Will Ferguson's Cost Control Measures Drive Margin Expansion?

Ferguson Enterprises Inc. FERG reported margin growth despite rising costs and expenses in fiscal 2025 (ended July 2025). In the fiscal year, the company’s cost of sales increased 3.6% year over year to $21.3 billion due to higher input costs. Also, in the same period, FERG’s selling, general and administrative expenses rose 5.6% on a year-over-year basis to $6.4 billion due to rising labor costs, performance-based compensation and infrastructure investments.

Despite the rising costs, Ferguson delivered margin expansion in fiscal 2025, reflecting its commitment to sustaining long-term profitability. The company’s gross margin improved 70 basis points to 31.7% on a year-over-year basis in the fiscal year. Strong pricing strategies, disciplined cost control and enhanced operational efficiency helped Ferguson achieve the impressive margin performance. Its adjusted operating profit grew 0.6% year over year to $2.84 billion, while the adjusted operating margin was 9.2%. In calendar 2025, the company expects adjusted operating margin to be 9.2-9.6%, compared with 9.1% reported in calendar 2024.

It is worth noting that, in the second half of fiscal 2025, the company undertook business restructuring initiatives to optimize operations, improve productivity and customer service. As a result of these efforts, Ferguson incurred $73 million in related expenses during the period.

While rising costs and expenses remain challenges, FERG’s focus on cost control, efficient operations and balanced exposure across residential and non-residential markets positions it well to sustain margin performance in the quarters ahead.

Margin Performance of FERG’s Peers

Among its major peers, Johnson Controls plc’s JCI cost of sales increased 0.4% year over year in the third quarter of fiscal 2025 (ended June 2025). However, Johnson Controls’ gross profit increased 6.5% year over year to $2.25 billion. Johnson Controls’ gross profit margin rose 130 basis points (bps) to 37.1%, driven by the completion of high-margin systems projects and improved services mix.

Another peer, Fastenal Company’s FAST cost of sales surged 11% year over year to $1.2 billion in the third quarter of 2025. Fastenal’s gross margin was 45.3% in the reported quarter, up 40 bps year over year. This upside in Fastenal’s gross margin was due to increased fastener product availability, which resulted in higher sales and improved gross margin.

FERG's Price Performance, Valuation and Estimates

Shares of Ferguson have surged 18.6% in the past year compared with the industry’s growth of 0.1%.

From a valuation standpoint, FERG is trading at a forward price-to-earnings ratio of 22.28X, above the industry’s average of 20.50X. Ferguson carries a Value Score of C.

The Zacks Consensus Estimate for FERG’s fiscal 2026 (ending July 2026) earnings has been on the rise over the past 60 days.

The company currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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