Ferguson CEO Kevin Murphy joins Yahoo Finance Live to discuss company earnings, solid demand, rising interest rates, and the outlook for profit growth.

Video Transcript

BRAD SMITH: Welcome back, everyone. Ferguson PLC, ticker symbol, FERG, has reported Q4 earnings, their first earnings report as a US-listed company, beating out expectations on the top and bottom lines. Joining us now to discuss, we've got Ferguson CEO, Kevin Murphy.

Kevin, thanks for taking the time here with us. This is also significant timing, as you've kind of readjusted the business listing as well to ensure that you've got more proximity to some of the US-based business and counterparts as well. And so walk us through why now is the right decision-making for that and how that is also going to result into some of the financials that you've also reported.

KEVIN MURPHY: Yeah, so thank you for having me. Yeah, it's been a multi-year journey, as we moved from the London Stock Exchange being our primary listing over to the New York Stock Exchange. That happened May 12 of this last year. And really, it was a realignment of our listing structure with our operations and with our leadership.

We're 100% North American in the US and Canada, being involved in residential, nonresidential, repair, remodel, and new construction. And aligning that listing structure, hugely important. Now it's just a matter of moving that sell side coverage and indexation over to the US, as we complete that journey.

JULIE HYMAN: Kevin, I just interacted with you guys. I bought some new bathroom hardware off of build.com, which is operated, I believe, by Ferguson. And it was the first time I had sort of known about the brand name as well. But it highlights for me that I got my stuff on time, right? I didn't have to wait too long to get the items. But I am curious what you guys are seeing. You guys are in the housing business, effectively. As we've just been talking about, the housing business is challenged now. What are you seeing in the renovation and construction cycle and how that's playing out?

KEVIN MURPHY: Yeah, so, firstly, thank you for your support of our company, and thank you for the kind words. Build is a great outlet to expand that omnichannel experience for our customers, together with our showroom network. And so if you look at our business as a whole-- and we talked about the finish of the fiscal year in our fourth quarter-- year on year, we grew the revenue of the company by over 25%, grew earnings by 41%.

And that's built on a balanced business mix. Just over half residential, just under half non-residential, with the preponderance being that repair, remodel break fix, with the balance being new construction, call it 60, 40. And what we're seeing right now is still good, solid, underlying demand, even in that residential sector. We know that interest rate rise is going to cause for some headwinds as we look at the new residential side. That's only about 18% of what we do.

That high end, that remodel, that break fix repair work that you highlighted inside of Build with Ferguson, still hugely important and quite supportive. About half of that business on Build with Ferguson is that do it for me with the professional trade, with the other half being called your do-it-yourself remodel project-style work. So still pretty good supportive demand out there in front of us.

BRIAN SOZZI: Kevin, how does the rise in interest rates change about how you plan your business out for the next two years, most specifically around acquisitions? And you've been very aggressive going out there, buying other companies. But the rise in rates, that is raising the cost of capital up significantly, where some of these businesses may not have the same return that you otherwise would have thought in a lower interest rate environment.

KEVIN MURPHY: Yeah, so you highlighted a key component of our growth story. This is an organic growth story that's complemented with the consolidation or the roll-up of a very fragmented competitor base inside of our industry. And so acquisitions have historically been a good part of that. We look for good, mostly local, independent, small to medium-sized companies that can really come aboard with our organization and make 1 plus 1 equal far more than 3.

Bolt on to sourcing synergies, sales synergies, recruiting synergies, and then leverage the local relationships of those companies. We're fortunate that we still have a good pipeline. And even if we go through some choppy waters macroeconomically, you'll still see us looking to consolidate those markets over time with good valuable companies.

JULIE HYMAN: Kevin, just quickly here, to end us off, you mentioned the choppy waters that we're all looking at right now. What signs of cracks are you guys seeing, either in your business or in the broader world in your clients?

KEVIN MURPHY: So we know that new residential side with interest rate rise and affordability is going to have some headwinds. You've seen permit activity down roughly 20% from the peak that we had seen. But again, that's only about 18% of our business. We think that has some headwinds, especially as we lap, perhaps, tougher comparables, as we go through our fiscal year, because of inflation and overall comps.

But as we go through, we think that repair, remodel, breakfast side of residential has a bit more durability, although somewhat pressured, as consumer sentiment tends to wane. But the beauty is, we have a huge portion. Just under half our business is non-residential. And even as knock-on commercial activity may have some pressure, there are megaprojects out there in the United States that are really going to move the needle in terms of non-res activity-- onshoring of manufacturing, chip production, electric vehicle production, batteries, mining, refinery, and retrofit. So there's good move the needle activity on non-res that will give us some balance.

BRIAN SOZZI: All right, we'll leave it there for now. Ferguson CEO Kevin Murphy, good to see you again. We'll talk to you soon.

KEVIN MURPHY: Great to see you. Thanks for the time.