EUR 850.00 For Business Accounts Only

Morningstar | Ferguson Is Running a Tighter, More Focused Strategy Relative to Previous Years

Ferguson's portfolio trimming has improved its longer term prospects with divestments over the past couple of years margin and return dilutive international assets. With a high proportion of fixed costs, group margins are still likely to be volatile with swings in the U.S. housing cycle, but the midcycle margin has improved. Roughly 90% of Ferguson's profits come from its U.S. business, which is a well-scaled distributor of plumbing supplies, including a chain of branches across the United States. Plumbing distribution remains primarily a local business as the customer base is composed mainly of local small and medium sized businesses, contractors, and plumbers. The competitive landscape is highly fragmented and comprised also mainly of local players with varying pricing strategies. In addition to international divestments, its portfolio tilt in recent years has been to consolidate U.S. market share through acquisitions. This has also afforded it some improvement in uniform pricing whereas previously branch managers had a freer hand in setting prices to keep in line with local competition. That remains the case but to a lesser degree.Outside of the U.S., Ferguson's other main assets include distributors in Canada and the U.K., each contributing 5% or less to the company's profits. While only minor contributors to group EBIT, both businesses nonetheless are a drag on the group with lower margins, well below group levels and a lack synergies of with the core U.S. business.