Ferguson Enterprises has recently revised its full-year adjusted operating margin outlook as it grapples with persistent commodity price deflation. The company's fiscal second-quarter earnings have shown a year-over-year decline, although sales figures have risen, exceeding market expectations. In the quarter ending January 31, Ferguson reported adjusted earnings of $1.52 per share, a decrease from $1.74 in the same period last year.
On the bright side, sales rose by 3% year on year, reaching a total of $6.87 billion, which notably surpassed analysts' forecasts of $6.76 billion. The continued weakness across specific commodity categories has led to an overall price deflation averaging around 2%. However, when examined on an organic basis, revenue saw a modest increase of 2.1%, supported by an approximate 4% boost in volume.
The company's shares experienced a drop of 7.4% in the latest premarket trading following these announcements. Ferguson now anticipates its adjusted operating margin for fiscal 2025 to fall somewhere between 8.3% to 8.8%, a downgrade from previous expectations that ranged from 9% to 9.5%. The adjusted operating margin metric itself deteriorated by 130 basis points compared to last year, landing at 6.5% for this second quarter. "Our associates continued to execute well for our customers in the second quarter, generating continued market outperformance with a sequential step up in volume growth rates," stated Chief Executive Kevin Murphy.
He emphasized the challenges posed by subdued markets and ongoing commodity price deflation, which unexpectedly hindered their adjusted operating margin during the seasonally lighter quarter. Sales within the United States climbed to $6.55 billion in the second quarter, up from $6.36 billion in the same period the year prior, with residential revenue slightly up by 2%.
Meanwhile, non-residential revenue exhibited more resilience, growing approximately 4%. Sales in Canada also saw improvement, rising 3.2% to reach $319 million, though this was partly countered by a 5.3% headwind due to foreign exchange. Looking ahead, the company is still aiming for low single-digit net sales growth in fiscal 2025, while market analysts predict a target of $30.37 billion in revenue.
Capital expenditures have been adjusted to a range of $325 million to $375 million, compared to earlier guidance that suggested between $400 million and $450 million. Murphy remarked, "While we have been disciplined in managing costs in relation to volume growth, we are taking additional steps to streamline the business to increase speed and efficiency to better serve our customers, positioning the organization for future profitable growth.".