Income tax

12 Months Ended

Jul. 31, 2025

Income Tax Disclosure [Abstract]

Income tax

Note 4. Income tax

Income before income tax by geographical area consisted of the following:

	For the years ended July 31,
(In millions)	2025	2024	2023
United States	$2,263	$2,022	$2,011
International	160	442	453
Total	$2,423	$2,464	$2,464

In fiscal 2025, the Company became a tax resident in the United States. As such, the categories in connection with certain disclosure requirements have changed and are therefore reflected separately from prior years.

Provisions for income taxes for the U.S. federal, state and local and international consisted of the following:

	For the year ended July 31,
(In millions)	2025
Current:
U.S. Federal	$458
U.S. State and Local	125
International	23
Total current	$606
Deferred:
U.S. Federal	($36)
U.S. State and Local	(7)
International	4
Total deferred	($39)
Provision for income taxes	$567

Provision for income taxes in prior years consisted of the following:

	For the years ended July 31,
(In millions)	2024	2023
Current:
Federal and state (U.S.)	$552	$624
United Kingdom	3	—
International	49	55
Total current	$604	$679
Deferred:
Federal and state (U.S.)	($32)	($120)
United Kingdom	155	17
International	2	(1)
Total deferred	$125	($104)
Provision for income taxes	$729	$575

The following is a reconciliation of income tax expense with income taxes at the U.S. statutory rate:

	For the years ended July 31,
(In millions)	2025
Provision for income taxes at U.S. statutory rate(1)	$509	21.0	%
State and local income tax net of federal income tax benefit	92	3.8
Foreign operations	8	0.3
Impact of change in reserves	(21)	(0.9)
U.S. business credits	(11)	(0.4)
Non-taxable income	(10)	(0.4)
Income tax expense	$567	23.4	%

(1)For fiscal years 2025, the Company was a tax resident in the U.S. Therefore, the Company utilized the U.S. statutory rate.

The following is a reconciliation of income tax expense with income taxes at the U.K. statutory rate:

	For the years ended July 31,
(In millions)	2024			2023
Provision for income taxes at U.K. statutory rate(1)	$616	25.0	%	$518	21.0	%
Non-U.K. tax rate differentials	(30)	(1.2)		68	2.8
Impact of change in reserves	12	0.5		8	0.3
Tax credits	(8)	(0.3)		(15)	(0.6)
Impact of Merger transaction (2)	144	5.8		—	—
Non-taxable income	(13)	(0.5)		(6)	(0.2)
Other	8	0.3		2	—
Income tax expense	$729	29.6	%	$575	23.3	%

(1)For fiscal years 2024 and 2023, the Company was a tax resident in the U.K. Therefore, the Company utilized the U.K. statutory rate. Since the change in statutory rate transitioned between fiscal years, the Company utilized a prorated statutory rate during fiscal 2023.

(2)As a result of the steps taken in the fourth quarter of fiscal 2024 to complete the Merger, the Company recognized one-time, non-cash deferred tax charges of $137 million composed of a reduction in deferred tax assets of $90 million related to tax losses that were no longer expected to be realizable and an increase in valuation allowance of $47 million related to U.K. deferred tax assets no longer expected to be realizable, as well the tax impact of non-deductible expenses related to the Merger.

Deferred Taxes

Significant components of the Company’s deferred tax assets and liabilities are as follows:

	As of July 31,
(In millions)	2025	2024
Assets:
Deferred compensation	$97	$82
Tax loss carryforwards	92	90
Lease liabilities	460	404
Sales returns and other liabilities	146	106
Inventory	36	45
Capitalized research and development	114	82
Other	32	49
Total deferred tax assets	977	858
Valuation allowance	(129)	(128)
Total deferred tax assets, net of valuation allowance	$848	$730
Liabilities:
Right of use assets	($447)	($397)
Goodwill and intangible assets	(139)	(129)
Property, plant and equipment	(44)	(34)
Total deferred tax liabilities	(630)	(560)
Net deferred tax assets	$218	$170

We recognize a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion, or all, of a deferred tax asset will not be realized. Our valuation allowance at July 31, 2025 related to foreign net capital loss carryforwards in the U.K. and Canada as well as deferred tax assets in the U.K. which are not expected to be realizable. Our valuation allowance at July 31, 2024 relates to foreign net capital loss carryforwards in the U.K. and Canada which are not expected to be realizable. For the year ended July 31, 2025, there was a $1 million change in the valuation allowance (2024: $47 million and 2023: $4 million).

As of July 31, 2025, the Company had U.S. federal and state operating loss carryforwards for income tax purposes of $8 million and $24 million, respectively. Some of the loss carryforwards may expire at various dates through 2039. At July 31, 2025, the Company had $369 million of loss carryforwards related to international operations. The Company’s foreign losses and foreign capital losses were offset with valuation allowances.

Unrecognized Tax Benefits

The following table reconciles the beginning and ending amount of our gross unrecognized tax benefits:

	For the years ended July 31,
(In millions)	2025	2024	2023
Unrecognized tax benefits at beginning of fiscal year	$151	$144	$140
Additions based on tax positions related to current year	5	25	27
Additions for tax positions of prior years	2	2	2
Reductions for tax positions of prior years	—	(10)	—
Reductions due to lapse of statute of limitations	(32)	(10)	(25)
Unrecognized tax benefits	$126	$151	$144

As of July 31, 2025, the unrecognized tax benefits that, if recognized, would impact the effective tax rate were $126 million (2024: $151 million and 2023: $144 million). The Company recognizes interest and penalties in the income tax provision in its consolidated statements of earnings. As of July 31, 2025, the Company had accrued interest of $32 million (2024: $28 million and 2023: $23 million). For the year ended July 31, 2025, the interest expense included in income tax expense was $4 million (2024: $5 million and 2023: $6 million). Penalties related to these positions were not material for all periods presented.

The total amount of unrecognized tax benefits relating to the Company’s tax positions is subject to change based on future events including, but not limited to, the settlement of ongoing tax audits and assessments and the expiration of applicable statutes of limitations. The Company anticipates that the balance of gross unrecognized tax benefits, excluding interest and penalties, will be reduced by $61 million during the next 12 months, primarily due to statute of limitation expirations. However, the outcomes and timing of such events are highly uncertain and changes in the occurrence, expected outcomes and timing of such events could cause the Company’s current estimate to change materially in the future.

Reinvestment of Unremitted Earnings

We consider foreign earnings of specific subsidiaries to be indefinitely reinvested. These permanently reinvested earnings of foreign subsidiaries at July 31, 2025 amounted to $800 million (2024: $795 million). The Company is not recording a deferred tax liability, if any, on such amounts. If at some future date, the Company ceases to be permanently reinvested in these specific foreign subsidiaries, the Company may be subject to foreign withholding and other taxes on these undistributed earnings and may need to record a deferred tax liability for any outside basis difference on these specific foreign subsidiaries. In addition, interest payments made between the U.S. and U.K. are anticipated to be exempt from withholding taxes, however, if Ferguson should fail to meet treaty requirements, withholding taxes may apply to these payments.

Tax Return Examination Status

The Company files income tax returns in the U.S., U.K. and in various other foreign, state and local jurisdictions. We are subject to tax audits in the various jurisdictions until the respective statutes of limitation expire. The Company is no longer subject to U.S. income tax examinations for fiscal years before 2022 with the exception of fiscal year 2020. With respect to the U.K., the company is no longer subject to examinations by tax authorities for fiscal years before 2020. There are ongoing U.S. state and local audits and other foreign audits covering fiscal 2013-2023. We do not expect the results from any ongoing income tax audit to have a material impact on our consolidated financial condition, results of operations or cash flows.