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HD Supply (HDS) Surpasses Q2 Earnings and Sales Estimates

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HD Supply Holdings, Inc. (HDS - Free Report) 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%.

The company agreed to divest Construction & Industrial by selling it to an associate of Clayton, Dubilier & Rice. The transaction, valued at $2.9 billion in cash, is anticipated to be completed in October 2020.

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).

HD Supply Holdings, Inc. Price, Consensus and EPS Surprise

HD Supply Holdings, Inc. Price, Consensus and EPS Surprise

HD Supply Holdings, Inc. price-consensus-eps-surprise-chart | HD Supply Holdings, Inc. Quote

Zacks Rank & Stock to Consider

With a market capitalization of $6.4 billion, the company currently carries a Zacks Rank #5 (Strong Sell).

Some better-ranked stocks in the Zacks Industrial Products sector Tennant Company (TNC - Free Report) , SiteOne Landscape Supply, Inc. (SITE - Free Report) and Altra Industrial Motion Corp. (AIMC - Free Report) . While Tennant currently sports a Zacks Rank #1 (Strong Buy), both SiteOne Landscape and Altra Industrial Motion carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 60 days, earnings estimates for these companies improved for the current year. Further, earnings surprise for the last reported quarter was 380.00% for Tennant, 34.56% for SiteOne Landscape and 76.47% for Altra Industrial Motion.

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