TRG | The Bottom Line – 5/21

Ferguson’s (FERG) early-morning Q3’21 (April) earnings pre-release highlighted key themes TRG has been focused. A company that had easy but not super-easy comps (Q3’20 sales down 1%), FERG blew expectations out of the water with 20.1% organic revenue growth. This momentum has carried into May, and the company is seeing all cylinders working. All expectations were for continued residential growth, with new residential helping to drive demand in addition to RMI. The Street going into 2021 had declared that non-res was dead, and FERG results proved that thesis incorrect, with several non-res end market sectors showing signs of strength and recovery. Against this backdrop, we see the growing relative importance of the distribution model in a post-COVID world, as the “just in time” strategy going to the wayside in light of significant supply chain disruptions. We think the big (like FERG) will get bigger because of superior purchasing power and ability to serve a wider range of customer needs. Moreover, we think specialized distributors (think POOL and SITE) will also be outsized beneficiaries.