Global plumbing and HVAC supplies distributor Ferguson reported its fiscal 2023 third-quarter results June 6, showing a decline in sales compared to the same period in 2022.

In its fiscal 3Q, which ended April 30, 2023, Ferguson posted net sales of $7.1 billion, up sequentially from $6.8 billion in 2Q 2023, but down 2% year-over-year. Organic revenue declined 2.5% and was largely offset by acquisition growth of 2.4%.

Ferguson’s decrease in net sales was primarily driven by declines in residential sales, partially offset by growth in non-residential sales, according to the report. The report also noted that price inflation fell from approximately 10% in 2Q to roughly 5% in 3Q.

Gross margin of 30% was down 30 basis points year-over-year but was flat compared to 2Q 2023. Operating profit of $497 million (7% operating margin) was down 30.2% year-over-year due to branch closure and software impairment charges. Ferguson recorded a charge of $20 million due to the closure of 44 “smaller, underperforming” branches, according to the report, as well as a non-cash impairment charge of $107 million related to a pilot IT solution that the company considered but decided not to implement.

Adjusted operating profit of $657 million (9.2% adjusted operating margin) was 12% lower than 3Q 2022. Diluted earnings per share were $1.63, down 34.8% year-over-year, while adjusted diluted earnings per share of $2.20 fell 12%, with the reduction due to lower adjusted operating profit and higher interest expense, according to the report.

“The year is progressing as expected and our associates again delivered solid results, leveraging our scale and core strengths to help our customers navigate their complex projects,” Ferguson CEO Kevin Murphy said in the report. “Our balanced business is serving us well in challenging markets. During the quarter we continued to take targeted actions to manage the cost base and working capital to deliver strong cash flows.”

Ferguson still anticipates low single-digit sales growth for the full year 2023.

“Our financial guidance continues to reflect market outperformance, both organically and from acquisitions,” Murphy said. “Our markets remain attractive over the medium term and our scale and advantaged platform position us to capitalize on structural tailwinds. Our strong balance sheet and cash generative model allow us to continue to invest for organic growth, consolidate our fragmented markets through acquisitions and return capital to shareholders.”