Ferguson Enterprises (FERG): Beat, Raised, And The Bill Two Days Later

Ferguson Enterprises (FERG) Q2 2026 — Q2 2026 (quarter ended June 30, 2026): net sales $8,751M vs an $8,677M bar, up 4.6% (a 0.9% beat). Adjusted diluted EPS $3.39 vs $3.30 (a 2.7% BEAT); reported $3.43. Gross margin 31.0%, down 20bps. Adjusted operating profit $932M, up 2.9%; adjusted operating margin 10.7%, DOWN 10bps. Adjusted EBITDA $994M, up 3.2%. Full-year guidance RAISED on sales, margin floor and capex. The 8-K was accepted at 6:50am ET Monday August 10, so the reaction day is Monday: FERG closed $263.78, UP 2.76% from $256.69. It then fell 4.65% and 2.52% to close $245.18 on August 12 - a 7.0% round trip while the S&P 500 was flat. Ferguson beat and RAISED full-year guidance, and the stock rose 2.76% on Monday August 10. Then it fell 7.0% over the next two sessions - while the S&P 500 was flat, industrials rose and Grainger rose. The beat is real: adjusted EPS $3.39 against a $3.30 bar, net sales $8,751M up 4.6%. But sales rose $388M while adjusted operating profit rose only $26M, a 6.7% incremental margin against a 10.7% company average, and first-half free cash flow was cut in half to $482M. Two days after the print Ferguson filed the financing for its $1.6B FloWorks acquisition: $1.2B of new senior notes at 4.800% and 5.600%, a $900M delayed-draw term loan and a $700M bridge, taking pro forma total debt from $4,925M to $7,025M. THE CALL: AVOID (3/5, A GOOD BUSINESS BUYING ITS GROWTH AT 21.6x FORWARD - OUR BULL CASE IS THE TAPE) — base-case value ~$190.0 vs ~$245.18 today. KEY METRICS: - CALL: AVOID, 3/5 conviction. Fair value ~$190 vs the $245.18 August 12 close, 22% below. Bull $249, base $190, bear $116. Street: Buy, 12 buy / 4 hold / 0 sell, average target $291.67 (median $290, range $256-$325). - THE NUMBER UNDER THE BEAT: net sales rose $388M but adjusted operating profit rose only $26M - a 6.7% incremental margin against a 10.7% company average. Adjusted operating margin FELL 10bps to 10.7%; adjusted EBITDA grew 3.2% on 4.6% more sales. - CASH: first-half free cash flow fell 50.9% to $482M from $982M. Operating cash flow $716M vs $1,123M. Working capital and tax took $630M vs $57M a year ago. Capex up 66% to $234M. Uses of cash were $1,602M against $716M generated. - THE FLOWORKS MULTIPLE: the release says approximately 10x LTM adjusted EBITDA INCLUDING approximately $45M of expected synergies. Back those out and $1.6B over $115M is 13.9x. Funded with $1.2B of notes, a $900M term loan and a $700M bridge. - PRO FORMA LEVERAGE: the 424B2 capitalisation table takes total debt from $4,925M to $7,025M, up 43%. Net debt to adjusted EBITDA 1.3x today, near 1.7x pro forma on our arithmetic - still inside the company's stated 1-2x target range. What to watch: UP: incremental adjusted operating margin back above 10%; a second-half working-capital release that restores full-year cash conversion near 100%; FloWorks revenue synergies finally quantified; a share price nearer $200, where our base case has room. DOWN: buybacks shrinking below the $202M run rate; capex pinned at the top of the raised $375-425M range; net leverage drifting through 2.0x; another quarter where adjusted operating profit grows slower than sales. Also on YouTube: @ChargedAlpha DISCLAIMER: For informational and educational purposes only. Not financial advice. Do your own research before any investment decision. Learn investing free in the Charged Alpha app: https://chargedalpha.com/app?source=youtube&ref=video Educational only. Not financial advice.