Ferguson Lifts Full-Year Outlook After 9.5% Q3 Revenue Jump

Ferguson (LON:FERG) raised its full-year sales outlook after third-quarter revenue rose 9.5% to $9 billion, driven by industrial demand, large capital projects and its acquisition of FloWorks. The company now expects approximately 7% sales growth for 2026, up from prior guidance of mid-single-digit growth, and lifted the lower end of its adjusted operating margin (profit from core operations, excluding one-off items) guidance to a range of 9.6% to 9.8%.

"We are quite bullish on the future of our industrial business, particularly as we look into next year," Chief Financial Officer Bill Brundage said on the earnings call.

What drove the quarter?

Growth split cleanly between organic momentum and dealmaking. Revenue included 7% organic growth plus a 2.7% contribution from acquisitions, partly offset by divestments in Canada. Adjusted operating profit rose 8.9% to $962 million, and adjusted diluted earnings per share climbed 7.9% to $3.43.

Gross margin slipped 40 basis points to 30.9%. Brundage said the decline was expected, reflecting the timing and extent of supplier price increases in the prior-year period. Operating cost leverage kept the adjusted operating margin flat at 10.7%.

The standout was industrial: revenue jumped 55%, with 32% organic growth. Chief Executive Officer Kevin Murphy said organic industrial growth split roughly evenly between large capital projects and maintenance, repair and operations, with power generation, refining, and mining and minerals among the main project drivers. Brundage cautioned against expecting 32% organic growth every quarter, though he noted industrial open orders and backlog kept growing.

Elsewhere, commercial mechanical sales rose 17% on projects including data centers, pharmaceuticals and manufacturing. HVAC grew 15%, Waterworks gained 5%, and fire and fabrication fell 8% — a decline Murphy attributed to a difficult prior-year comparison and an ongoing vendor transition.

How exposed is Ferguson to residential weakness?

Murphy said markets remain mixed: U.S. non-residential sales grew 15% in the quarter ended September 30, while residential sales increased 6%. Large capital projects represent a mid- to high-single-digit percentage of revenue, with data centers accounting for roughly half of that project business. Ferguson hasn't seen material project pauses or cancellations, he said, but it's early to judge how potential changes could play out.

The non-residential open-order book typically provides six to nine months of visibility, Brundage said. He's optimistic on large capital projects but more pessimistic on new residential construction, where weaker permits and starts have already hit Waterworks — and that pressure could spread into Ferguson's residential customer groups next year. Just under 25% of Waterworks business ties to new residential construction.

Still, Ferguson Home and residential trade plumbing each grew 3%, helped by showroom strength at the higher end of remodeling and trade plumbing's connection with HVAC.

Where did the capital go?

Ferguson invested $1.7 billion in three acquisitions during the quarter: FloWorks (closed August 31, expanding industrial flow-control capabilities), Brax Company and Rogers Supply Company, followed by Canyon Systems after quarter end. Eleven acquisitions this year represent roughly $1.5 billion in aggregate annualized sales, Brundage said. FloWorks adds specialized valves, automation and flow control, lifting Ferguson's estimated total addressable market to $400 billion from $340 billion.

Net debt stood at 1.7 times adjusted EBITDA (earnings before interest, taxes, depreciation and amortization), within the one-to-two-times target range. Ferguson paused share repurchases for the FloWorks deal; Brundage said buybacks could resume sometime next year as leverage falls, depending on acquisition opportunities.

What does Q4 look like?

The full-year forecast implies fourth-quarter total growth in the high-single-digit to low-double-digit range, including a full quarter of FloWorks. Organic growth should track near Q3's rate. Ferguson now expects annual interest expense of approximately $235 million, up from roughly $200 million, plus capital expenditure of about $425 million and an adjusted effective tax rate near 26%.

In short: industrial strength and disciplined M&A are carrying Ferguson past a soft residential market — and management sees that engine running into next year.