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Dycom (DY) Misses on Q1 Earnings, Shares Down on Weak View

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Dycom Industries Inc. DY broke its streak of beating estimates for eight quarters, as the company's first-quarter fiscal 2019 adjusted earnings of 65 cents per share lagged the Zacks Consensus Estimate by 4.4%. The company posted earnings of $1.30 in the year-ago quarter.

The company also lowered guidance for fiscal 2019. The dismal quarterly results triggered a huge sell-off in the company’s shares, which fell 20.3% in yesterday’s trading session.

Inside the Headlines

Dycom’s first-quarter fiscal contract revenues came in at $731.4 million, down 7% year over year. The top line missed the Zacks Consensus Estimate of $736 million. Organic revenues contracted 10% year over year.

Increase in demand for deployment of 1-Gigabyte wireline networks and wireless/wireline converged networks was more than offset by a near-term moderation in spending by a large customer, as well as revenue declines from certain other customers. Dycom’s top five customers accounted for 78.8% of revenues and declined 8.8% organically. Revenues from all other customers declined 14.2% organically.

The company reported non-GAAP adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $73.7 million for the quarter compared with $108.2 million in the year-ago quarter. A prolonged winter and the costs related to initiations of large customer programs persistently hurt profits.

Dycom Industries, Inc. Price, Consensus and EPS Surprise

Dycom Industries, Inc. Price, Consensus and EPS Surprise | Dycom Industries, Inc. Quote

Liquidity

As of Apr 28, 2018, Dycom had cash and cash equivalents of $57.9 million compared with $84 million as of Jan 28, 2017. The company’s long-term debt was $731.7 million at the end of the reported quarter compared with $733.8 million on Jan 28, 2017.

Guidance

Dycom slashed guidance for fiscal 2019. For fiscal 2019, the company anticipates contract revenues in the range of $3.23-$3.43 billion compared with the previous range of $3.30- $3.50 billion. Adjusted earnings are anticipated between $4.26 and $5.15, down from the previous range of $5.22-$6.14.

For second-quarter fiscal 2019 (ending on Jul 28, 2018), the company expects adjusted earnings per share in the band of $1.13-$1.28. Revenues are projected between $830 million and $860 million.

The company expects revenues in the coming quarters to stabilize and also projects strong demand from several heavyweight customers. Dycom is optimistic about fiber deep cable capacity projects, 1 gigabit deployments and initial phases of fiber deployments for emerging wireless technologies. However, the company’s margins are likely to suffer due to timing volatility, customer spending modulations and an adverse mix of work activities. Going forward, under absorption of labor and field costs might continue to hurt margins.

Our Take

The industry is witnessing a dramatically increasing network bandwidth with major industry participants deploying significant 1 gigabit wireline networks. Also, emerging wireless technologies are driving significant incremental wireline deployments. Such positive industry trends are generating unprecedented opportunities for Dycom. Converged wireless/wireline network deployments are expected to boost this Zacks Rank #2 (Buy) company’s prospects.

The company expects engineering and construction work to gain strong momentum in the upcoming quarters. In light of these increased fiber deployments (which have already begun in many parts of the United States), Dycom expects numerous project initiations in the near term. These factors bode well for the company’s growth.

Other Stocks to Consider

A few other top-ranked stocks in the same space include Great Lakes Dredge & Dock Corporation GLDD, MasTec, Inc MTZ and Sterling Construction Company Inc STRL. While Great Lakes and MasTec sport a Zacks Rank #1 (Strong Buy), Sterling Construction carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Great Lakes pulled off an average positive earnings surprise of 48.3% in the last four quarters, having surpassed estimates twice in the trailing four quarters.

MasTec came up with a four-quarter average positive earnings surprise of 38.3%, having outpaced estimates in each.

Sterling Construction delivered an average beat of 82.3%, having surpassed estimates twice in the trailing four quarters.

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