Ferguson Enterprises Q2 2025: Unpacking Contradictions in Margins, Market Outlook, and Deflation Pressures

These are the key contradictions discussed in Ferguson Enterprises' latest 2025 Q2 earnings call, specifically including: Gross Margin Trends and Deflation Impact, Operating Margin Expectations, Market Outlook and Growth Expectations:



Revenue and Market Performance:
- Ferguson Enterprises reported sales of $6.9 billion for the second quarter, an increase of 3% over the prior year, despite a 2% deflation in commodity prices.
- This growth was driven by market outperformance, particularly in the non-residential end market and through strategic investments in customer-facing associates and capabilities.

Operating Profit and Margin:
- The company delivered an adjusted operating profit of $449 million, despite a 6% consecutive quarter of overall deflation.
- Operating leverage declined by 60 basis points, primarily due to price deflation and selective investments in core capabilities for future growth.

Growth Investments in HVAC and Waterworks:
- The HVAC customer group experienced a 17% growth in sales, and Waterworks saw a 10% increase.
- Investments in dual trade counter product conversions, geographic expansion, and strategic acquisitions contributed to the growth in HVAC, while Waterworks benefited from increased activity in civil infrastructure and public works projects.

Capital Allocation and Share Repurchase:
- Ferguson deployed approximately $500 million in capital during the quarter and increased its share repurchase authorization by an additional $1 billion.
- This reflects confidence in the business and a strategy to return surplus capital to shareholders when leverage levels are below target.