HD Supply posts in-line Q2 profit; stock falls on sales miss, weak outlook

Shares of HD Supply Holdings (NASDAQ: HDS) dropped Tuesday morning after the industrial distributor reported weaker than expected sales for the second quarter, and provided below-consensus guidance. Earnings, meanwhile, increased and matched the market’s prediction.

Adjusted net income advanced to $183 million or $1.08 per share in the second quarter from $182 million or $0.99 per share in the corresponding period of last year and came in line with analysts’ forecast. Unadjusted earnings moved up 11.3% annually to $0.79 per share from $0.71 per share last year.

Broad-based Growth

At $1.6 billion, net sales were up 1.5% from the second quarter of 2018. Analysts were looking for a slightly bigger top-line number. Sales at the Facilities Maintenance division edged up 1% year-over-year to $830 million during the three-month period, while Construction & Industrial sales grew 2% to $795 million.

“Despite a difficult start to 2019, I am proud of our more than 11,500 HD Supply associates who continue to provide exceptional service to our customers. We remain confident in our ability to create value by focusing on what we can control, providing the best customer service in the industry, generating strong free cash flow and executing on our capital allocation strategy,” said HD Supply CEO Joe DeAngelo.

Outlook

After the mixed second-quarter results, initial estimates show that net sales increased 1.6% year-over-year to $521 million in the month of August, with both the business segments registering growth.

For the third quarter, HD Supply estimates adjusted earnings to be between $0.96 per share and $1.05 per share, and unadjusted earnings between $0.78 per share and $0.86 per share. The forecast for adjusted EBITDA is $240-$255 million. However, the estimates fall short of expectations.

Related: HD Supply Q1 2019 Earnings Conference Call Transcript

For fiscal 2019, the company forecasts adjusted earnings in the range of $3.45 per share to $3.60 per share. Full-year unadjusted earnings are expected to be between $2.68 per share and $2.81 per share. Currently, Adjusted EBITDA is estimated to be in the $855-$885 range.

The Stock

After retreating from its recent peak, HD Supply shares had been gathering strength in recent weeks. The stock has gained 11% so far this year. It dropped sharply during Tuesday’s pre-market session, immediately after the earnings announcement.

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