Ferguson dips on concerns over US market

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SALISBURY, ENGLAND - JULY 20: Plumber Brendan Seller works on the roof of the north transept beneath the spire of Salisbury Cathedral as part of a on-going programme of vital conservation and repair work on July 20, 2009 in Salisbury, England. Salisbury Cathedral has been running a continous major repair programme since 1986 and although work has been completed on several key areas such as the spire, there is still over 14 million GBP worth of work to be completed over the next ten years to help ensure that the Cathedral, which celebrated its 750th anniversary last year, stays in good repair for centuries to come. (Photo by Matt Cardy/Getty Images)

Worries about the US economy weighed on Ferguson shares this morning, analysts said, as the company announced a $500m buyback.

The plumbing company, which does 85 per cent of its business in the US, escaped effects of a potential US slowdown in the quarter. But future concerns helped drive shares down 3.9 per cent, said Richard Hunter, head of markets at Interactive Investor.

The figures

Revenue at the group was up 6.2 per cent to nearly $5.3bn, in the three months to April. This included 6.2 per cent growth in its all-important US market.

Trading profit at the company rose 2.3 per cent to $359m, it confirmed this morning.

Why it’s interesting

Ferguson decided to return cash to its investors today, announcing a $500m share buyback.

The move shows that the company has confidence in its own ability to generate cash, said Hunter. It follows a $632m generation last quarter.

But, he added, it is also a sign that the company thinks returning the cash to its shareholders is better than any obvious reinvestment.

He added “Any current signs of a faltering US economy are not affecting Ferguson in any meaningful way, although the spectre of a slowdown remains, as evidenced by the initial share price reaction to these numbers.”

What Ferguson said

“Cash generation continued to be excellent and our balance sheet remains strong. We will continue to invest organically in our businesses supplemented by bolt-on acquisitions in our core operations. Given our strong financial position, and in line with our capital allocation policy, we are initiating a $500 million share buy back programme which we expect to complete over the next 12 months,” said chief executive John Martin.