Ferguson continues HVAC push amid ‘challenging’ environment

Ferguson CEO Kevin Murphy, on an earnings call Tuesday, described the market environment as “challenging,” despite the company’s U.S. sales rising seven percent year-over-year in its latest fiscal quarter. 

What’s happening: Ferguson has been expanding its HVAC presence, acquiring distributors as part of a plan to leverage the “growing trend” of dual-trade contractors. 

Zoom in: The company had completed over 600 of 650 planned counter conversions as of July 31, and recently acquired Manufactured Duct & Supply Company, an HVAC supplier out of Atlanta, along with Moore Supply, a Chicago-based HVAC distributor. 

What they’re saying: “Candidly, when we look at some of our larger growth areas like HVAC, we have an affordability issue with a pressured consumer and a movement to more repair versus replace,” Murphy said, suggesting that growth could slow over the remainder of this year. 

• CFO William Brundage noted that the A2L transition was causing “a bit of inflation on overall equipment, but we’re also seeing a lot of repair/replace, and so not nearly as much inflation on parts and supplies.” 
• There are “two geographies,” Murphy added, referring to strong performance across the East Coast, Mid-Atlantic, Northeast, and Midwest, but challenges in the Western U.S. 

What we’re watching: While Brundage admitted that Ferguson doesn’t have any large acquisitions pending, he highlighted the “10,000-plus small to medium-sized competitors” across the industry. 

• “Our pipeline is pretty healthy,” he said, “and we think we have a good opportunity to consolidate the industry.”
• “We know there’s going to be pressure on affordability with the consumer as we go through the next several months,” Murphy said.  
• “But we are pleased with what has been happening from a volume perspective… We’re going to expand our counters, we’re going to expand our locations, and we’re going to continue to focus on that from an M&A perspective.”