Good morning all and thank you for joining us for Ferguson’s first quarter conference call. My name is Colin and I’ll be coordinating your call today. If you’d like to register for a question during the call, you can do so by pressing star followed by one on your telephone keypad, and to remove yourself from the line of questioning will be star followed by two. I’d now like to hand over to your host, Brian Lantz, Ferguson’s VP of Investor Relations and Communications. You may now begin the conference.

Good morning everyone and welcome to Ferguson’s first 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 Investors section of our corporate website and on our SEC filings webpage. A 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 expectations 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 and welcome everyone to Ferguson’s first quarter results conference call. On today’s call, I’ll cover highlights from our first quarter performance. I’ll also provide a more detailed view of our performance by end market and by customer group before turning the call over to Bill for the financials. I’ll then come back at the end nearly 1% ahead of last year despite market headwinds and deflation of approximately 2%. Gross margins were resilient and we continue to manage operating costs, focusing on servicing volumetric growth and continued investment in our business. We delivered adjusted operating profit of $706 million, representing a 9.1% adjusted operating margin. Adjusted diluted earnings per share of $2.45 was down 7.5% on the prior year. This year has largely started out as expected with volume growth offset by continued price deflation in commodity-based products. Our balanced business mix and our ability to deploy scale locally gives us confidence in our continued outperformance as our markets return to growth. Turning to our performance by end market in the United States, net sales grew by 0.5%. Residential end markets, which comprised approximately half of U.S. revenue, saw similar activity levels to the fourth quarter. Both new residential construction and repair, maintenance and improvement markets have been down compared to the prior year, and we’ve continued to outperform with overall residential revenue flat in the first quarter. Non-residential markets were slightly more resilient but also remained down year-over-year, with activity levels similar to the fourth quarter. We continue to take share with total revenue growth of approximately 1%. Sales in civil infrastructure and industrial were stronger with commercial flat. We continue to see solid shipments, open order volumes, and bidding activity on large capital projects, and our intentional, balanced market exposure continues to position us well. Moving now to revenue performance across our customer groups in the United States, residential trade plumbing grew by 1%, sequentially consistent with both the third and fourth quarters despite headwinds in both new and repair, maintenance and improvement construction, as well as continued price deflation. HVAC grew by 10% as we continue to invest in distinct growth initiatives, including servicing the dual trade contractor. Residential building and remodel revenues were down 1%, similar to the past couple of quarters. The higher-end remodel market continues to hold up better than the broader remodel market, and residential digital commerce declined by 8% as consumer demand remained weak. Waterworks revenues were up 3% with activity in public works, general municipal, and meters and metering technology offsetting weakness in residential. Our diversification efforts into geo-synthetics and soil stabilization continue to position us well for growth. The commercial mechanical customer group grew by 1% on top of a strong 6% prior year comparable, driven by large capital projects such as data centers, partially offset with weaker activity in traditional non-residential projects. Our industrial fire and fabrication and facility supply customer groups delivered a combined net sales decline of 6%, heavily impacted by commodity deflation in steel pipe against a flat comparable. We remain committed to a broad and balanced end market exposure driving productivity for our specialized professional customers and maximizing value to the total project. Now let me pass you over to Bill to cover the financial results in more detail.

Thank you Kevin, and good morning everyone. Net sales of $7.8 billion were 0.8% ahead of last year, driven by an organic revenue decline of 0.3% offset by acquisition growth of 1.1%. On a volumetric basis, total volume increased by approximately 3% with organic volume up approximately 2%. Continued weakness in certain commodity-related categories drove modest overall price deflation of around 2%. Gross margin was 30.1%, a decrease of 10 basis points over last year. Operating cost growth was driven by volumetric growth, inflation, and continued investment in organic growth capabilities, including our annual trainee class, HVAC expansion efforts, large capital project teams, and investments in digital tools. Adjusted operating profit of $706 million was down $67 million, delivering a 9.1% adjusted operating margin. Adjusted diluted EPS of $2.45 was 7.5% lower than last year, driven by lower adjusted operating profit partially offset by the impact of share repurchases, and our balance sheet remains strong at 1.2 times net debt to adjusted EBITDA. Moving to our segment results, net sales in the U.S. grew by 0.5% with an organic decline of 0.4% offset by a 0.9% contribution from acquisitions. Adjusted operating profit of $697 million decreased $69 million over the prior year, delivering an adjusted operating margin of 9.5%. In Canada, net sales were 6.3% ahead of last year with organic growth of 1.3% and a 5.6% contribution from acquisitions partially offset by a 0.6% adverse impact from foreign exchange rates. Markets have been broadly similar to that of the United States, with non-residential activity remaining more resilient than residential. Adjusted operating profit of $23 million in the quarter was flat to last year. Moving to our cash performance, working capital investments of $376 million during the first quarter were a touch higher than historical seasonal trends due to timing and investments in HVAC to support our growth initiatives, as well as the transition to new efficiency standards; as a result, operating cash flow was $345 million in the quarter. We have continued to invest in organic growth through capex, investing $77 million, resulting in free cash flow of $274 million in the first quarter. Turning to capital allocation, as previously noted, we invested $77 million of capex into the business in the first quarter to build on our competitive advantages and drive above-market organic growth. We’re investing in areas such as counter conversions to sell both HVAC and plumbing material to a growing segment of dual trade professionals. We’re also investing to optimize our supply chain network for a combination of automation, efficiency, and expansion, and we continue to invest in digital tools and technology. We’ve raised our dividend 5% over the prior year to $0.83 per share for this quarter, reflecting our confidence in the business and cash generation. We continue to consolidate our fragmented markets through bolt-on geographic and capability acquisitions. We are pleased to announce two completed acquisitions, Fresno Pipe & Supply and Templeton. Finally, we are committed to returning surplus capital to shareholders when we are below the low end of our target leverage range of one to two times net debt to adjusted EBITDA. We returned $256 million to shareholders via share repurchases this quarter, reducing our share count by approximately 1.3 million, and we ended the quarter with approximately $600 million outstanding under the current share repurchase program. Moving onto our fiscal 2025 guidance, as Kevin said, the year has started largely as we expected and as a result, our guidance is unchanged. We expect net sales to grow in the low single-digit range based on our markets being down low single digits, inclusive of pricing being slightly down for the year driven by ongoing deflation in commodity-based products. We expect continued market outperformance of approximately 300 to 400 basis points and just under a 1% contribution from already completed acquisitions, which is partially offset by one fewer sales day in the third quarter. We expect an adjusted operating range between 9% to 9.5%. Interest expense will be between $180 million to $200 million. Our adjusted effective tax rate will be approximately 26% and we expect to invest between $400 million to $450 million in capex. We believe that our strong balance sheet, agile business model, balanced end market exposure, and continued investment positions us well for the future.

Thank you Bill. As we conclude our remarks, let me first reiterate how proud we are of our associates, who have displayed disciplined execution in an environment characterized by market headwinds and commodity price deflation. Our focus remains steadfast on the principles that underpin our strategy for sustained growth and market leadership; as a result, our fiscal year has started largely as we expected. Our strong balance sheet enables us to invest in organic growth, consolidate fragmented markets through acquisitions, and return capital to our shareholders. We will continue to operate at the lower end of our target leverage range and maintain the flexibility to capitalize on strategic opportunities as they arise. Our commitment to delivering productivity for our customers remains unwavering. By enhancing our value-added solutions and our digital tools, we’re creating efficiencies, reducing costs and enhancing quality to provide real benefits for our customers. This is especially important in the current challenging macroeconomic environment given the pressures on the trade labor force. We expect to continue to outperform our markets as we leverage multi-year structural tailwinds. With our size, scale, and strategy, we believe we are well positioned to take advantage of opportunities in the under-built and aging U.S. housing market, non-residential large capital projects, and the growing demand for plumbing and HVAC specialized professionals. Thank you for your time today. Bill and I are now happy to take your questions. Operator, I’ll hand the call back over to you.

Thank you. We would now like to open the lines for questions. Our first question comes from Keith Hughes from Truist. Keith, your line is now open.

Yes, thank you. There was a good bit of SG&A deleverage in the quarter. If you could talk about that and what that would look like for the remainder of the fiscal year.

Yes, good morning Keith, this is Bill. Thanks for the question. Let me start with that one. If you go back to when we set out guidance for the full fiscal year, we expected to come into the year facing some market headwinds on the top line and continued commodity deflation, and we acknowledged that that was going to put some pressure on SG&A, particularly deleverage, particularly in the first half of the year, and effectively that’s what we’ve seen. If you look at volume growth in the quarter, total volumes were up about 3%, and the teams have done a really nice job managing headcount and full-time equivalents at a rate below that, so we are driving productivity in the underlying business. But with 3% volume growth, our total cost base is up about 5%. That difference is driven by wage inflation and continued investment, so we are investing in areas like our typical trainee class, we have brought in roughly 150 trainees through the start of the fiscal year. We’re continuing to invest in our HVAC counter expansion. We talked a bit about the mega project, large project teams that we’ve invested in, so it’s really a combination of volume growth, and a reminder that we’ve been back to volume growth now for three quarters, combined with continued investment.

Yes, and Keith, we’re going to continue to invest to make sure that we can execute on that volume growth for our customers, but also as we expect our markets to return to growth, we want to be ready to capitalize on that. As Bill indicated, from a market tailwind perspective, we’re seeing very good activity levels as we build our HVAC capabilities across our plumbing counters, where we’ve got over 400 counters built out today, on the way to over 500, adding greenfield locations, and it’s starting to pay real dividends as you look at HVAC up 10% on a 4% growth comparable from the prior year. You add to that what we’re doing with large capital projects and building out teams to be aggressively up funnel, to make sure that we’re able to capitalize across customer groups from waterworks to commercial mechanical to fire suppression to industrial, on some really good project work that’s out there that’s offsetting traditional non-residential activity.

Okay. One other question on margins - you know, price is down about what it’s been for several quarters, and gross margin flipped from modest improvements to a decrease of 10 basis points. Was there anything specific this quarter that caused a bit more compression despite the same pricing environment?

Yes Keith, I think the continued commodity deflation continues to put a bit of pressure on gross margins, but also when you look at seasonality and business mix, to go back to Kevin’s comment on HVAC growing at 10%, our waterworks business up 3%, so the businesses that are growing the fastest for us right now have a slightly lower overall gross margin, and that’s putting a bit of mix pressure on the gross margin in the short term as we stepped into the quarter.

As we sit here today, Keith, we are pleased with the gross margin profile of the commodity business as deflation is happening, and our teams are outgrowing share and also growing volume in those categories, and again, we’re pretty pleased with where that sits from a gross margin perspective.

Okay, thank you.

Thanks Keith.

Thank you very much. Our next question comes from Phil Ng of Jefferies. Phil, your line is now open.

Hey guys. I guess piggybacking on Keith’s question on op margins, when I look at 1Q on balance, top line was pretty much down in line and gross margins were pretty impressive, despite deflation. It was the op margin that was a little lighter at closer to the low end of your full year guide, and certainly Q1 and Q4 typically are bigger margin quarters, I guess. So Bill, help us think through how do you envision your op margins shaking out more towards the midpoint - is it a function of some of these investments you’ve talked about on the HVAC counter side of things, kind of paying more, I guess, dividends, to your results? Are you taking more opex and then perhaps maybe pricing could look a little better in the back half? Help us think through how you envision the op margin progression through the year.

Yes, sure Phil. When you take a step back, again, the quarter was largely in line with our expectations, and our full-year expectations of operating margins in that 9% to 9.5% range are unchanged. Again, certainly we expected more pressure on SG&A deleverage in the first half, particularly as we stepped through the first half with that continued commodity deflation, and when we sit here today, looking at the second quarter, recognizing that we still have commodity headwinds and we’re still facing a low growth environment in our seasonally lightest quarter, I would expect some continued pressure on Q2 operating margins, but we do expect improvement as we move through the year. You actually noted a couple of those reasons. First off, we are at volume growth, we’ve been at volume growth for three quarters in a row. We expect that volume growth to continue. Our open order volumes do continue to build, and those have inflected positive, which gives us some confidence that that growth will improve as we move through the fiscal year. The lastly, we do expect deflationary pressures to ease as we move through the year, and there are a couple reasons for that. First off, from a finished goods perspective, we’ve talked a lot about the finished goods pricing environment and price increase environment being a bit spottier than a traditional year in the past. We’re starting to see as we turn into the calendar year some more traditional returns to price increase announcements, so we would expect our finished goods pricing, which again is about 85% of our overall revenue, we would expect that to inflect positive as we move through the second half of the year. Then on commodities, while it’s very difficult to predict what’s going to happen with commodity pricing, the comparables particularly on a two-year stack basis, the deflationary comparables will continue to ease as we move through the year. Sitting here today, we are still expecting pricing overall to be slightly down for the year - we were down about 2% in the first quarter again, so we are expecting some improvement to pricing as we move through the year. That should help, along with improved volumes, should help second half operating margins, which is why we sit here today with a guide on the full year that’s unchanged.

Okay, that’s great color, Bill. It’s very encouraging to hear and see the shrink in your civil and infrastructure markets in the quarter. You’ve also talked about bidding activity for some of these heavy mega projects has been pretty good, so that’s encouraging. We’ve heard from some of our private and some of the companies we cover calling out larger projects potentially put on pause ahead of the election. Curious if you saw that, and have you seen bidding activity perhaps step up post-election? With a Trump presidency, how do you see it impacting your different business’ end markets, whether it’s U.S. manufacturing, which will probably be a good guy, but perhaps on the other end, maybe EDRA stuff might be more hampered. Kind of help us think through what you’re seeing and what a Trump presidency could bring.

Yes Phil, thank you. You’re right - large capital projects have largely offset that traditional no-res work. We’ve said that for the last couple of quarters. If you then start to go down deeper into that, we’re seeing continued good bidding activity on the commercial side of the world for large capital - that plays through our waterworks business into commercial mechanical and the like. As you can imagine, that’s fairly heavy inside of the data center work. The data center activity, we would refer to it as 100% go, 100% funded, and go as fast as you can, and that work is very attractive to us on a couple of different fronts. Number one, the product set over-indexes for us versus a traditional non-res project, and candidly, our share has been attractive as we’ve approached those, especially as we’ve approached them in a more holistic way across water, fire, industrial, and commercial mechanical, so we continue to see a bullish stance on that. On the EV and battery side, the pace is not as fast and it really does depend on the project, as well as some of the on-shoring activity that we’re seeing, maybe the construction activity and our shipments aren’t meeting the press release, if you will, on what that announcement looked like, but really it’s about a realistic timeline for construction activity. Some of that is affected by the labor force being a limiting factor, some of it around the geography of some of these projects combined with the labor force, so I think it’s just the natural gestation period of those projects. In terms of what can happen with a change in administration, we don’t think that there will be a slowdown in data center activity; in fact, quite the opposite. When you look at what’s happening from an EV perspective, as we said, there’s going to be some spotty fits and starts in that world, but generally speaking we think the large capital project place continues to grow and will continue to be attractive for us as we go forward.

Okay, really appreciate the color, guys. Thank you.

Thanks Phil.

Thank you very much. Our next question comes from Matthew Bouley of Barclays. Matthew, your line is now open.

Good morning everyone. Thank you for taking the questions. I wanted to ask about the operating expenses with the 5% year-over-year growth. Is there a possibility that you would reduce that based on how the end markets develop, or could it be that some of these investments are more heavily weighted at the beginning? I'm interested in how a 5% year-over-year growth in operating expenses might affect the full year operating margin guidance, so I’m curious about what that growth looks like. Thank you.

Yes Matt, thank you. As we look over the longer term, we’re going to continue to invest in what volume opportunity we’re seeing today, but maybe as importantly, if you look at the medium term outlook for our market, talk about the residential side of the house, which is about half of our business, we’re under-built from a housing perspective, we need single-family growth to happen in the market. We’re starting to see some signs of that even though the long end of the curve and the 30-year isn’t to the place where we think we can really start to accelerate. We’re seeing some good sparks in bidding activity on the waterworks side of our business for single family across the west, the south central and the southeast that gives us some encouragement. We’re going to continue to build the right volumetric opportunity case for our labor force, but also not shortchanging our ability to continue to accelerate out of a downturn as we look at this business more medium term.

Yes Matt, and some of those investments, you could argue are a bit front-loaded, to use your term, I mean in terms of the trainee class we brought in, in terms of how we’re rolling out HVAC across our counter network. Obviously those are a bit upfront investments and then the returns on that come over time, and so we are very optimistic about the return profile of that. We’re seeing great early returns on the HVAC business and those growth initiatives, and so we’re going to press forward with that. Now if the market and the environment turns dramatically against what we’re expecting, if volumes turn negative, if the markets get worse, we’ll take different cost-cutting and cost-reduction actions, but we don’t expect that today and we are continuing to invest as we move through the fiscal year.

Got it, that’s super helpful color. Thank you both for that. Secondly, zooming into the price side, I guess on the commodity side, are you still seeing any kind of sequential declines in commodity, or has it been a little more stable? Then conversely, as we think about your guide on the finished goods side, I guess roughly what level of finished goods inflation are you guys assuming in order to get to the full year guide? Thank you.

Yes, on finished goods, finished goods were still broadly flat in Q1 in terms of year-over-year pricing, and as I mentioned earlier on this call, we are expecting as we turn into the calendar year that we’ll have some additional price increase activity coming through and we’d get some sort of low single-digit finished goods pricing as we moved through the back half of the year. That coupled with the commodity comparables easing will give us--continues to give us a bit of confidence that those overall deflationary pressures will ease. In terms of within the commodity buckets, we’re still seeing a couple of commodity categories that have returned to inflation now, so we mentioned on the last call in Q4, copper tube and fittings were showing some inflation year-over-year - that’s continuing. We still have pressure on steel pipe and on PVC. I would say that that’s been a little bit more sequentially stable, but there’s still some pressure there, so as we sit here today and we look into the second quarter, we’re still expecting some commodity deflation headwinds that we need to work through. But again, we expect those to improve as we move through calendar ’25.

All right, thanks Bill, thanks Kevin. Good luck guys.

Thanks Matt.

Thank you very much. As a reminder, if you would like to ask a question, please press star followed by one on your telephone keypad, and to remove yourself from the line of questioning will be star followed by two. Our next question comes from Mike Dahl of RBC Capital Markets. Mike, your line is now open.

Hey, good morning everyone. You’ve actually got Stephen Mia on for Mike Dahl. Thanks for taking my questions. The recent political shake-up was brought up earlier, but given the recent focus on tariffs, I think it could be helpful if you could remind us of your international cost exposures and how your thoughts about managing that have shifted since the election and the last administration. Thanks.

Thanks Stephen. If you look at our overall COGS and sourcing approach, we source products from over 37,000 different suppliers. We’ve got as good of a breadth of supplier base and product category base as anyone in the industry. If you bifurcate that into own brand and branded products, we source own brand products from over 30 countries and have largely mitigated some of the China exposure, as we said in past calls. In areas like lighting and small appliances and the like, we still have some China exposure, but generally speaking we have broadened that across multiple countries and the U.S. is our second-largest supplier for own brand products. Then the 90% of our business that is branded, again we’re sourcing product from a wide variety of manufacturers, and we will move our product strategy based on price and value, and we’ve shown the ability to pass through a price in terms of how that landscape changes. If you look at overall the macro market, provided that it continues to move on as we believe it will, we believe can cause for some degree of price inflation in a deflationary price environment for us, which could be helpful.

That was very helpful, thanks guys.

Thank you very much. Our next question comes from John Lovallo of UBS. Your line is now open, John.

Good morning guys, this is actually Matt Johnson on for John. Appreciate the time. I guess first, sorry if you guys already hit on this, but could you just talk about how organic sales trended through the quarter and into November on both a volume and pricing basis?

Yes, there wasn’t a lot of variability on organic sales through the quarter or on overall deflation. That 2% overall deflation has actually been quite consistent overall for the last five quarters, and as we step into the second quarter here from a November revenue trend perspective, the overall growth in commodity deflation has been pretty consistent with Q1.

Appreciate that. Then I guess just touching on M&A, so you guys completed one acquisition in the quarter. Can you guys just give us an update on how the pipeline and valuation expectations look today relative to this time last year and if you guys are expecting any sort of ramp-up in activity into 2025?

Yes, the pipeline is still quite healthy. When you look at our industry made up of 10,000-plus small to medium sized competitors, there is ample runway for us to go after from an M&A perspective, so we have an active pipeline. Valuation, not a lot of changes over the last six to 12 months in terms of valuation expectations, and so I think we’ve got a very healthy and robust pipeline looking forward. In terms of timing, that’s always the hardest thing to call in terms of how these are going to come through at any given time. When you look at most of the acquisitions that we’re doing, these are small to medium sized businesses, often family-run businesses, and the decision to sell their business is a once-in-a-lifetime decision, so calling timing in any given period is difficult. But as we look forward, we’ve got no doubt in terms of our ability to continue to consolidate our fragmented markets and add somewhere in that 1% to 3% annualized incremental revenue through acquisitions over time.

Thanks guys.

Operator, do we have another question?

Our next question comes from David Manthey of Baird. David, your line is now open.

Thank you, good morning everyone. Just to hit on the progression here in the guidance again, if opex grew 5% on 2% volume growth and flattish overall revenues this quarter, without any major unusual expense items in the opex, should we then assume that as we look forward here, opex is going to grow something in that mid-single digit rate, give or take, through the remaining quarters of the year, and what your outlook assumes is that revenue growth accelerates in the back half of your fiscal year and then leverages those operating expenses - am I hearing that right?

Yes Dave, that’s about right. We would look at overall volume in the quarter up about 3% inclusive of acquisitions, which certainly comes with cost, but that’s right. If you take that volume growth of 3 and you add the investments that we’ve made and add a bit of wage and infrastructure inflation, that’s how you get to that mid-single-digit growth. We plan to keep a close watch on that as we move through the back half of the fiscal year, but as our markets return to growth and particularly as those deflationary pressures ease, that should improve SG&A leverage as we move through the year.

Mm-hmm, but is it safe to say that you’re looking for at least a bit of revenue growth acceleration as we move through the year? Is that correct?

That’s correct. Yes, we expect the back half of the year to improve from an overall revenue perspective, volumes a bit and easing deflation.

Okay. Then you pointed out one fewer day in the third quarter. Could you talk about what month that hits, just so we get an idea of how impactful that is from a revenue standpoint? Then is there anything else, Bill, we should keep in mind as it relates to expenses and margins, given that delta in year-to-year selling days?

Yes, there’s one fewer day in the quarter--in the third quarter, Dave. I’d have to pull out the month, it’s not that relevant which month it is. I think it’s February, because we had 29 days last year in the leap year. If I think about SG&A leverage progression, there’s not anything really unique that’s going to come in as we move through the back of the year, just more continued investment and managing the volumetric headcount of the business.

Okay, thanks very much.

Thank you very much. Our final question comes from Kathryn Thompson of Thompson Research Group. Kathryn, your line is now open.

Hey, good morning. This is actually Brian Biros on for Kathryn. Thank you for taking my question today. On the gross margin performance, can you touch on the things that are in your control to help margins? I know private label, I think is at 10% of sales, and you have some other internal margin initiatives, so I think it would be helpful to hear how those are helping to offset the downward pressure that you mentioned of what is out of your control.

Yes, absolutely. Private label, or own brand as we call it, is absolutely a lever and an investment area that should improve our gross margins over time. To Kevin’s point, it’s just under 10% of our revenue today, and we believe that we will grow that over time. In addition to that, if you look at areas that we’re investing in around the pricing side of the business, pricing analytics and pricing tools, and not to mention we continue to add value-added solutions and services and we continue to charge for that value, so there are a number of levers that we have around improving those gross margins over time.

The best thing for us in a challenging trade labor force environment is to continue to add productivity to that contractor base, because gross margin is the best reflection of the value that we provide in the marketplace. To Bill’s point, that starts to manifest itself in areas like our product strategy, and you highlighted own brand but own brand is only one piece. When you look at the partnerships that we have with our branded suppliers, making sure that we can take cost out of the supply chain such that we can grow our gross margins, when we sell through that product strategy to the contractor while enhancing their productivity, that’s the best long-term durable and sustainable path to gross margin expansion.

Okay, and then last one on the HVAC expansion plans, can you just frame how that’s progressing here in a down residential environment and what that could look like when resi starts to come back more meaningfully? I think it was up 10% in the quarter, I assume in a tough end market, so just trying to think about if you have an easier environment, what does that look like? Thank you.

Yes, we were really pleased with the growth of the HVAC side of the business, up 10% on a 4% comp from prior year. Certainly the mix of that business is a bit more attractive as you look at break-fix-repair and replace, as well as new construction, and so we were pleased with the way in which we were able to build out HVAC product and expertise on our existing counter locations, to the tune of over 400 so far, on a track to get over 500 by the end of the fiscal year and over the next 24 months over 650. But additionally, growing our greenfield in the HVAC space, growing our HVAC expertise with our associate base and the outside sales professionals, and then also complementing that with the M&A landscape, so we are pleased with what that looks like. Certainly as we think about an improving economy overall, that will also improve what the HVAC opportunity is. Today, we’re skewing a bit more towards repair versus replace, and certainly as we see new construction start to ramp up, that will help that HVAC side of the business as well; but generally really pleased with the approach and the traction that we’ve got in that space.

Thank you very much. This concludes our questions for today, and I’d like to pass back to Kevin Murphy for any closing remarks.

Yes, thank you. As we close, again let me end where we began and say thank you to our associates for their focus and their execution on making our customers’ projects better, because our customers were dealing with Ferguson, and that’s in the face of market headwinds and ongoing commodity deflation. As Bill has indicated during the Q&A, this year has started out largely as we expected, but we remain very committed to delivering productivity for our specialized professional customers, and that involves continuing to invest so that we can outperform our markets as they return to growth and we capitalize on some strong multi-year structural tailwinds in areas like the dual trade contractor for HVAC plumbing, large capital projects like data centers, and a multi-customer group approach that’s going to make those projects deliver faster, on time and on budget. Thank you very much. We appreciate your time today and look forward to talking to you again very soon.

As we conclude today’s call, we’d like to thank everyone for joining. You may now disconnect your lines.