A month has gone by since the last earnings report for HD Supply . Shares have added about 9.6% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is HD Supply 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.
HD Supply Surpasses Q2 Earnings and Sales Estimates
HD Supply kept its earnings streak alive in the second quarter of fiscal 2020 (ended Aug 2, 2020), with earnings surpassing estimates by 13.7%. This was the company’s 4th consecutive quarter of better-than-expected earnings results. Also, the quarter’s sales beat the Zacks Consensus Estimate by 0.4%.
The industrial distributor’s adjusted earnings in the reported quarter were 83 cents per share, surpassing the consensus estimate of 73 cents. Also, the bottom line increased 5.1% from the year-ago figure of 79 cents. Despite top-line weakness, the bottom line gained from a 5.2% fall in shares outstanding.
Revenue Details
In the quarter under review, HD Supply’s net sales were $1,552 million, reflecting a year-over-year decline of 4.4%. The results suffered weakness in the segmental performances due to the pandemic.
However, the company’s revenues surpassed the Zacks Consensus Estimate of $1,546 million.
Notably, average daily sales changes on a year-over-year basis were a decline of 7.3% for May, a 4.8% fall for June and a 2% decrease for July. The same metric was down 0.7% year over year in August.
It currently reports under two business segments — Facilities Maintenance, and Construction & Industrial. The segmental information is briefly discussed below:
Revenues from Facilities Maintenance totaled $761 million, declining 8.3% year over year.
Revenues from Construction & Industrial totaled $793 million, reflecting a year-over-year decline of 0.3%.
Margin Profile
In the quarter under review, HD Supply’s cost of sales declined 3.5% year over year to $956 million. It represented 61.6% of the quarter’s net sales in the quarter. Gross profit fell 5.8% year over year to $596 million and margin decreased 60 basis points (bps) to 38.4%.
Selling, general and administrative expenses decreased 23.5% year over year to $366 million. It represented 23.6% of the quarter’s net sales. Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) in the quarter under review declined 2.5% year over year to $238 million. However, the adjusted EBITDA margin increased 30 bps year over year to 15.3%.
Operating income in the quarter decreased 6.2% year over year to $198 million, while the margin declined 20 bps to 12.8%. Interest expenses in the quarter declined 14.3% year over year to $24 million.
Balance Sheet and Cash Flow
Exiting the fiscal second quarter, HD Supply’s cash and cash equivalents decreased 51.7% sequentially to $71 million. Further, long-term debt balance was down 12.8% sequentially to $1,772 million.
Notably, the company repaid borrowings of $669 million under its revolving credit facilities in the first half of fiscal 2020 (ended Aug 2, 2020). Further, it raised $409 million in cash through the same means.
In the first half of fiscal 2020, HD Supply generated net cash of $339 million from operating activities as compared with $286 million in the year-ago period. Capital expenditure was $33 million, reflecting a year-over-year decline of 38.9%.
In the first half, the company used $3 million to purchase treasury shares, down from $78 million used in the year-ago comparable period.
Outlook
The company is wary about the uncertainties related to the pandemic and so refrains from providing financial projections for third-quarter fiscal 2020 (ending November 2020) and fiscal 2020 (ending February 2021).
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -46.37% due to these changes.
VGM Scores
Currently, HD Supply has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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 HD Supply 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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HD Supply (HDS) Up 9.6% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for HD Supply . Shares have added about 9.6% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is HD Supply 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.
HD Supply Surpasses Q2 Earnings and Sales Estimates
HD Supply kept its earnings streak alive in the second quarter of fiscal 2020 (ended Aug 2, 2020), with earnings surpassing estimates by 13.7%. This was the company’s 4th consecutive quarter of better-than-expected earnings results. Also, the quarter’s sales beat the Zacks Consensus Estimate by 0.4%.
The industrial distributor’s adjusted earnings in the reported quarter were 83 cents per share, surpassing the consensus estimate of 73 cents. Also, the bottom line increased 5.1% from the year-ago figure of 79 cents. Despite top-line weakness, the bottom line gained from a 5.2% fall in shares outstanding.
Revenue Details
In the quarter under review, HD Supply’s net sales were $1,552 million, reflecting a year-over-year decline of 4.4%. The results suffered weakness in the segmental performances due to the pandemic.
However, the company’s revenues surpassed the Zacks Consensus Estimate of $1,546 million.
Notably, average daily sales changes on a year-over-year basis were a decline of 7.3% for May, a 4.8% fall for June and a 2% decrease for July. The same metric was down 0.7% year over year in August.
It currently reports under two business segments — Facilities Maintenance, and Construction & Industrial. The segmental information is briefly discussed below:
Revenues from Facilities Maintenance totaled $761 million, declining 8.3% year over year.
Revenues from Construction & Industrial totaled $793 million, reflecting a year-over-year decline of 0.3%.
Margin Profile
In the quarter under review, HD Supply’s cost of sales declined 3.5% year over year to $956 million. It represented 61.6% of the quarter’s net sales in the quarter. Gross profit fell 5.8% year over year to $596 million and margin decreased 60 basis points (bps) to 38.4%.
Selling, general and administrative expenses decreased 23.5% year over year to $366 million. It represented 23.6% of the quarter’s net sales. Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) in the quarter under review declined 2.5% year over year to $238 million. However, the adjusted EBITDA margin increased 30 bps year over year to 15.3%.
Operating income in the quarter decreased 6.2% year over year to $198 million, while the margin declined 20 bps to 12.8%. Interest expenses in the quarter declined 14.3% year over year to $24 million.
Balance Sheet and Cash Flow
Exiting the fiscal second quarter, HD Supply’s cash and cash equivalents decreased 51.7% sequentially to $71 million. Further, long-term debt balance was down 12.8% sequentially to $1,772 million.
Notably, the company repaid borrowings of $669 million under its revolving credit facilities in the first half of fiscal 2020 (ended Aug 2, 2020). Further, it raised $409 million in cash through the same means.
In the first half of fiscal 2020, HD Supply generated net cash of $339 million from operating activities as compared with $286 million in the year-ago period. Capital expenditure was $33 million, reflecting a year-over-year decline of 38.9%.
In the first half, the company used $3 million to purchase treasury shares, down from $78 million used in the year-ago comparable period.
Outlook
The company is wary about the uncertainties related to the pandemic and so refrains from providing financial projections for third-quarter fiscal 2020 (ending November 2020) and fiscal 2020 (ending February 2021).
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -46.37% due to these changes.
VGM Scores
Currently, HD Supply has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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 HD Supply has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.