—	31	—	—	—	—	31
Net income	—	—	841	—	—	—	841
Cash dividends declared ($1.54) per share	—	—	(312)	—	—	—	(312)
Other comprehensive loss	—	—	—	—	—	(9)	(9)
Share repurchases	—	—	—	(176)	—	—	(176)
Shares issued under employee share plans	—	—	(68)	26	45	—	3
Other	—	2	—	—	1	—	3
Balance at January 31, 2024	$30	$842	$9,018	($3,575)	$—	($897)	$5,418


	Three Months Ended January 31, 2023
(In millions, except per share data)	Ordinary Shares	Paid-in Capital	Retained Earnings	Treasury Shares	Employee Benefit Trusts	Accumulated Other Comprehensive Loss	Total Shareholders’ Equity
Balance at October 31, 2022	$30	$773	$8,129	($2,897)	($47)	($867)	$5,121
Share-based compensation	—	16	—	—	—	—	16
Net income	—	—	374	—	—	—	374
Other comprehensive income	—	—	—	—	—	26	26
Cash dividends declared ($2.66) per share	—	—	(552)	—	—	—	(552)
Share repurchases	—	—	—	(260)	—	—	(260)
Shares issued under employee share plans	—	—	(6)	6	—	—	—

Balance at January 31, 2023	$30	$789	$7,945	($3,151)	($47)	($841)	$4,725


	Six months ended January 31, 2023
(In millions, except per share data)	Ordinary Shares	Paid-in Capital	Retained Earnings	Treasury Shares	Employee Benefit Trusts	Accumulated Other Comprehensive Loss	Total Shareholders’ Equity
Balance at July 31, 2022	$30	$760	$7,594	($2,782)	($107)	($830)	$4,665
Share-based compensation	—	29	—	—	—	—	29
Net income	—	—	969	—	—	—	969
Other comprehensive loss	—	—	—	—	—	(11)	(11)
Cash dividends declared ($2.66) per share	—	—	(552)	—	—	—	(552)
Share repurchases	—	—	—	(375)	—	—	(375)
Shares issued under employee share plans	—	—	(66)	6	60	—	—

Balance at January 31, 2023	$30	$789	$7,945	($3,151)	($47)	($841)	$4,725

See accompanying Notes to the Condensed Consolidated Financial Statements.

Ferguson plc

Condensed Consolidated Statements of Cash Flows

(unaudited)


(In millions)	Six months ended
	January 31,
	2024	2023
Cash flows from operating activities:
Net income	$841	$969


Depreciation and amortization	163	162
Share-based compensation	24	27

Change in deferred income taxes	(6)	(38)
(Increase) decrease in inventories	(52)	237
Decrease in receivables and other assets	565	512
Decrease in accounts payable and other liabilities	(626)	(634)
Decrease in income taxes payable	(40)	(63)
Other operating activities	(6)	3
Net cash provided by operating activities of continuing operations	863	1,175
Net cash used in operating activities of discontinued operations	—	(4)
Net cash provided by operating activities	863	1,171

Cash flows from investing activities:
Purchase of businesses acquired, net of cash acquired	(67)	(179)
Capital expenditures	(192)	(242)
Other investing activities	28	(4)


Net cash used in investing activities	(231)	(425)

Cash flows from financing activities:
Purchase of treasury shares	(250)	(564)
Repayments of debt	(1,155)	(1,880)
Proceeds from debt	1,125	1,950
Change in bank overdrafts	6	4
Cash dividends	(305)	(403)
Other financing activities	(18)	(13)
Net cash used in financing activities	(597)	(906)
Change in cash, cash equivalents and restricted cash	35	(160)
Effects of exchange rate changes	—	19
Cash, cash equivalents and restricted cash, beginning of period	669	785
Cash, cash equivalents and restricted cash, end of period	$704	$644

Supplemental Disclosures:
Cash paid for income taxes	$330	$419
Cash paid for interest	97	83
Accrued capital expenditures	6	7
Accrued dividends	161	156

See accompanying Notes to the Condensed Consolidated Financial Statements.

Ferguson plc

Notes to the Condensed Consolidated Financial Statements

(unaudited)

Note 1: Summary of significant accounting policies

Background

Ferguson plc (the “Company”) (NYSE: FERG; LSE: FERG) is a public company limited by shares incorporated in Jersey under the Companies (Jersey) Law 1991 (as amended). The Company is a value-added distributor in North America providing expertise, solutions and products from infrastructure, plumbing and appliances to HVAC, fire, fabrication and more. We exist to make our customers’ complex projects simple, successful and sustainable. Ferguson is headquartered in the United Kingdom (“U.K.”), with its operations and associates solely focused on North America and managed from Newport News, Virginia. The Company’s registered office is 13 Castle Street, St Helier, Jersey, JE1 1ES, Channel Islands.

Basis of presentation

The accompanying unaudited condensed consolidated financial statements and notes to the condensed consolidated financial statements are presented in accordance with the rules and regulations of the SEC and accounting principles generally accepted in the United States of America (“U.S. GAAP”), but do not include all disclosures normally required in annual consolidated financial statements. In the opinion of management, the unaudited condensed consolidated financial statements contain all normal recurring adjustments necessary to present fairly the financial position, results of operations and cash flows for the interim periods presented. The July 31, 2023 condensed consolidated balance sheet was derived from the audited financial statements.

For the six months ended January 31, 2023 and to conform to current period presentation, the Company has disaggregated the total change in income taxes within the cash flows from operating activities to reflect the changes in deferred income taxes separately from the changes in income taxes payable.

These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Annual Report. The financial results for the interim periods may not be indicative of the financial results for the entire fiscal year.

Use of estimates

The preparation of the Company's interim condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions affecting certain reported amounts. Actual results may differ from those estimates.

Cash, cash equivalents and restricted cash

Cash and cash equivalents include cash on hand, deposits with banks with original maturities of three months or less and overdrafts to the extent there is a legal right of offset and practice of net settlement with cash balances.

Restricted cash primarily consists of deferred consideration for business combinations, subject to various settlement agreements, and is recorded in prepaid and other current assets in the Company’s condensed consolidated balance sheets.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets compared with amounts shown in the condensed consolidated statements of cash flows.


	As of
(In millions)	January 31, 2024	July 31, 2023
Cash and cash equivalents	$639	$601
Restricted cash	65	68
Total cash, cash equivalents and restricted cash	$704	$669

Supplier finance program

In October 2023, the Company began a supplier financing program with a third party wherein certain shipping and logistics providers in the United States can opt to receive early payment at a nominal discount. The Company’s standard payment terms under this program is 45 days. All outstanding payables related to the supplier finance program are classified within accounts payable within our unaudited consolidated balance sheets and were $32 million as of January 31, 2024.

Recently issued accounting standard updates (“ASU”)

In November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” This ASU expands public entities’ required segment disclosures, including disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items and interim disclosures of a reportable segment’s profit or loss and assets. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact of adopting this ASU on its disclosures.

In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This ASU provides qualitative and quantitative updates to the rate reconciliation and income taxes paid disclosures, among others, in order to enhance the transparency of income tax disclosures, including consistent categories and greater disaggregation of information in the rate reconciliation and disaggregation by jurisdiction of income taxes paid. The amendments in this ASU are effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied prospectively; however, retrospective application is also permitted. The Company is currently evaluating the ASU to determine the impact on its disclosures.

Recent accounting pronouncements pending adoption that are not discussed above are either not applicable, or will not have, or are not expected to have, a material impact on our consolidated financial condition, results of operations, cash flows or related disclosures.

Note 2: Revenue and segment information

The Company reports its financial results of operations on a geographical basis in the following two reportable segments: United States and Canada. Each segment generally derives its revenues in the same manner. The Company uses adjusted operating profit as its measure of segment profit. Adjusted operating profit is defined as profit before tax, excluding central and other costs, restructuring costs, impairments and other charges, amortization of acquired intangible assets, net interest expense, as well as other items typically recorded in net other (expense) income such as (loss)/gain on disposal of businesses, pension plan changes/closure costs and amounts recorded in connection with the Company’s interests in investees. Certain income and expenses are not allocated to the Company’s segments and, thus, the information that management uses to make operating decisions and assess performance does not reflect such amounts.

Segment details were as follows:


	Three months ended		Six months ended
	January 31,		January 31,
(In millions)	2024	2023	2024	2023
Net sales:
United States	$6,364	$6,504	$13,693	$14,036
Canada	309	321	688	720
Total net sales	$6,673	$6,825	$14,381	$14,756
Adjusted operating profit:
United States	$525	$579	$1,291	$1,424
Canada	9	14	32	47

Central and other costs	(14)	(11)	(30)	(25)
Corporate restructurings(1)	(8)	—	(8)	—

Amortization of acquired intangible assets	(35)	(33)	(69)	(66)
Interest expense, net	(44)	(47)	(89)	(88)
Other expense, net	—