Dycom Industries Inc.’s DY shares lost more than 30% post fourth-quarter fiscal 2019 (ended Jan 26, 2019) results, wherein adjusted earnings missed the Zacks Consensus Estimate by 41.2% but revenues beat the same by 4%.
The company reported fiscal fourth-quarter adjusted earnings of 10 cents per share, missing the Zacks Consensus Estimate by 41.2% and declining from the prior-year profit level of 12 cents. Dycom Chairman and CEO Steven Nielsen called the results “disappointing,” and blamed the tighter-than-expected margins on difficulties in large account.
The company pointed out that although major customers have stepped up infrastructure spending, higher-than-expected costs have pressurized Dycom’s margins. Bankruptcy of a major customer is also expected to weigh on the company’s results going forward. These factors have prompted it to issue earnings guidance well below the consensus mark.
Dycom’s fiscal fourth-quarter contract revenues of $748.6 million were up 14.3% year over year and topped the consensus mark by 4%. Organic revenues also increased 13.7% year over year during the quarter, backed by deployment of 1-gigabit wireline networks, wireless/wireline converged networks and wireless networks. Notably, organic revenues exclude $20.4 million of storm restoration services and contract revenues of $5.9 million from an acquired business in the reported quarter.
Its top five customers contributed 79.7% to total contract revenues, increasing 19.4% organically. AT&T, Dycom’s largest customer, accounted for 21% of the total revenues. AT&T grew 12.5% organically. Verizon contributed 20.9% and was up 77.2% organically; Comcast accounted for 19.2% and grew 0.9% organically; CenturyLink added 14.6% and grew 2.5%; and Windstream comprised 3.9% of the total revenues. However, revenues from all other customers declined 3.6% organically in the said quarter.
Dycom’s backlog came in at $7.33 billion as of Jan 26, 2018 versus $7.313 billion at October 2018-end.
Gross margin of 15.4% was below the company’s expectations as margins were impacted by the costs of a large customer program.
Adjusted EBITDA came in at $59.8 million or 8% of contract revenues compared with $59.6 million or 9.1% in the year-ago quarter.
Fiscal 2019 Highlights
Adjusted earnings came in at $2.78 per share, down from $3.88 a year ago. However, contract revenues of $3.13 billion increased from $2.97 billion a year ago.
Adjusted EBITDA was $330.0 million or 10.5% of contract revenues in the fiscal year compared with $383.5 million or 12.9% in fiscal 2018.
The company had cash and cash equivalents of $128.3 million as of Jan 26, 2019 compared with $84 million on Jan 27, 2018.
Long-term debt was $867.6 million at the end of fiscal 2019 compared with $733.8 million at fiscal 2018-end.
First Quarter of Fiscal 2020 Guidance
The company anticipates contract revenues in the range of $750-$800 million, below the Zacks Consensus Estimate of $784 million. Adjusted earnings are anticipated within 34-56 cents per share, well below the consensus mark of 78 cents for the quarter. Dycom expects adjusted EBITDA (as a percentage of contract revenues) to decrease from the year ago period.
Zacks Rank & Stocks to Consider
Dycom currently carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some better-ranked stocks in the Zacks Construction sector include Altair Engineering Inc. ALTR, Jacobs Engineering Group Inc. JEC and Frontdoor, Inc. FTDR, each carrying a Zacks Rank #2 (Buy).
Altair Engineering, Jacobs and Frontdoor’s earnings for the current year are expected to grow 69.8%, 13.4% and 10.5%, respectively.
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