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HD Supply (HDS) Tops Q1 Earnings & Sales Estimates, Ups View

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

Outlook

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
 

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

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 - Free Report) , Harsco Corporation (HSC - Free Report) and W.W. Grainger, Inc. (GWW - Free Report) . 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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