Ferguson (FERG) 10-Q2024 Q3 Quarterly report

As previously disclosed in a Current Report on Form 8-K filed by Ferguson plc (the “Company”) with the Securities and Exchange Commission (“SEC”) on May 31, 2024, the Company held an extraordinary general meeting of shareholders on May 30, 2024 (the “Special Meeting”) at which the Company’s shareholders (i) approved the merger agreement (the “Merger Agreement”), dated as of February 29, 2024, by and among the Company, Ferguson Enterprises Inc., a newly incorporated corporation under the laws of Delaware (“New TopCo”), and Ferguson (Jersey) 2 Limited, a newly formed Jersey incorporated private limited company and direct, wholly owned subsidiary of New TopCo (“Merger Sub”) and (ii) on an advisory basis, voted on other matters relating to certain differences between the Company’s Memorandum and Articles of Association and the proposed Amended and Restated Certificate of Incorporation (the “New TopCo Proposed Certificate of Incorporation”) and proposed Amended and Restated Bylaws (the “New TopCo Proposed Bylaws” and, together with the New TopCo Proposed Certificate of Incorporation, the “New TopCo Proposed Organizational Documents”) of New TopCo. The Merger Agreement provides for the merger (the “Merger”) of Merger Sub with and into the Company, with the Company surviving the Merger as a direct, wholly owned subsidiary of New TopCo and Merger Sub ceasing to exist, at 12:01 a.m. Eastern Time on August 1, 2024 (the “Effective Time”), on the terms and subject to the conditions of the Merger Agreement. Following completion of the Merger, New TopCo would be the Company’s parent company and shareholders of the Company would become holders of common stock of New TopCo in accordance with the terms of the Merger Agreement.

On the terms of, subject to the conditions of and/or in connection with the Merger Agreement at the Effective Time, (i) each ordinary share, par value 10 pence per share, of Ferguson plc (collectively, the “Ferguson Shares” and each a, “Ferguson Share”) that is issued and outstanding at 6:00 p.m. Eastern Time on July 31, 2024 (the “Merger Record Time”) will automatically be cancelled without any repayment of capital and New TopCo will issue as consideration therefor new, duly authorized, validly issued, fully paid and non-assessable shares of common stock, par value $0.0001 per share, of New TopCo (the “New TopCo Common Stock”) to each holder of Ferguson Shares (collectively, the “Ferguson Shareholders” and each, a “Ferguson Shareholder”) on a one-for-one basis for each Ferguson Share held by such Ferguson Shareholder immediately preceding the Merger Record Time and (ii) each depositary interest (collectively, the “U.K. DIs” and each, a “U.K. DI”) issued through CREST by Computershare Investor Services PLC (the “Depositary”) representing a beneficial interest in an issued and outstanding Ferguson Share at the Merger Record Time will be cancelled and a depositary interest representing one share of New TopCo Common Stock will be issued through CREST by the Depositary as consideration therefor to each holder of U.K. DIs on a one-for-one basis for each U.K. DI held by such holder immediately preceding the Merger Record Time. All Ferguson Shares held in treasury will be cancelled as a result of the Merger.

Following completion of the Merger, New TopCo will be the Company’s parent company and will continue to pursue the Company’s current strategic initiatives and business operations. Further information about the expected Merger is available in the definitive proxy statement filed by the Company with the SEC on April 18, 2024 (the “Definitive Proxy Statement”). We encourage you to read that entire document carefully.

Certain information included in this quarterly report on Form 10-Q (“Quarterly Report”) is forward-looking, including within the meaning of the Private Securities Litigation Reform Act of 1995, and involves risks, assumptions and uncertainties that could cause actual results to differ materially from those expressed or implied by forward-looking statements. Forward-looking statements cover all matters which are not historical facts and include, without limitation, statements or guidance regarding or relating to our future financial position, results of operations and growth, the Merger, the benefits of the Merger, our ability to manage the risks relating to the Merger, plans and objectives for the future including our capabilities and priorities, risks associated with changes in global and regional economic, market and political conditions, ability to manage supply chain challenges, ability to manage the impact of product price fluctuations, our financial condition and liquidity, legal or regulatory changes, and other statements concerning the success of our business and strategies.

Forward-looking statements can be identified by the use of forward-looking terminology, including terms such as “believes,” “estimates,” “anticipates,” “expects,” “forecasts,” “intends,” “continues,” “plans,” “projects,” “goal,” “target,” “aim,” “may,” “will,” “would,” “could” or “should” or, in each case, their negative or other variations or comparable terminology and other similar references to future periods. Forward-looking statements speak only as of the date on which they are made. They are not assurances of future performance and are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Therefore, you should not place undue reliance on any of these forward-looking statements. Although we believe that the forward-looking statements contained in this Quarterly Report are based on reasonable assumptions, you should be aware that many factors could cause actual results to differ materially from those in such forward-looking statements, including but not limited to:

Additionally, forward-looking statements regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future. Other than in accordance with our legal or regulatory obligations, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

Ferguson plc (the “Company”) (NYSE: FERG; LSE: FERG) is a public company limited by shares incorporated in Jersey under the Companies (Jersey) Law 1991 (as amended). The Company is a value-added distributor in North America providing expertise, solutions and products from infrastructure, plumbing and appliances to HVAC, fire, fabrication and more. We exist to make our customers’ complex projects simple, successful and sustainable. Ferguson is headquartered in the United Kingdom (“U.K.”), with its operations and associates solely focused on North America and managed from Newport News, Virginia. The Company’s registered office is 13 Castle Street, St Helier, Jersey, JE1 1ES, Channel Islands.

The accompanying unaudited condensed consolidated financial statements and notes to the condensed consolidated financial statements are presented in accordance with the rules and regulations of the SEC and accounting principles generally accepted in the United States of America (“U.S. GAAP”), but do not include all disclosures normally required in annual consolidated financial statements. In the opinion of management, the unaudited condensed consolidated financial statements contain all normal recurring adjustments necessary to present fairly the financial position, results of operations and cash flows for the interim periods presented. The July 31, 2023 condensed consolidated balance sheet was derived from the audited financial statements.

For the nine months ended April 30, 2023 and to conform to current period presentation, the Company has disaggregated the total change in income taxes within the cash flows from operating activities to reflect the changes in deferred income taxes separately from the changes in income taxes payable.

These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Annual Report. The financial results for the interim periods may not be indicative of the financial results for the entire fiscal year.

The preparation of the Company's interim condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions affecting certain reported amounts. Actual results may differ from those estimates.

Cash and cash equivalents include cash on hand, deposits with banks with original maturities of three months or less and overdrafts to the extent there is a legal right of offset and practice of net settlement with cash balances.

Restricted cash primarily consists of deferred consideration for business combinations, subject to various settlement agreements, and is recorded in prepaid and other current assets in the Company’s condensed consolidated balance sheets.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets compared with amounts shown in the condensed consolidated statements of cash flows.

In October 2023, the Company began a supplier financing program with a third party wherein certain shipping and logistics providers in the United States can opt to receive early payment at a nominal discount. The Company’s standard payment terms under this program is 45 days. All outstanding payables related to the supplier finance program are classified within accounts payable within our unaudited consolidated balance sheets and were $49 million as of April 30, 2024.

In November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” This ASU expands public entities’ required segment disclosures, including disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items and interim disclosures of a reportable segment’s profit or loss and assets. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact of adopting this ASU on its disclosures.

In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” This ASU provides qualitative and quantitative updates to the rate reconciliation and income taxes paid disclosures, among others, in order to enhance the transparency of income tax disclosures, including consistent categories and greater disaggregation of information in the rate reconciliation and disaggregation by jurisdiction of income taxes paid. The amendments in this ASU are effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied prospectively; however, retrospective application is also permitted. The Company is currently evaluating the ASU to determine the impact on its disclosures.

Recent accounting pronouncements pending adoption that are not discussed above are either not applicable, or will not have, or are not expected to have, a material impact on our consolidated financial condition, results of operations, cash flows or related disclosures.

The Company reports its financial results of operations on a geographical basis in the following two reportable segments: United States and Canada. Each segment generally derives its revenues in the same manner. The Company uses adjusted operating profit as its measure of segment profit. Adjusted operating profit is defined as profit before tax, excluding central and other costs, restructuring costs, impairments and other charges, amortization of acquired intangible assets, net interest expense, as well as other items typically recorded in net other (expense) income such as (loss)/gain on disposal of businesses, pension plan changes/closure costs and amounts recorded in connection with the Company’s interests in investees. Certain income and expenses are not allocated to the Company’s segments and, thus, the information that management uses to make operating decisions and assess performance does not reflect such amounts.

The Company determined that disaggregating net sales by end market at the segment level achieves the disclosure objective to depict how the nature, amount, timing, and uncertainty of revenue and cash flows may be impacted by economic factors. The disaggregated net sales by end market are as follows:

No sales to an individual customer accounted for more than 10% of net sales during any of the periods presented.

The Company is a value-added distributor in North America of products from infrastructure, plumbing and appliances to HVAC, fire, fabrication and more. We offer a broad line of products, and items are regularly added to and removed from the Company's inventory. Accordingly, it would be impractical to provide sales information by product category due to the way the business is managed, and the dynamic nature of the inventory offered.

Ferguson manages its affairs so that it is centrally managed and controlled in the U.K. and therefore has its tax residency in the U.K. The provision for income taxes consists of provisions for the U.K. plus non-U.K. tax rate differentials with respect to other locations in which Ferguson’s operations are based. Accordingly, the consolidated income tax rate is a composite rate reflecting earnings in various locations and the applicable rates.

The Company’s tax provision for each period presented was calculated using an estimated annual tax rate, adjusted for discrete items occurring during the applicable period to arrive at an effective tax rate. The effective income tax rates for the relevant periods were as follows:

During the three and nine months ended April 30, 2024, there have been no material changes to the Company’s unrecognized tax benefits when compared to those items disclosed in the Annual Report.

The Company maintains a Receivables Securitization Facility (the “Receivables Facility”) that consists of funding for up to $1.1 billion, including a swingline for up to $100 million in same day funding. As of April 30, 2024, no borrowings were outstanding under the Receivables Facility. There was no significant change in interest rates from those disclosed in the Annual Report.

The Company’s Credit Agreement, dated October 7, 2022 (the “Term Loan Agreement”), provides for term loans (“Term Loan”) in an aggregate principal amount of $500 million. There was no significant change in interest rates from those disclosed in the Annual Report.

The Company was in compliance with all debt covenants that were in effect as of April 30, 2024.

The Company has not changed its valuation techniques for measuring fair value of any financial assets or liabilities during the periods presented. The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities and other debt instruments, such as the receivables securitization facility and term loans, approximated their fair values as of April 30, 2024 and July 31, 2023.

The Company’s derivatives (interest rate swaps which are considered fair value hedges) and investments in equity instruments are carried at fair value on the condensed consolidated balance sheets (Level 2 and Level 3 fair value inputs, respectively) and are not material. The notional amount of the Company’s outstanding fair value hedges was $300 million and $355 million as of April 30, 2024 and July 31, 2023, respectively. The notional value of fair value hedges decreased in connection with the repayment of $55 million related to the 3.30% private placement notes that matured in November 2023.

The Company is, from time to time, involved in various legal proceedings considered to be normal course of business in relation to, among other things, the products that we supply, contractual and commercial disputes and disputes with employees. Provision is made if, on the basis of current information and professional advice, liabilities are considered probable. In the case of unfavorable outcomes, the Company may benefit from applicable insurance protection. The Company does not expect any of its pending legal proceedings to have a material adverse effect on its results of operations, financial position or cash flows.

The change in accumulated other comprehensive loss was as follows:

The Company maintains pension plans in the U.K. and Canada. The components of net periodic pension cost, which are included in Other expense, net in the condensed consolidated statements of earnings, were as follows:

The impact of exchange rate fluctuations is included on the amortization line above.

The following table presents a summary of the Company’s share activity:

Two Employee Benefit Trusts had been previously established in connection with the Company’s discretionary share award plans and long-term incentive plans. As of January 31, 2024, each of these trusts had been terminated with all shares disbursed or sold. The proceeds from shares sold upon termination of the Employee Benefit Trusts were $4 million and included in other financing activities in the statement of cash flow.

The Company is currently purchasing shares under a revocable purchase arrangement with repurchases recorded directly to treasury shares as incurred. As of April 30, 2024, the Company has completed $2.9 billion of the total announced authorized program.

In June 2024, the Company extended the share repurchase program by an additional $1.0 billion. As such, the Company is currently purchasing shares under an authorization that allows up to $4.0 billion in share repurchases.

Following adoption by the board of directors of the Company (the “Board”), the Ferguson plc 2023 Omnibus Equity Incentive Plan (the “New Plan”) was approved by the shareholders of the Company at the annual general meeting on November 28, 2023, and became effective as of September 21, 2023, the date of the Board’s adoption of the New Plan. The New Plan provides for the issuance of up to 6,750,000 of the Company’s ordinary shares, subject to the share recycling and adjustment provisions as provided under the New Plan. All new share-based compensation awards granted subsequent to November 28, 2023 will be granted under the New Plan. No new awards will be granted under the Ferguson Group Ordinary Share Plan 2019, Ferguson Group Performance Ordinary Share Plan 2019 or the Ferguson Group Long Term Incentive Plan 2019 (the “Prior Plans”).

The Company grants share-based compensation awards that can be broadly characterized by the underlying vesting conditions as follows:

For LTI-ED awards granted prior to fiscal 2023, the number of ordinary shares to be issued upon vesting will vary based on Company measures of inflation-indexed earnings per share (“EPS”), cash flow and total shareholder return (“TSR”) compared to a peer company set. Based on the performance conditions of these awards granted prior to fiscal 2023, these awards are treated as liability-settled awards. As such, the fair value of these awards are initially determined at the date of grant and are remeasured at each balance sheet date until the liability is settled. Dividend equivalents accrue during the vesting period. As of April 30, 2024 and July 31, 2023, the total liability recorded in connection with these grants was $7 million and $13 million, respectively.

In fiscal 2024 and 2023, the Company granted LTI-ED awards in which the ordinary shares to be issued upon vesting vary based on fixed measures of Company defined EPS and return on capital employed (“ROCE”), as well as TSR compared to a peer company set. Dividend equivalents accrue during the vesting period. Based on the performance conditions of these awards, such grants are treated as equity-settled awards (“LTI-ED, equity-settled”) with the fair value determined on the date of grant. Specifically, the fair value of such awards that vest based on achievement of the EPS and ROCE measures are equal to the closing share price on the date of grant. The fair value of the awards that vest based on TSR were determined using a Monte-Carlo simulation, which estimate the fair value based on the Company's share price activity relative to the peer comparative set over the expected term of the award, risk-free interest rate, expected dividends, and the expected volatility of the shares of the Company and that of the peer company set.

The following table summarizes the share-based compensation awards activity for the nine months ended April 30, 2024:

The following table relates to time vested, performance vested and LTI-ED award activity:

The following table relates to all share-based compensation awards:

The Company acquired six businesses during the nine months ended April 30, 2024. Each of the acquired businesses is engaged in the distribution of plumbing, HVAC and infrastructure related products and was acquired to support growth. In each of the Company’s acquisitions, the Company has substantially purchased the acquiree's business and therefore all transactions have been accounted for as a business combination pursuant to FASB Accounting Standards Codification (ASC) 805.

The fair values of the net assets acquired are considered preliminary and are based on management’s best estimates. Further adjustments may be necessary in connection with acquisitions completed in a prior period when additional information becomes available about events that existed at the date of acquisition. Amendments to fair value estimates may be made to these figures during the measurement period following the date of acquisition. There were no material adjustments in the current fiscal year that related to the closing of the measurement period of acquisitions made in the prior fiscal year. As of the date of this Quarterly Report, the Company has made all known material adjustments related to acquisitions in fiscal 2024.

The goodwill on these acquisitions is attributable to the anticipated profitability of the new markets and product ranges to which the Company has gained access and additional profitability, operating efficiencies and other synergies available in connection with existing markets. Goodwill acquired during the nine months ended April 30, 2024 that was attributed to the United States and Canada segments were $55 million and $37 million, respectively. Goodwill that is expected to be deductible for tax purposes is $79 million.

The businesses acquired during the year-to-date period of fiscal 2024 contributed $53 million to net sales and $4 million in losses to the Company’s income before income tax, including acquired intangible asset amortization, transaction and integration costs for the period between the applicable date of acquisition and April 30, 2024. Acquisition costs during the nine months ended April 30, 2024 were not material. Acquisition costs are expensed as incurred and included in SG&A in the Company’s consolidated statements of earnings.

The impact on income before income tax, including additional amortization, transaction costs and integration costs would not be material in the three and nine months ended April 30, 2024 and 2023.

These unaudited pro forma results do not necessarily represent financial results that would have been achieved had the acquisition actually occurred at the beginning of the prior fiscal year.

For the nine months ended April 30, 2024, the Company purchased $8 million of delivery, installation and related administrative services from a company that is, or is an indirect wholly-owned subsidiary of a company that is, controlled or significantly influenced by a Ferguson Non-Employee Director. In the three and nine months ended April 30, 2023, the Company purchased $9 million and $22 million, respectively, of such services. These services were purchased on an arm’s-length basis. In December 2023, this related party relationship ended. As a result, in the three months ended April 30, 2024 we did not have, nor do we expect in the future to have, any services provided by this company which would constitute a related party transaction. No material amounts are due to any related party entities.

The Company held a Special Meeting on May 30, 2024 at which the Company’s shareholders voted on the establishment of a new corporate structure to domicile the Company’s ultimate parent company in the United States and other related governance matters. Shareholders approved the transaction and, subject to the satisfaction of the conditions to the completion of the transaction, the effective date is expected to be August 1, 2024.

The following discussion contains trend information and forward-looking statements. Actual results could differ materially from those discussed in these forward-looking statements, as well as from our historical performance, due to various factors, including, but not limited to, those referred to or discussed in “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” and elsewhere in this Quarterly Report.

Ferguson is a value-added distributor in North America providing expertise, solutions and products from infrastructure, plumbing and appliances to HVAC, fire, fabrication and more. Ferguson is headquartered in the U.K., with its operations and associates solely focused on North America and managed from Newport News, Virginia.

The following table presents highlights of the Company’s performance for the periods below:

For the third quarter of fiscal 2024, net sales increased by 2.4% compared to the third quarter of fiscal 2023, primarily due to higher sales volume, incremental revenue from acquisitions and the benefit of one additional sales day, partially offset by price deflation (approximately 2%).

For the third quarter of fiscal 2024, operating profit increased by 25.8% (adjusted operating profit increased 2.6%), compared with the third quarter of fiscal 2023. The year-over-year change was attributed to not having the software impairment and other charges recorded in the third quarter of fiscal 2023, as well as higher sales and the associated gross profit in the third quarter of fiscal 2024, which includes the benefit of one additional sales day, partially offset by higher operating costs.

For the third quarter of fiscal 2024, diluted earnings per share was $2.18 (adjusted diluted earnings per share: $2.32), increasing 33.7% compared to the prior fiscal year period (5.5% on an adjusted basis) due to higher net income and the impact of share repurchases.

Net cash provided by operating activities decreased to $1.5 billion in the year-to-date period of fiscal 2024 compared with $1.8 billion in the same period in fiscal 2023, primarily reflecting changes in inventory period-over-period and lower net income after adjusting for non-cash items, partially offset by other working capital improvements.

Net sales were $7.3 billion in the third quarter of fiscal 2024, an increase of $0.2 billion, or 2.4%, compared with the same period in fiscal 2023. The increase in net sales was driven by higher sales volume, incremental sales from acquisitions of 1.7%, as well as the benefit of one additional sales day in the quarter of 1.6%. These increases were partially offset by price deflation of approximately 2%, mainly within certain commodity categories. The Company’s increase in net sales was primarily driven by its United States segment, mainly due to growth in non-residential sales, along with a slight increase in residential sales.

Net sales were $21.7 billion in the year-to-date period of fiscal 2024, a decrease of $0.2 billion, or 0.9%, compared with the same period in fiscal 2023. The decrease in net sales was primarily driven by price deflation of approximately 2%, mainly within certain commodity categories, along with lower sales volume. These decreases were partially offset by incremental sales from acquisitions of 1.9% and the benefit of one additional sales day of 0.4% in the year-to-date comparison. The Company’s decrease in net sales in the year-to-date period was primarily driven by its United States segment, mainly due to declines in residential sales.

For further discussion on the Company’s net sales, see the “Segment results” section below.

Gross profit in the third quarter of fiscal 2024 increased $92 million, or 4.3%, compared with the same period in fiscal 2023, primarily reflecting increased net sales. Gross profit as a percentage of sales was 30.5% and 30.0% in the third quarters of fiscal 2024 and fiscal 2023, respectively. The increase of 0.5% primarily reflected favorable product mix, partially offset by deflation in certain commodity categories.

Gross profit in the year-to-date period of fiscal 2024, decreased $31 million, or 0.5%, compared with the same period in fiscal 2023, primarily reflecting lower sales. Gross profit as a percentage of sales was 30.4% and 30.2% in the year-to-date periods of fiscal 2024 and fiscal 2023, respectively. The increase of 0.2% primarily reflected favorable product mix, partially offset by deflation in certain commodity categories.

SG&A expenses in the third quarter of fiscal 2024 increased $87 million, or 6.1%, compared with the same period in fiscal 2023. SG&A as a percentage of sales was 20.8% and 20.1% in the third quarters of fiscal 2024 and fiscal 2023, respectively. The increase in SG&A as a percent of sales primarily reflects the impact of wage and infrastructure cost inflation, corporate restructuring costs and the impact of acquisitions.

SG&A expenses in the year-to-date period of fiscal 2024, increased $127 million, or 2.9%, compared with the same period in fiscal 2023. SG&A as a percentage of sales was 20.8% and 20.0% in the year-to-date period of fiscal 2024 and fiscal 2023, respectively. The increase in SG&A as a percent of sales primarily reflects lower sales and the impact of wage and infrastructure cost inflation, corporate restructuring costs and the impact of acquisitions.

Net interest expense was $43 million in the third quarter of fiscal 2024 compared with $48 million compared with the same period in fiscal 2023. In the year-to-date periods, net interest expense was $132 million in fiscal 2024 compared with $136 million in fiscal 2023. The decrease in interest expense was due to lower average borrowings over the respective periods compared with the prior year.

Income tax expense was $138 million for the third quarter of fiscal 2024, an increase of $27 million, or 24.3%, compared to the same period in fiscal 2023 in connection with higher income before income taxes. In the year-to-date period of fiscal 2024, income tax expense was $421 million, a decrease of $8 million, or 1.9%, compared to the same period in fiscal 2023, mainly due to lower income before income taxes. The Company’s effective tax rates were 23.8% and 24.8% for the third quarters of fiscal 2024 and 2023, respectively. The decrease in the effective tax rate was primarily due to a discrete tax benefit recorded in the third quarter of fiscal 2024 related to the releases of uncertain tax positions due to the lapsing of statute of limitations.

The Company’s effective tax rates for the year-to-date periods of fiscal 2024 and 2023 were about even at 24.7%.

As discussed in the Explanatory Note to this Quarterly Report, the Company’s shareholders approved the Merger Agreement on May 30, 2024. As such, the Company expects to record in the fourth quarter of fiscal 2024, a one-time, non-cash deferred tax charge of between $75 million and $135 million, driven by the elimination of certain pre-existing U.K. tax attributes of the Company.

Net income for the third quarter and year-to-date periods of fiscal 2024 was $443 million and $1,284 million, respectively. These represented an increase in net income of $107 million, or 31.8%, and a decrease of $21 million, or 1.6%, compared to the respective periods in fiscal 2023 due to the various elements described in the sections above.

Net sales for the United States segment were $7.0 billion in the third quarter of fiscal 2024, an increase of $0.1 billion, or 2.2%, compared to the same period in fiscal 2023. The increase in net sales was primarily driven by higher sales volume, incremental sales from acquisitions of 1.5%, as well as the benefit of one additional sales day in the quarter of 1.6%. These increases were partially offset by price deflation of approximately 2%, mainly within certain commodity categories. Net sales in non-residential markets increased 3.9% in connection with growth in Commercial and Civil/Infrastructure sales compared with the same period in fiscal 2023. Net sales in residential markets increased 0.5%.

On a year-to-date basis, net sales for the United States segment were $20.7 billion in fiscal 2024, a decrease of $0.2 billion, or 0.9%, compared to the same period in fiscal 2023. The decrease in net sales was primarily driven by price deflation of approximately 2%, mainly within certain commodity categories, along with lower sales volume. These decreases were partially offset by incremental sales from acquisitions of 1.9% and the benefit of one additional sales day of 0.4% in the year-to-date comparison. Net sales in residential markets decreased 3.3%, while net sales in non-residential markets increased 1.7% in connection with growth in Commercial and Civil/Infrastructure sales compared with the same period in fiscal 2023.

Adjusted operating profit for the United States segment was $685 million for the third quarter of fiscal 2024, an increase of $21 million, or 3.2%, compared to the same period in fiscal 2023, primarily reflecting higher gross profit in connection with higher sales, which includes the benefit of one additional sales day, partially offset by the impact of wage and infrastructure cost

inflation, along with the impact of acquisitions.

On a year-to-date basis, adjusted operating profit for the United States segment was $1,976 million in fiscal 2024, a decrease of $112 million, or 5.4%, compared to the same period in fiscal 2023, primarily reflecting lower gross profit due to lower sales, as well as the impact of wage and infrastructure cost inflation, along with the impact of acquisitions.

Adjusted operating profit for the Canada segment in the third quarter decreased slightly due to higher operating costs, while adjusted operating profit decreased in the year-to-date period of fiscal 2024 due to lower sales and higher operating costs compared to the same period of fiscal 2023.

The Company reports its financial results in accordance with U.S. GAAP. However, the Company believes certain non-GAAP financial measures provide users of the Company’s financial information with additional meaningful information to assist in understanding financial results and assessing the Company’s performance from period to period. These non-GAAP measures include adjusted operating profit, adjusted net income and adjusted earnings per share (“adjusted EPS”) - diluted. Management believes these measures are important indicators of operations because they exclude items that may not be indicative of our core operating results and provide a better baseline for analyzing trends in our underlying businesses, and they are consistent with how business performance is planned, reported and assessed internally by management and the Board. Such non-GAAP adjustments include amortization of acquired intangible assets, discrete tax items, and any other items that are non-recurring. Non-recurring items may include various restructuring charges, gains or losses on the disposals of businesses which by their nature do not reflect primary operations, as well as certain other items deemed non-recurring in nature and/or that are not a result of the Company’s primary operations. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies’ non-GAAP financial measures having the same or similar names. These non-GAAP financial measures should not be considered in isolation or as a substitute for results reported under U.S. GAAP. These non-GAAP financial measures reflect an additional way of viewing aspects of operations that, when viewed with U.S. GAAP results, provide a more complete understanding of the business. The Company strongly encourages investors and shareholders to review the Company’s financial statements and publicly filed reports in their entirety and not to rely on any single financial measure.

The following table reconciles net income (U.S. GAAP) to adjusted operating profit (non-GAAP):

The following table reconciles net income (U.S. GAAP) to adjusted net income and adjusted EPS - diluted (non-GAAP):