Ferguson's Q3 2025 Earnings Call: Unpacking Contradictions in Margins, Growth, and Pricing Strategies

Gross margin performance and expectations, operating margin improvement, deflation expectations and impact on gross margins, organic sales growth and market conditions, and pricing strategy are the key contradictions discussed in Ferguson's latest 2025Q3 earnings call.



Revenue Growth and Organic Performance:
- Ferguson reported sales of $7.6 billion, increasing 4.3% over the prior year, driven by organic growth of 5%.
- Growth was fueled by strong performance in nonresidential markets, particularly in large capital projects, and strategic investments in HVAC capabilities.

Gross Margin and Operating Margin Expansion:
- The company's gross margin strengthened to 31%, up 130 basis points sequentially, and operating margin expanded 20 basis points to 9.4%.
- This improvement was attributed to actions taken to better capture value delivered to customers, moderating deflation, and increased efficiency.

HVAC Segment Growth:
- HVAC revenue increased by 10% in the third quarter, reflecting investments to expand HVAC capabilities both organically and through acquisitions.
- Growth was supported by the integration of HVAC and residential trade plumbing customer groups and offering a range of HVAC equipment options to contractors.

Waterworks Segment Performance:
- Waterworks sales grew by 12%, driven by strong activity in public works, municipal, and diversification efforts into new areas.
- The diversification strategy, along with early involvement in large capital projects, contributed to the segment's strong growth.