TRG | The Bottom Line – 8/14

Ferguson reported Q2 results earlier this week, a beat and a guidance raise, driven by continued strength in non-residential end markets. Management's commentary on the call speaks for itself:
 
"We delivered another strong quarter of non-residential performance, with 8% growth on top of a 13% prior-year comparable. Our associates drove meaningful share gains by leveraging our scale, multi-customer group approach, and value-added capabilities. Continued strong activity in large capital projects… Commercial/Mechanical grew 15% on a 20% prior-year comparable… Similarly, our Industrial customer group performed very well, with 18% growth on top of a 6% prior-year comparable."
 
Ferguson also announced the pending acquisition of FloWorks for $1.6B, significantly larger than its typical deal size. The acquisition deepens Ferguson's exposure to large capital projects and adds key customer relationships and capabilities in valve and flow control. Notably, management put unusual emphasis on cross-selling and revenue synergies, an underappreciated piece of this deal, in our view. Revenue synergies are typically downplayed by management, or take years to materialize. But Ferguson should be able to fold FloWorks into its multi-trade platform quickly, engaging project owners earlier in the project cycle and pulling through sales across other trades from there. We see this deal as Ferguson leaning further into reindustrialization, a trend being put into hyperdrive by the AI buildout and its knock-on effects across water and power infrastructure, a theme TRG highlighted on CNBC this week.

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Disclosure: This content reflects the independent views of Thompson Research Group, LLC (“TRG”), is provided for informational purposes only, and does not constitute an offer or solicitation to buy or sell any security. Additional information, including analyst certification and compensation-related conflicts of interest, may be found here: (disclosures).

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