It has been about a month since the last earnings report for Dycom Industries (
DY Quick Quote DY - Free Report) . Shares have lost about 9.8% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Dycom Industries due for a breakout? 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 ( DY Quick Quote DY - Free Report) Q2 Earnings Beat, Backlog Solid
Dycom Industries Inc. reported solid results for second-quarter fiscal 2023 (ended Jul 30, 2022). Both the top and the bottom line surpassed their respective Zacks Consensus Estimate and increased on a year-over-year basis. The upside was mainly backed by solid organic growth.
Earnings & Revenue Discussion
Dycom’s adjusted earnings of $1.46 per share surpassed the Zacks Consensus Estimate of 99 cents by 47.5% and increased 147.5% from the year-ago figure of 59 cents. The uptrend was driven by higher adjusted EBITDA, lower depreciation and amortization, and higher gains on asset sales, partially offset by higher stock-based compensation and interest expense.
Contract revenues of $972.3 million increased 23.5% year over year and topped the consensus mark of $928 million by 4.7%. Organically, contract revenues increased 23.5%. Its top five customers contributed 67.4% to total contract revenues, which rose 26.6% organically. Revenues from all other customers increased 17.4% organically in the quarter. The quarter marks the 14th consecutive period of organic growth for DY’s all other customers in aggregate, excluding the top five. Dycom’s largest customer AT&T (contributing 26.3% to total revenues) advanced 44.2% on an organic basis. This marked its sixth consecutive quarter of organic growth. Lumen (the second-largest customer) contributed 13.1% to total revenues, Comcast contributed 11.5%, while Verizon and Frontier represented 8.3% and 8.1% of total revenues, respectively. Lumen and Frontier rose 33.7% and 147% organically, respectively. Fiber construction revenues from electric utilities increased 54.4% year over year, organically, and contributed 8.2% to total contract revenues. Dycom’s backlog at the end of the fiscal second quarter totaled $6.028 billion compared with $5.895 billion at the second-quarter fiscal 2022 end. Of the backlog, $3.111 billion is projected to be completed in the next 12 months. Operating Highlights
The gross margin in the quarter was 17.9%, up 63 basis points (bps) from the year-ago quarter’s level. Improved operating performance was partially offset by higher fuel costs. G&A expense, as a percentage of total revenues, improved 70 bps to 7.5%, backed by an improved operating leverage at the higher level of revenues and tight cost management.
Adjusted EBITDA was $104.7 million during the quarter, up 41.9% year over year. Adjusted EBITDA margin of 10.8% expanded 140 bps from the year-ago level. Financials
As of Jul 30, 2022, Dycom had liquidity of $366.3 million, including cash and cash equivalents worth $120.3 million, compared with $310.8 million on Jan 29, 2022. Long-term debt was $815.3 million at the end of second-quarter fiscal 2023 compared with $823.3 million at fiscal 2022-end.
During the reported quarter, DY repurchased 104,030 shares for $10 million at an average price of $96.06 per share. Guidance
For the fiscal third quarter (ended Oct 29, 2022), management expects contract revenues to grow in low- to-mid-teens from the year-ago reported figure. The adjusted EBITDA margin is expected to increase modestly from the year-ago levels. For the period, Dycom expects the effective tax rate to be 26.5% and diluted shares of 30 million. Interest expense is likely to be $10.8 million.
For the fiscal fourth quarter, DY anticipates normal seasonal impacts on contract revenue growth, sequentially. For the fiscal fourth quarter, it expects the growth rate of contract revenues to moderate for normal seasonal winter impacts compared to the October quarter. Each year, January quarterly results are impacted by seasonality, including inclement weather, fewer available workdays due to the holidays, reduced daylight work hours and the restart of calendar payroll taxes. These and other factors may have a pronounced impact on DY’s actual results for the January quarter. How Have Estimates Been Moving Since Then?
It turns out, fresh estimates flatlined during the past month.
At this time, Dycom Industries has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Dycom Industries has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.