Good morning, ladies and gentlemen. My name is Lydia and I'll be your conference operator today. At this time, I'd like to welcome you to Ferguson's Fourth Quarter Conference Call. All lines have been placed on mute to prevent any interference with the presentation. At the end of the prepared remarks, there will be a question-and-answer session. [Operator Instructions] I'd now like to turn the call over to Mr. Brian Lantz, Ferguson's VP of Investor Relations and Communications. You may begin your conference call.

Good morning, everyone, and welcome to Ferguson's fourth quarter earnings conference call and webcast. Hopefully, you've had a chance to review the earnings announcement we issued this morning. The announcement is available in the Investor section of our corporate website and on our SEC filings web page. Recording of this call will be made available later today. I want to remind everyone that some of our statements today may be forward-looking and are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected, including the various risks and uncertainties discussed in our Form 10-K available on the SEC's website. Also, any forward-looking statements represent the company's expectation only as of today, and we disclaim any obligation to update these statements. In addition, on today's call, we will also discuss certain non-GAAP financial measures. Please refer to our earnings presentation and announcement on our website for additional information regarding those non-GAAP measures, including reconciliations to the most directly comparable GAAP financial measures. With me on the call today are Kevin Murphy, our CEO; and Bill Brundage, our CFO. I will now turn the call over to Kevin.

Thank you, Brian. Welcome everyone to Ferguson's fourth quarter results conference call. On today's call, I'll cover highlights of both our fourth quarter and our full year performance. Our performance against our markets in fiscal 2024 and our track record of growth and improvement over the longer term. I'll then turn the call over to Bill for financials before I come back to expand on how we're deploying our scale locally. We'll then have time to take your questions at the end. Starting with the fourth quarter. Once again, our expert associates executed well, going above and beyond to take care of the complex project needs of our specialist professional customers. We delivered sales of $7.9 billion, an increase of 1.4% despite deflation of approximately 2%. Gross margins were resilient and costs were managed well. We delivered adjusted operating profit of $857 million, an increase of 5.3% over prior year, and resulting in an adjusted operating margin of 10.8%. Adjusted diluted earnings per share grew 7.6% to $2.98. We are pleased with these results and are confident that our balanced business mix and ability to deploy scale locally position us well going forward. Turning to our full year performance, our team delivered resilient results in line with our expectations, while faced with challenging markets and deflation. Revenue of $29.6 billion was broadly flat to last year. Our teams delivered gross margins of 30.5% improving 10 basis points over the prior year. We proactively managed our operating expenses, delivering adjusted operating profit of $2.8 billion, representing a 9.5% adjusted operating margin. Adjusted diluted earnings per share came in at $9.69, a 1.5% reduction against prior year. Cash generation continued to be strong, with $1.9 billion of operating cash flow. This cash delivery enabled us to continue investing in our business and…

Thank you, Kevin. And good morning, everyone. Let me start with some additional detail on the fourth quarter results. Net sales were 1.4% ahead of last year, driven by a 0.2% organic decline and a further 0.1% decline from the adverse impacts of foreign exchange rates, offset by a 1.7% contribution from acquisitions. As expected, price deflation continued at approximately 2% resulting in organic volume growth of nearly 2% in the quarter. Gross margin was 31%, an increase of 40 basis points over last year, driven by the value we provide to our customers, as well as a decrease to our inventory reserves. We are particularly pleased with this performance as our teams continue to provide services and solutions that add value to our customers projects. The cost base has been well managed, enabling us to deliver a 10.8% adjusted operating margin. Adjusted operating profit of $857 million was up $43 million, or 5.3% ahead of prior year. Adjusted diluted earnings per share of $2.98 was 7.6% ahead of last year, driven by the increase in adjusted operating profit and the impact of share repurchases. And our balance sheet remains strong at 1.1 times net debt to adjusted EBITDA. Turning to our fourth quarter performance by end markets in the U.S. Net sales grew by 1.3%. Residential end markets, which comprise approximately half of US revenue, remained muted due to softness in both new residential construction and RMI. Overall, residential revenue was flat in the fourth quarter. Non-residential markets were slightly more resilient and we continued to perform well. Our revenue grew by 3% in the quarter with growth across commercial, civil infrastructure, and industrial. We have continued to see good levels of non-residential bidding activity on large capital projects. While we expect growth rates to fluctuate over time, our…

Thanks, Bill. I now wanted to take some time to expand on a few key areas that Bill mentioned as he discussed our performance that we believe differentiate us in the market. First, our scale and global supply chain set us apart. Quite simply, we're driving the best breadth and depth of inventory where and when our customers need it. We aim to connect the entire supply chain from the point of manufacturing to the point of install. We deliver scale locally through our vast network of facilities and our fleet of vehicles for final mile delivery. This extensive network places us within 60 miles of 95% of our customers in North America. Building on this competitive advantage, we are further optimizing our network through a combination of automation, efficiency, and expansion. We continue to invest in our distribution facilities and implementing technology solutions. The combination of our supply chain capabilities and our expert associates allow us to deliver the best local service in the industry. Next, we continue to focus on the significant dual trade opportunities in plumbing and HVAC. Our ability to bring together market leading capabilities in both plumbing and HVAC provide us with a competitive advantage for serving these professionals and capturing growth from this market for years to come. We estimate that the combined HVAC and residential trade plumbing markets to be approximately $100 billion, of which, we estimate nearly $30 billion of the market is serviced by more than 65,000 dual trade plumbing and HVAC professionals. And this segment of the market is growing. We are expanding our HVAC offering to match the density of our plumbing presence, executing this expansion through a combination of dual trade branch conversions, geographic branch expansion and acquisitions. We're further building our capabilities to provide a single point…

Thank you. [Operator Instructions] Our first question today comes from John Lovallo with UBS. Please go ahead, your line is open.

Good morning, guys Thanks for taking my questions. The first one is just maybe a little bit more color on deflation. I mean, what does deflation look like so far in August and September for finished goods and commodities? And it sounds like the expectation might be for an inflection, a positive inflection at some point in the second half of the year? Can you confirm if that is what you guys are thinking and specifically when that might occur in your view?

Yes. Thanks, John. Good morning, thanks for the question. This is Bill, I'll start with that one. So if you go back to fiscal 2024 as we talked about, deflation overall for the year was driven by commodity-based products which drove an overall deflation of about 2% for the year. As we exited the year and entered fiscal 2025, that was pretty consistent. We do expect as we move through the year that as we roll over those comparable deflation numbers from last year in commodities that that could ease somewhat. But as we sit here today, we don't have a crystal ball and calling the price on commodities is pretty difficult. So we do expect deflation, particularly in the first part of the year. We would expect today that to ease somewhat as we move throughout the year, but that's driving the overall pricing slightly down for the full year call that we have included within our guidance.

Understood. Okay. And then, in the quarter what was the gross margin benefit from the decrease in inventory reserve? And then in terms of your full year outlook for operating margin of 9% to 9.5%, how are you sort of thinking about the upper and lower end of the range and what may drive each of those?

Yes, sure. So first off, we were very pleased with the overall gross margin performance, both in the fourth quarter, but as well as the fiscal year. 31% gross margin in the fourth quarter had a very strong underlying gross margin performance as our teams continue to deliver value in the marketplace and provide great service to our customers. We did have on $4 billion of inventory as we drew up our normal inventory reserve process, we had a little bit of a pickup there at the end of the year that had a bit of an outsized impact on the quarter. As I take a step back, I would think about both the gross margin and the operating margin in Q4 as pretty flat to prior year, absent those inventory reserve adjustments. And then in terms of the guidance, our guidance from an operating margin perspective of 9% to 9.5% reflects continued modest pressure on operating margins, particularly in the short term as our markets remain challenged and as we step into the year with that continued deflation that I just spoke about. So that's going to put a bit of pressure on SG&A leverage in the short term. Pretty similar to what we saw this past year in terms of deflation driving some SG&A leverage pressure. In terms of the upside and the downside on that operating margin, certainly from an upside perspective if we get supportive price and price inflation, particularly on finished goods as we go throughout the year and commodity stabilization as we go throughout the year, that could benefit the top line. Certainly if we get a bit of a faster recovery on [resi new] (ph) and RMI, that could also benefit a bit of the top line, which would flow through and drive a bit of a higher operating margin. And the downside is really that in reverse. If commodity pressure lasts longer, if our markets are slower to recover than we're anticipating overall for the year, we could get some more additional short-term pressure in that operating margin.

And John, as we come into this year, clearly we're still battling some near-term macroeconomic pressure, still battling some deflation, but we continue to invest in the business because as we look to the medium term, both residentially, non-residentially, both new construction and RMI markets are pretty attractive. You look at the underbuilt housing in the US of 3 million to 4 million units. You look at what's happening with the aging housing stock at 40 years. The non-residential investment that we're seeing, and we're taking part in a lot of the key infrastructure projects in the United States, not just infrastructure in the form of water, wastewater, stormwater, but also as we look at the investments in artificial intelligence and what we're seeing with data center, what we're seeing with power generation. And so we're going to continue to invest because as we look at our markets recovering, we need to accelerate as those markets recover and really walk in with that tailwind.

Great. Thanks very much, guys.

Thanks, John.

Our next question comes from Matthew Bouley with Barclays. Please go ahead.

Good morning, everyone. Thank you for taking the questions. Maybe I'll kind of follow up there around the kind of growth expectations for next year. From an end market perspective, I think you spoke about some challenges persisting even as the two-year stack eases a little bit. I guess specifically within each end market, what are those kind of building blocks around that low single-digit decline for FY 2025? And I'm also curious if you can update us on how the year has started from an organic growth perspective quarter to date. Thank you.

Yes. Sure, Matt. So, from an overall perspective, for the full year, we're expecting our markets to be down in the low single-digit range. If you split that between resi and non-resi, as best we can see it today, we expect resi to be down in the low to mid-single-digit range and non-resi to be roughly flat, maybe slightly down, but roughly flat. On the resi side, we've seen -- on the new resi side, which again, for us is, call it, less than 18% of our total business with resi RMI making up the lion share of the rest of the 50% of our business. On the new resi side, we've certainly seen starts and permits weakening over the last five or six months. We've started to see some of that bleed through in our revenue. Certainly the majority of our revenue trails starts and permits a little bit as we get further into the start. So we think there's going to be some pressure on that new resi side as we step throughout the year until we get a bit of easing and hopefully some turnaround towards the second part of the year. And on the RMI side, certainly the consumer continues to be pressured. As we said in our prepared remarks, we're really pleased with our residential building and remodel business, which has performed relatively flat to the prior year in a challenging market. The high enforcement of that market continues to hold up better, but we've seen some continued softness. So, again, until we get back to some additional existing home turnover, the RMI markets are likely to be a bit challenged, particularly through the first half of our fiscal year. On the non-resi side, our expectation of, call it, flat-ish for the year, we've seen and we've delivered really good results when it comes to those large capital projects that Kevin was outlining and talking about. And you see that reflective in our commercial mechanical business performance this past quarter. But certainly the underlying non-resi side of the business, just look at indicators like the ABI continue to be pressured and weak. So, we think there'll be a little bit of pressure there as we step throughout the year. In terms of how the year started, look, August has been pretty similar to Q4, a bit soft with organic growth still slightly down. And as mentioned on John's question earlier, we're still working through some of that deflation. So no real change as we stepped into the fiscal year, a bit of pressure, which we would expect in the early part of the year.

Yes, Matt, just a bit of caution, as we enter this fiscal year, you talk about new construction on the production side of the world, still good, single-family production, but it's pacing itself out. When you look at something like spec homes for the regional or local builder, that's pretty much moved to the side and so that activity has a bit of caution embedded in it. Even as you look at the repair replace side of the world, we've talked about the HVAC business and what that means is it looks to replace moving to more repair. And so you see in our HVAC business we have parts and supply growth that is outpacing unitary equipment growth and that's pretty standard for where we sit today inside the environment. And then on the non-resi side, as Bill indicated, we're seeing good large capital project work, but that's offsetting a bit of the slowdown as we look at big box distribution warehouse, hospitality, and some more traditional non-resi work.

Got it. Okay. Thank you for that, Kevin and Bill. That's very helpful. So, I guess, just kind of picking up on some of the views around 2025. As you mentioned, I mean, there's clearly a lot of cross currents, right? It sounds like you're speaking to a lot of the kind of current data being relatively soft around starts and permits and ABI, as you mentioned, but at the same time that now it seems like interest rates are moving lower. So I just wanted to confirm, number one, that your guidance is basically assuming current market conditions, that you're not really assuming much improvement related to lower interest rates. That's number one. And number two, in your experience, when you do have lower interest rates, I guess I'd be curious, where do you see it first? How does that tend to play out in your own business? And what are you kind of hearing from customers if there is any potential optimism around that? Thank you.

Customers remain cautious, but optimistic. You look at interest rate movements that we're going to see, and we would see that play out over time. It would start with our Waterworks business as lot preparation happened, and we'll see what happens as you look at different subdivision activity, for example, and what that paces out to in terms of sections and portions and how many lots are being developed at a particular given time. Right now we're seeing pretty steady activity, pretty flat activity in terms of what that bidding looks like in single family subdivision work. On the RMI side of the world, what we would love to see is continued employment, solid data, as well as existing home turnover starting to pick up. Because although employment is the best data point for RMI activity for us, existing home turnover clearly has remodel activity associated with pre and post-sale. And so if we start to see some interest rate easing and we start to see a pickup in that existing home turnover, we expect to see that inside of our business. And then again, on the non-res side, just continuing with that work around multi-customer group four, fire and fabrication, industrial pipe valve and fitting, commercial mechanical and waterworks, all working together on data center construction and even quite frankly, on the power generation that's needed to take care of the grid to take care of some of the power needs of this data center build out. So we're looking at that as we go through and customers remain cautious but optimistic.

Great. Thanks Kevin. Good luck guys.

Thanks, Matt.

Our next question comes from Philip Ng with Jefferies. Please go ahead.

Hey, guys. Congrats on a solid quarter. I guess a question for Bill. If I look at your pricing the last two quarters, it's been down about 2%. And your gross margins, if you kind of strip out the inventory dynamics was kind of flattish, right? So it kind of feels like your commodity headwind is stabilizing here, but you're calling for margin compression for 2025, is that more on the gross margin side or S&A? And then are you seeing commodity deflation and any pockets accelerate in the first half? Because it sounds like you're a little more cautious on margins to start the first half and perhaps a further price degradation from here.

Yes. Thanks, Phil. And to your point, we've been really pleased with the gross margin performance of the business as we've been battling and working through that deflation. And keep in mind, obviously, that deflation is year-over-year deflation. Where you sometimes see pressure on the gross margin is when you get shorter, faster movements in the short term on deflation where you've got higher cost of goods sold inventory that you have to sell through. But we haven't seen that. It's been more steady deflation throughout the past year. We do expect that to continue as we step into the year. And the majority, again, of that operating margin moderation that we expect next year is going to be pressure on that SG&A side of the equation. In fact, if you look back at fiscal 2024, we grew our gross margins by 10 basis points for the year. Our SG&A delevered roughly 40 basis points, and our operating margins were down 30 basis points. That SG&A deleveraging is really driven by that 2% deflation on the top line. Just take 2% of our revenue for last year. It's worth about $600 million worth of revenue that came off because of that price deflation. You did the math around that. Your SG&A as percentage of sales would be roughly flat fiscal 2024 to fiscal 2023. So again, as we step into fiscal 2025, we're going to expect a bit more of that SG&A pressure, both from deflation as well as just the fact that our markets are still negative as we step into the year. That puts a bit more pressure in the short term. We would expect that pressure to be more difficult in the first part of the year and ease a little bit as we step through the year.

And Phil, if you look at the commodity basket, it's worth remembering that, that roughly 15% of our revenue that we would consider commodity-based products would be everything from polyethylene, PVC, cast iron, ductile iron, steel, copper, tube, pipe, and fittings. And they don't all move in the same direction at the same time, they don't all move with the same velocity at the same time. In fact in the copper tubing side of the world we've seen some movement in an upward direction, so they're moving at different places, but generally speaking that commodity based product pressure is what drove the 2 points that Bill referenced.

So, we should assume gross margins holding up relatively well. The margin compression is largely SG&A driven and more in the first half. Am I hearing you guys right?

Yes, I think that's reasonable. I mean, look, our gross margins, if you look over the last two years, have been relatively consistent and roughly 30.4% last year, 30.5% this year. Certainly, in any given quarter, that gross margin is not going to be a dead man's heartbeat. There are going to be factors that move that up or down. But broadly, we've been pretty consistent on gross margin. We'd expect a bit more pressure in a low-growth environment with our market still slightly negative and deflation on the SG&A leverage side of the world.

Okay. And in pivoting on your non-res business, obviously the investments and your pivot into these megaprojects and capital projects has been a good guy. It sounds like you're seeing continued momentum there. What about your traditional commercial side of things, the light commercial side of things? Kevin, Bill, are you guys seeing any stabilization, any green shoots there? It seems like the heavier side of things, the capitalist side of things that you're seeing continued momentum there. Some of the companies we covered have called out project delays ahead of the election, contractors holding back on some of the stuff ahead of rate cuts. It doesn't sound like you're seeing any of that, but any color would be helpful.

So we are seeing that. If you look at the traditional non-residential portion of the business, the traditional commercial build out, that has been pressured. Probably the biggest impact, if you remember back a year or two ago, we would talk a great deal about building out a big box distribution warehouse to service customers based on e-commerce expansion in every market, every working week. That has largely been mitigated, even as you look at some of the more traditional beyond office space into the hospitality area. But the good news about our business is our customers, as well as our customer groups, have been able to pivot to those large capital projects to offset that. To see 6% plus growth in our commercial mechanical business, 5% growth in our waterworks business, to see our fire business performing as it does even in the face of strong steel pipe deflation has been quite encouraging. As they work together, but at the same time making sure that they're focused on the unique needs of that customer on that large capital work. That's been encouraging to offset traditional non-res.

Okay, appreciate the color guys.

Our next question comes from Anthony Pettinar with Citi. Your line is open, please go ahead.

Good morning. Can you talk about progress on own brands or private label in fiscal 2024 and maybe what you're targeting in 2025 in terms of end markets where that could -- product categories where that could move the needle? And any kind of rough way to think about sort of rule of thumb on margin benefits?

Yes, thanks for the question. If you look at our own brand, it is just shy of about 10% of our revenue. I would think about own brand in the context of a broader product strategy. As we look to help customers navigate their projects, we want to make sure that we're working with them on what the appropriate product is for the application and guiding them to a product that's going to not only service their project needs, but then also be beneficial to our company and our vendor partners as we look to grow our business over the long haul. And so, not only do we have own brand growth, but we have growth within our branded partners where we've been able to grow faster than market and be their best path to market. And so, I would think about own brand in the broader context. It's important, it's faster growing inside of our residential business today than non-res, but really is across all aspects and all customer groups inside the company.

Okay, that's very helpful. And then just -- sorry if I missed this, but on the fiscal 2025 guide, the tax rate, I think a point above what you did in 2024, any driver there or anything you'd call out?

Yes, actually, if I go back to where we were kind of in the middle part of this past fiscal year and we were evaluating our corporate structure, we had flagged when we made the decision to move to the U.S. that we were going to experience an increase in both U.K. corporate tax rates as well as Swiss corporate tax rates and that our effective tax rate was going to go up marginally to about 26%. When we solidified the move to the US through our merger transaction, now that we're a US domiciled corporation, 26% is about what you should expect given today's current corporate rate of 21% plus our state rate of call it 5.5%. So 26% should be a good rate for this year absent any changes certainly in the federal government space on rates.

Got it, got it. Thank you, I'll turn it over.

Our next question comes from Sam Reid with Wells Fargo. Your line is open.

Awesome, thanks so much. Wanted to touch again on pricing here. I appreciate all the commentary on the commodity side of the business. I wanted to talk about the other part of your business, your finished goods pricing. Any sort of notable category call-outs we should be mindful of, any potential outliers either above or below expectations on finished goods. Thanks.

Yes, sure. If you look at finished goods for us, which again to your point is the lion's share of our revenue, just over 85% are finished goods. Over the past year, fiscal 2024 is broadly flat, maybe slightly up for the fiscal year. That's a little bit below what we see in what I would call a typical year. Normally we have low single digit price inflation on finished goods. As we flag throughout the last few quarters, we had seen those finished goods price increases being a little bit more spotty than we would traditionally see. And that continued through this calendar year. So as we sit here today, we would expect a bit more normalized price increases for calendar 2025, as typically happened at the beginning of the calendar year. But again, we don't have a crystal ball on that, and so we'll monitor that closely as we work with our suppliers and understand what their price increase plans are for calendar 2025.

Yes, as Bill said, it's been broadly flat. And as you look at the different customer groups, product categories, it's been very surgical in terms of where price increases have happened. As you can imagine, labor costs for our manufacturing supplier partners has gone up, but their input costs potentially have gone down as commodities have deflated. And so, they've been very surgical in their approach in different areas as opposed to broad price increases across their different product categories. And we expect much of the same as we go through this calendar or this fiscal year.

That's helpful. And then maybe switching gears, talking SG&A, just looking at the growth in SG&A on an absolute basis it looks like it was up maybe a percent during the quarter and that's a bit of an improvement versus last quarter. Maybe just talk through some of those efficiencies that you are generating on the SG&A line and perhaps bucket out SG&A kind of including and excluding acquisitions. Thanks.

Yeah, I would first say acquisitions put a little bit of pressure, but overall not a large impact from acquisitions given the size of our expense base. To your point, we were pleased with the performance as we came through the fourth quarter, probably a little bit better from an SG&A leverage perspective than maybe what we had anticipated. But I kind of take a step back from that and look at the full year as a whole, again, because we can have some quarterly movements in any given quarter, both on gross margin and on SG&A. And so, when you look at that full year, again, we had a little bit of deleveraging, again, largely driven by that deflationary pressure. And then when you look at our cost base as a whole, we're nearly 60% of our cost base is labor. Labor and our associates are the intellectual capacity and give us the capability to win in the marketplace. They hold all of our relationships. So we're pretty precise when we think about managing labor. The way we've done that this past year is to manage against the volumetric trends that we've seen in the marketplace. And as we talked about, we've seen volume growth return in Q3 and Q4. If you look at our headcount, our full-time equivalence, that's been managed pretty closely in line with that. So as we step into the fiscal year, our headcount is up a little bit. We certainly have a little bit of wage inflation that will be on top of that. And that combined with, again, a lower growth environment, particularly in the first part of the year, will put a little bit of short-term pressure. But I go back to what Kevin said in terms of the fact that we are really focused on investing in the business and positioning ourselves for when the markets return to growth.

Yes, to echo what Bill said, we're really pleased with the way the teams have managed the expense base, especially in the field organization in the face of deflation. And if you look at what we're investing in technology and facilities and building out our supply chain capabilities. We're really pleased with the SG&A position that we have. And then as we look forward, investing in, building out our counter locations, especially in the area of dual trade plumbing and HVAC, as we look to expand from a greenfield perspective, what our position looks like in the HVAC business across the United States, to take advantage of the growth in that business. So we're really looking at preserving that good work that the organization's doing today and then continuing that investment level to take care of those tailwinds for when the markets begin to recover and normalize.

Thanks so much, guys. I'll pass it on.

Thanks, Sam.

Our next question comes from Mike Dahl with RBC Capital Markets. Please go ahead.

Great. Thanks for taking my questions. First of all, I wanted to ask about free cash flow and capital allocation as you contemplate fiscal 2025. How should we be thinking about free cash conversion rates, any moving pieces in working cash we should be thinking about? And then from a capital allocation standpoint, obviously continue to produce healthy cash flow, the balance sheets in good shape. You've got different outcomes, when we think about macro for this next year, but if we're -- if we end up kind of skirting through in it in a healthier way, is this the time in the cycle that you look to kind of lean in from an M&A standpoint? How would you characterize your pipeline and your willingness and desire to kind of push more M&As through the system in the coming year, just any commentary you can give on how you're thinking about how this shapes up.

Yes, so first off, Mike, from a cash flow perspective, really pleased with the $1.9 billion in operating cash flow. Our CapEx guidance came in in the middle of our range at about $370 million. So that gave us that $1.5 billion in free cash flow. We aim to deliver about 100% of operating cash to net income year in, year out. We were pretty much right in line with that, maybe slightly above that this past fiscal year. And I would expect that again, as we step through next fiscal year. So we will be in a good cash generative position for fiscal 2025. Likewise, to your point, our balance sheet is in great shape, and we have worked really hard to maintain that strength of balance sheet. It's core to what we do, and we do that not only to have some resilience in case of a market downturn, but also to your point to be able to take advantage of growth opportunities. So you will see us be very consistent with our capital allocation priorities, looking at organic growth opportunities, growing that dividend sustainably over time, absolutely looking at great M&A opportunities as we consolidate our markets, and then flexing that buyback depending on where we are at the low end of that leverage range which we sit at right now at 1.1 times. So we have a fair amount of capacity to take advantage of the market, regardless of what the market backdrop is.

Yes, Mike, and as you can imagine, the pipeline is still healthy, But as you can also imagine, we are mindful of valuations and what seller expectations look like and making sure that we can drive the right synergy case as we bring those acquisitions on board. You saw us do 10 deals this past year. We're really proud of what that looks like. As you look to going forward, a pretty balanced approach in both the residential side and non-residential side. It's worth reminding everyone that this is an organic growth first company that then complements that growth with M&A. And as we look at the residential side, we're going to continue to look at what M&A opportunities are available on the HVAC side of the world, making sure that we're a great succession planning opportunity for those small to medium sized independent wholesalers. And then on the non-residential side, we're looking a lot at capability deals. Deals that can help us with areas like BDC, virtual design, fabrication, valve and automation, things that can help us across multiple customer groups, especially in light of that continued growth in large capital projects and what makes us effective for the project as a whole.

That's great. Thank you for that. Just the second question, picking up on the HVAC comment, HVAC has remained a nice source of growth and a good vertical for you. Obviously, you're trying to do a lot of things both organically and via M&A there. I may have missed this, but in the 9% growth in 4Q, can you help us understand kind of what was organic? And then when you're thinking about fiscal 2025 and that setup, there's some tailwinds from the HVAC market. Potentially, you've got your growth initiatives. You've obviously got some additional carryover M&A there. Help us frame up kind of what type of contribution you'd expect from HVAC in the coming year?

Yes, Mike, we are really pleased with that HVAC performance, both in the quarter and for the year. So if you look at the 9%, the vast majority of that was organic. There are a couple points from acquisitions in there, but a really strong organic performance, both from the teams in the field and as we roll out our expansion strategy.

And simply put, Mike, as you look at what we're going to do going forward, we're going to continue to build out our counter locations to make sure they've got the best representation of plumbing products as well as HVAC products. We've done over 200 counter renovations so far. We're on track to do north of 650 as we go through the next couple years. We're also going to then do greenfield expansion to make sure that we can grow both equipment lines as well as expertise in markets where we don't currently have HVAC. We call that -- call it, HVAC everywhere we are plumbing, which is a read through to everywhere in the United States. And then as you look at rolling that together with M&A. As you know, sometimes you need to do M&A in order to get at some of the unitary equipment lines as well as great local relationships that we can bring together with our company to leverage the strengths of scale in that local market. So I'd look at it as a three-prong approach to growth in HVAC in the coming year.

Great. Thanks, Kevin. Thanks, Bill.

Our next question comes from David Manthey with Baird. Please go ahead.

Thank you. Good morning, Kevin and Bill. Thanks for taking the time here. First off, I assume you have a macro backdrop when you're developing your fiscal year budget into the next year. Did you discuss really rough base case assumptions for general economic conditions and interest rates trajectory as we look to the new fiscal year here?

Yeah, David, I kind of go back to what we said earlier as we think about our budgets and planning for the year. Yes, we look at things like GDP projections, but we're really trying to look at those leading indicators on both the resi-new, resi-RMI, and then non-res side of the business. So go back to those things we talked about, starts and permits certainly, as well as projections of starts and permits and embedded in those from the third party sources that we look at, there's some expectation of some level of rate cuts. We're probably not precisely trying to model rate cuts to the nearest quarter percent and build that into our models, but certainly there is an expectation that rates will come down as we move throughout the year. I think that's built into our expectation that the resi side of the market, while challenged in the first half and while it will still be down for the full year, should improve throughout the year. And then on the non-res side, I go back to some of those things that we talked about earlier and that Kevin highlighted around that traditional non-res business and some of the indicators like ABI that are still pointing to softness. We then look at our ability to win and outperform the market, particularly on areas like non-res large capital projects, and try to build that into both our budgets internally but also our guidance expectations.

Got it. That makes sense. And then, peeling back the onion here on your low single digit revenue guidance for fiscal 2025, it sounds like you're assuming markets down low single-digit, deflation maybe a point, carryover from acquisitions probably a plus one, and then share gain maybe that typical 300 to 400 basis points. Just correct me if I'm wrong on any of that. And then I guess secondarily, if market growth picks up through fiscal year 2025 and if the inflation kind of flattens out, maybe turns to inflation, would that condition take you above the range here for your base case, or is that kind of trajectory what you're factoring into your full-year guidance?

Yeah, given the fact that we're kind of framing the market around low single digits -- so first off, I think you have the numbers right. I think the only thing you didn't mention that we highlighted is we're going to lose a sales day which isn't overly material, but it drives about 0.4% impact on the full year in terms of a lost sales day in Q3. But given the fact that we've tried to frame the markets down in the low single-digit range, certainly there's some range around that and some range around our outperformance getting us to that low single-digit increase. We think that's the bookends of a reasonable range sitting here today. If rate cuts come through and if the markets pick up faster than that, is there a possibility for us to get above that range? Sure. But the flip side is there as well. So we think it's a pretty reasonable range as best we can read it today, sitting here today trying to read, call it 12 months out.

Yes, Dave, and as we said in the opening remarks, if you look back over the last five years, we've had quite a step up in operating performance. And if you look at the guidance for the year in another down market with continued deflation, broadly, flat profit actually starts to look like a pretty good result that we can build from. And should markets accelerate a bit faster? Should we start to see price stabilization and deflation turn to potentially inflation? I think you could see that acceleration happen faster on our business in total.

That all sounds good. Thanks a lot guys.

Thanks, Dave.

And our final question today comes from Will Jones with Redburn Atlantic. Please go ahead.

Thanks. Good morning. A couple from me please. Firstly maybe on the large capital projects I had in mind a couple of years ago you talked about addressable market around $30 billion and you mentioned $50 billion today. Am I right in that? And is it just that more projects have kind of kicked off since that point in terms of the increase? And as a judgment, how far through the $50 billion do you would say we are?

Yes, Will, you're exactly right. When we first started talking about large capital projects, looking at third-party data as best we could quantify it. I can't remember the exact top line. $1.8 trillion in total projects, $30 billion was our addressable market expectation. And look, as we continue to look at that project set, looking at data like Dodge Analytics, the pipeline, the portfolio continues to build. We're now looking out through 2030 with that data, and there's a lot of potential activity out there for us. So it is a new way of working for us across a multi-customer group approach, and we think we have a great ability to take advantage of that. I'd still say we're in relatively early innings in terms of that capital being deployed across the U.S.

And if you look at how that's progressed, there was a lot of concern that certain projects would be either shelved or postponed indefinitely. And yes, there's been some shift as you look at electric vehicle manufacturing, for example, that has moved probably our optimism towards data center and power generation projects that have grown in scale and again added to that pipeline that Bill alluded to. And originally our focus in that area was because we knew that traditional knock-on commercial and non-residential activity was going to be pressured, but we saw good growth in those projects that were north of $400 million in overall construction value. That's good to have it offset traditional knock-on commercial, but maybe even more importantly for us, as we look at a multi-customer group approach, and the fact that those complex projects require a great deal of service and care, it sets up quite well for the services that our company offers, and the profile of our company as a whole. So we're pleased with how that's progressed. We still think we're in early days of that. These projects are taking longer. And again, we're seeing growth as projects are added to that pipeline.

Thanks. And the second one, hopefully just a quick one, but on dual trade, when you look across the landscape, do you think there are many distributors that are either able or even trying to do similar to you on that front or do you think you're the leader there? Thanks.

Yeah, speak to us more specifically, because obviously we have a very fragmented industry that is also quite local. If you look at our business, we're a nationwide player. We've been a strong player inside of traditional residential trade plumbing for quite some time. We have grown our HVAC presence and really ramped up that growth rate across HVAC. And so as you look at, call it the 65,000-ish dual trade companies, our approach is going to be to make sure that we are the best provider for the individual technician, HVAC or plumbing, but then offering a best-in-class tie together for that service. And as you look at consolidation of the trade professional and roll-up of contractors, we think we offer a unique solution in a nationwide landscape for plumbing and HVAC that has best-in-class service for the technician. That's really the strategy and that's what we're trying to continue to build out.

Thank you.

Thank you. This concludes today's Q&A session so I'll now hand back over to Kevin Murphy for any closing remarks.

Thank you, operator. And thank you again for the time today. We appreciate it more than you know. And the way we began, and that is we're really thankful to our associates for their dedication in serving that specialist professional customer that is core to our business. We're quite pleased with the performance, both in the fourth quarter as well as in the full year. The fact that we returned to volume growth, we expanded gross margins and we delivered a solid operating profit performance. And the cash generative model that we have really allows us with a strong balance sheet to continue to invest for growth because our markets are attractive over the medium term, both residentially, non-residentially, new construction and repair maintenance and improvement. And we're going to capitalize on that underbuilt housing infrastructure that we have, capitalize on the aging infrastructure of homes in the US as well as the dual trade contractor growth, overall HVAC, and this country's investment in non-residential infrastructure. So thank you again for your time. We look forward to talking with you very soon.

This concludes the Ferguson fourth quarter and year end results conference call. Thank you for your participation. You may now disconnect your line.