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Ferguson unveils buyback as softer US sales disappoint

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Ferguson Plc (LON:FERG) failed to win investors over with a US$500mln share buyback as the market reacted with disappointment to organic sales growth slowing in the third quarter.

Revenue of US$5.3bn was generated in the three months to 30 April, which was up 6.2% compared to the same period last year, or an increase of 2.7% on an organic basis.

This compared to top-line growth of 8.2% and organic growth of 6.5% in the first half of the year, with US organic growth softening to 3.3% from around 10% in the first half, which was consistent with guidance given in March that the second half would see group growth slow to 3-5%.

Trading profit rose 2.3% to US$359mln as gross margins continued to improve and operating costs were controlled, though were slightly softer than in the first half.

Chief executive John Martin said: “We are confident that Ferguson will continue to make progress as we remain firmly focused on delivering superior customer service. We expect to generate ongoing Group trading profit in the year ended 31 July 2019 in line with current analysts' consensus forecasts.”

The average City forecast points to Ferguson making a 2019 trading profit of US$1.59bn.

The share buyback, which will be carried out over the coming 12 months, was announced following a continued period of strong cash flow, with operating cash generation of US$632mln in the quarter with a ratio of net debt to EBITDA of 0.9 times from 1.1 times in the first half.

Ferguson also confirmed that non-executive director Geoff Drabble, best known as former chief executive of fellow FTSE 100 constituent Ashtead Group PLC (LON:AHT), would step up to the chairman’s role at the annual shareholder meeting in November.

Broker Liberum said: "Management has chosen not to blame the weather, but we note that US rainfall in the quarter was exceptional, which has disrupted construction somewhat, at the same time as there was a natural lull in growth rates caused in part by the rising rate environment at the end of the 2018 calendar year."

Shares in the company were down almost 4% to 5,140p on Monday morning.

Source - Proactive Investors

About the author

Philip Scott

Head of Equities, Director

Philip has worked as a Private Client Stockbroker for nearly 20 years, commencing his career in Operations with Rensburg Sheppards (now part of Investec plc) before spending 9 years with Killik & Co advising on and directly managing portfolios. He joined SI Capital in 2006 to head up the Private Client Advisory desk.

Philip is a regular contributor to local media commenting on stock market dynamics and is a Chartered Member of the Chartered Institute for Securities & Investment (MCSI). His RDR qualification gained special recognitionfrom the CISI for achieving the highest combined pass mark in the country for the Investment Advice Diploma in 2012.

“At SI Capital I enjoy being part of a talented team who collectively share the same desire to provide excellence in service.  My focus is to ensure that each client receives effective and optimal management of their assets.”

Philip lives locally, is married with 2 daughters and is an avid sports fan (if now predominantly from the sidelines).  His other interests include music and film.

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