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HD Supply (HDS) Q3 Earnings & Revenues Surpass Estimates

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HD Supply Holdings, Inc. kept its earnings streak alive in the third quarter of fiscal 2020 (ended Nov 1, 2020), with earnings surpassing estimates by 4.4%. This was the company’s fifth consecutive quarter of better-than-expected earnings. Also, the quarter’s sales beat the Zacks Consensus Estimate by 0.1%.

The industrial distributor’s adjusted earnings in the reported quarter were 47 cents per share, surpassing the consensus estimate of 45 cents. Also, the bottom line increased 2.2% from the year-ago figure of 46 cents. The bottom line gained from higher net sales and 3.2% fall in shares outstanding.

Revenue Details

In the quarter HD Supply’s net sales were $827.5 million, reflecting a year-over-year increase of 0.3%. The company’s revenues surpassed the Zacks Consensus Estimate of $827 million.

Notably, average daily sales changes on a year-over-year basis were an increase of 1.1% for August, a 0.7% decline for September and a 0.3% increase for October. The metric was up 2.9% in November.

In August 2020, HD Supply entered into a contract with private equity firm Clayton, Dubilier & Rice, for the sale of its Construction & Industrial segment (“White Cap”). The deal was completed in October 2020.

Also, in November 2020, HD Supply agreed to let Atlanta, GA-based The Home Depot, Inc. to acquire its outstanding shares in an all-cash transaction. The transaction has been approved by the boards of directors of both companies. Subject to the customary closing conditions, the transaction is anticipated to close in the quarter ending Jan 31, 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

Margin Profile

In the quarter under review, HD Supply’s cost of sales grew 1.3% year over year to $479.2 million. It represented 57.9% of the quarter’s net sales. Gross profit fell 1.1% year over year to $348.3 million and margin decreased 60 basis points (bps) to 42.1%.

Selling, general and administrative expenses decreased 1.7% year over year to $205.7 million. It represented 24.9% of the quarter’s net sales. Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) in the quarter improved 0.3% to $148 million. However, the adjusted EBITDA margin was 17.9%, flat year over year.

Operating income in the quarter decreased 3.9% year over year to $121 million, while the margin declined 70 bps to 14.6%. Interest expenses in the quarter declined 19.7% to $22 million.

Balance Sheet and Cash Flow

Exiting the fiscal third quarter, HD Supply’s cash and cash equivalents were $2,315 million, up from $71 million in the previous quarter. Further, long-term debt balance was down 29.4% sequentially to $1,250.8 million.

Notably, the company repaid borrowings of $693.6 million under its revolving credit facilities in the first nine months of fiscal 2020 (ended Nov 1, 2020). Further, it raised $434.1 million in cash through the same means.

In the first nine months of fiscal 2020, HD Supply generated net cash of $523.9 million from operating activities compared with $496.6 million in the year-ago period. Capital expenditure was $54.6 million, reflecting a year-over-year decline of 38.7%.

In the first nine months of fiscal 2020, the company used $246.9 million to purchase treasury shares, down from $320.5 million used in the year-ago period.

Outlook

The company has not from provided financial projections for fourth-quarter fiscal 2020 and fiscal 2020 (ending January 2021).

Zacks Rank & Stocks to Consider

The company currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks are Altra Industrial Motion Corp. (AIMC - Free Report) , Applied Industrial Technologies, Inc. (AIT - Free Report) and Dover Corporation (DOV - Free Report) . While Altra Industrial currently sports a Zacks Rank #1 (Strong Buy), Applied Industrial and Dover carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Altra Industrial delivered a positive earnings surprise of 50.07%, on average, in the trailing four quarters.

Applied Industrial delivered a positive earnings surprise of 14.68%, on average, in the trailing four quarters.

Dover delivered a positive earnings surprise of 18.10%, on average, in the trailing four quarters.

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