Technology

Dycom Industries (DY) Up 0.8% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Dycom Industries (DY). Shares have added about 0.8% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Dycom Industries due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Dycom’s Q4 Earnings Miss Estimates, View Weak

Dycom Industries Inc. reported fourth-quarter fiscal 2019 (ended Jan 26, 2019) results, wherein adjusted earnings missed the Zacks Consensus Estimate by 41.2% but revenues beat the same by 4%.

The company reported fiscal fourth-quarter adjusted earnings of 10 cents per share, missing the Zacks Consensus Estimate by 41.2% and declining from the prior-year profit level of 12 cents. Dycom’s Chairman and CEO Steven Nielsen called the results “disappointing,” and blamed on the tighter-than-expected margins owing to difficulties in large account.

The company pointed out that although major customers have stepped up infrastructure spending, higher-than-expected costs have pressurized Dycom’s margins. Bankruptcy of a major customer is expected to weigh on the company’s results going forward. These factors have prompted it to issue earnings guidance well below the consensus mark.

Revenue Discussion

Dycom’s fiscal fourth-quarter contract revenues of $748.6 million were up 14.3% year over year and topped the consensus mark by 4%. Organic revenues also increased 13.7% year over year during the quarter, backed by deployment of 1-gigabit wireline networks, wireless/wireline converged networks and wireless networks. Notably, organic revenues exclude $20.4 million of storm restoration services and contract revenues of $5.9 million from an acquired business in the reported quarter.

Its top five customers contributed 79.7% to total contract revenues, increasing 19.4% organically. AT&T, Dycom’s largest customer, accounted for 21% of the total revenues. AT&T grew 12.5% organically. Verizon contributed 20.9% and was up 77.2% organically; Comcast accounted for 19.2% and grew 0.9% organically; CenturyLink added 14.6% and increased 2.5%; and Windstream comprised 3.9% of the total revenues. However, revenues from all other customers declined 3.6% organically in the said quarter.

Dycom’s backlog came in at $7.33 billion as of Jan 26, 2019 versus $7.313 billion at October 2018-end.

Operating Highlights

Gross margin of 15.4% was below the company’s expectations, as margins were impacted by the costs of a large customer program.

Adjusted EBITDA came in at $59.8 million or 8% of contract revenues compared with $59.6 million or 9.1% in the year-ago quarter.

Fiscal 2019 Highlights

Adjusted earnings came in at $2.78 per share, down from $3.88 a year ago. However, contract revenues of $3.13 billion increased from $2.97 billion a year ago.

Adjusted EBITDA was $330.0 million or 10.5% of contract revenues in the fiscal year compared with $383.5 million or 12.9% in fiscal 2018.

Financials

The company had cash and cash equivalents of $128.3 million as of Jan 26, 2019 compared with $84 million on Jan 27, 2018.

Long-term debt was $867.6 million at the end of fiscal 2019 compared with $733.8 million at fiscal 2018-end.

First Quarter of Fiscal 2020 Guidance

The company anticipates contract revenues in the range of $750-$800 million, below the Zacks Consensus Estimate of $784 million. Adjusted earnings are anticipated within 34-56 cents per share, well below the consensus mark of 78 cents for the quarter. Dycom expects adjusted EBITDA (as a percentage of contract revenues) to decrease from the year-ago period.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -45.09% due to these changes.

VGM Scores

At this time, Dycom Industries has a great Growth Score of A, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Dycom Industries has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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