Ferguson Stock Falls as Earnings Disappoint. Deflation Was the Issue. -- Barrons.com

Al Root

Shares of Ferguson fell after the plumbing equipment distributor reported weaker-than-expected earnings. Deflation, of all things, was the problem. Ferguson

On Tuesday, Ferguson reported fiscal second-quarter earnings per share of $1.52 from sales of $6.9 billion. Wall Street was looking for $1.58 and $6.7 billion, respectively.

Not only did the earnings fall short of expectations, management lowered its fiscal 2025 forecast for operating profit margins to a range with a midpoint of 8.6% from a range with a midpoint of 9.3%. That implies an operating profit of about $2.6 billion, while the current consensus projection on Wall Street is for just over $2.7 billion.

"We are navigating a unique time with continued subdued markets and persistent commodity price deflation that drove lower than expected adjusted operating margin in our seasonally lightest quarter," said CEO Kevin Murphy in a news release. "While we have been disciplined in managing costs in relation to volume growth, we are taking additional steps to streamline the business to increase speed and efficiency to better serve our customers."

Sales volume grew 5% year over year, better than the 3% growth in the fiscal first quarter.

But that wasn't enough for investors. Ferguson stock was down 6.5% at $154.85 in premarket trading, while futures on the S&P 500 and Dow Jones Industrial Average were up 0.4%.

The company sells many things made of steel, copper, and plastic. Ferguson doesn't make money trading commodities, but there is a lag between buying, say, a copper fitting and selling it. The copper that goes into the fitting comprises much of the price, so a fitting made with copper bought for $4 a pound will retail for less if copper drops to $2 a pound. The change in the commodity price over that period can't always be passed along, leading to what the company calls "commodity deflation headwinds."

According to Ferguson, plastic prices have trended lower. Steel prices have been under pressure, too, although benchmark steel prices have risen by roughly $150 per metric ton to more than $900 since President Donald Trump announced 25% tariffs on steel and aluminum.

That steel-price increase might offer some relief in coming quarters. Copper prices are strong year over year, too.

A conference call scheduled for Tuesday morning could yield more detail on the outlook.

Coming into Tuesday trading, Ferguson stock was down about 17% over the past 12 months, leaving shares trading at about 16.5 times estimated 2025 earnings. The S&P 500 trades for closer to 21 times.

Write to Al Root at allen.root@dowjones.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

March 11, 2025 09:05 ET (13:05 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.