HD Supply (HDS) Tops Q1 Earnings & Sales Estimates, Ups View
HD Supply Holdings, Inc.HDS reported better-than-expected results for first-quarter fiscal 2018 (ended Apr 29, 2018). It delivered positive earnings surprise of 11.1% while surpassing sales estimates by 2.1%.
This industrial service provider's adjusted earnings in the reported quarter were 70 cents per share, surpassing the Zacks Consensus Estimate of 63 cents. Also, the bottom line surged 79.5% from the year-ago tally of 39 cents, on the back of sales growth and 8.8% fall in outstanding shares.
Segmental Sales Drive Revenue Growth
In the quarter under review, HD Supply's net sales were $1,389 million, reflecting growth of 14.2% from the year-ago quarter. Of the total improvements, organic sales growth accounted for 9.9%. Also, the top line outpaced the Zacks Consensus Estimate of $1.36 billion.
On a monthly basis, year-over-year average sales growth was 11.7% in February, 12% in March and 17.7% in April. Also, preliminary data suggests that year-over-year average sales growth in May was 18.7%.
The company reports its net sales in two segments - Facilities Maintenance, and Construction & Industrial. The segmental information is briefly discussed below:
Revenues from Facilities Maintenance segment were $723 million, increasing 6% year over year. It represented 52.1% of the company's net sales in the reported quarter.
Revenues from Construction & Industrial segment totaled $666 million, increasing 24.3% year over year. It represented 47.9% of the company's net sales in the quarter under review.
As noted, organic sales in the fiscal first quarter grew 14.4% year over year.
Margin Profile Mixed
In the quarter under review, HD Supply's cost of sales increased 14.3% year over year to $837 million. It represented 60.3% of net sales compared with 60.2% in the year-ago quarter. Gross margin declined 10 basis points (bps) year over year to 39.7%. Selling, general and administrative expenses increased 11.4% year over year to $372 million. It represented 26.8% of net sales.
Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) were $190 million, up 21% year over year. Adjusted EBITDA margin was 13.7% versus 12.9% in the first quarter of fiscal 2017.
Balance Sheet and Cash Flow
Exiting the fiscal first quarter, HD Supply's cash and cash equivalents were $150 million, roughly 73.1% below $558 million at the end of the last reported quarter. Long-term debt balance slipped 0.1% sequentially to $2,087 million.
In the reported quarter, the company generated net cash of $50 million from its operating activities, below $83 million generated in the year-ago quarter. Capital expenditure totaled $19 million, reflecting a year-over-year decline of 20.8%.
For fiscal 2018 (ending January 2019), HD Supply anticipates mid-single-digit growth in the residential construction market and low- to mid-single-digit growth in the non-residential construction market to boost the Construction & Industrial segment's performances. For the Facilities Maintenance segment, the company predicts approximately 1-2% growth in "Living Space" MRO.
In the fiscal, HD Supply anticipates overall year-over-year growth of roughly 2-3% in its end markets. Net sales are now estimated to be $5,820-$5,940 million, above the previous projection of $5,760-$5,910 million. At the mid-point, the new sales numbers are projected to grow 15% year over year.
Adjusted EBIDTA will be within $832-$862 million, up from the prior forecast of $815-$855 million. The new projection reflects year-over-year growth of 16% at the midpoint. The effective tax rate in the fiscal is expected to be 25-26%. Adjusted earnings are predicted to be $3.11-$3.27 per share, representing mid-point growth of 38%. This represents an increase from the earlier forecast of $2.99-$3.21 per share.
Through Jun 1, 2018, the company is left to buy back roughly $373 million shares under its $500-million program, authorized in August 2017.
For the second quarter of fiscal 2018, net sales are anticipated to grow 16% at the mid-point to $1,535-$1,595 million. Adjusted EBITDA are predicted to be $235-$245 million, reflecting year-over-year growth of 15% at the mid-point while adjusted earnings per share are projected to be 92-97 cents per share. The bottom-line projection indicates 48% year-over-year growth at the mid-point.
HD Supply Holdings, Inc. Price, Consensus and EPS Surprise
Zacks Rank & Other Stocks to Consider
With a market capitalization of approximately $8 billion, HD Supply currently carries a Zacks Rank #2 (Buy).
Other top-ranked stocks worth considering in the industry are DMC Global Inc. BOOM , Harsco Corporation HSC and W.W. Grainger, Inc. GWW . All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .
In the last 60 days, earnings estimates for each of these stocks improved for the current year. Also, average positive earnings surprise for last four quarters has been 69.02% for DMC Global, 24.44% for Harsco Corporation and 18.72% for W.W. Grainger.
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