Dycom Industries (DY) Down 7.1% Since Last Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for Dycom Industries (DY). Shares have lost about 7.1% in that time frame, underperforming 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 its most recent earnings report in order to get a better handle on the important drivers.
Dycom's Q2 Earnings Top, Revenues Miss Estimate
Dycom Industries Inc. reported mixed results for second-quarter fiscal 2024 (ended Jul 29, 2023). The quarterly earnings surpassed the Zacks Consensus Estimate but revenues missed the same. Nonetheless, both metrics increased on a year-over-year basis. The upside was mainly backed by an increase in demand from four of its top five customers.
Earnings & Revenue Discussion
Dycom’s adjusted earnings of $2.03 per share surpassed the Zacks Consensus Estimate of $1.66 by 22.3%. The quarterly earnings increased from the year-ago adjusted figure of $1.46 per share. The uptrend was driven by higher adjusted EBITDA, lower amortization and higher gains on asset sales, partially offset by higher depreciation, stock-based compensation, interest expenses and taxes.
Contract revenues of $1,041.5 million increased 7.1% year over year but missed the consensus mark of $1,044 million by a meager 0.2%. With the deployment of gigabit wireline networks, wireless/wireline converged networks and wireless networks, the company witnessed an increase in demand from four of its top five customers.
The company’s top five customers represented 59.2% of total contract revenues, which declined 2.3% organically. Revenues from all other customers increased 24.6% organically in the quarter. The quarter marks the 18th consecutive period of organic growth for DY’s all other customers in aggregate, excluding the top five.
Dycom’s largest customer, AT&T, contributed 16.7% to total revenues. Lumen (the second-largest customer) contributed 15.6% to total revenues and grew 56.5% organically. This marks the sixth consecutive quarter of organic growth with Lumen. Comcast contributed 11.5% (up 6.9%), while Verizon represented 10.1% of total revenues and grew 29.8% organically. The company’s fifth customer contributed to 5.3% of revenues and grew 68.6% organically.
Fiber construction revenues from electric utilities increased 3.6% year over year organically and contributed 7.9% to total contract revenues in the quarter.
Dycom’s backlog at the fiscal second-quarter end totaled $6.207 billion, down from $6.316 billion in the prior quarter. Of the backlog, $3.523 billion is projected to be completed in the next 12 months.
Operating Highlights
Gross margin of 20.3% in the quarter expanded 240 basis points (bps) from the year-ago level.
Depreciation and amortization expenses of $38 million were up 7.5% year over year. General and administrative expenses of $84.8 million increased 15.7% year over year.
Adjusted EBITDA was $130.8 million during the quarter, up 24.9% year over year. Adjusted EBITDA margin of 12.6% expanded 180 bps from the year-ago level, given improved operating performance on the higher level of revenues in the quarter.
Financials
As of Jul 29, 2023, Dycom had liquidity of $685.9 million, including cash and cash equivalents worth $83.4 million (compared with $224.2 million on Jan 28, 2023). Long-term debt was $799.4 million at the fiscal second-quarter end, down from $807.4 million at the fiscal 2023-end.
Fiscal Q3 2024 Guidance
For the fiscal third quarter (ending Oct 28, 2023), management expects contract revenues to be in line with the year-ago level. DY expects $30 million of acquired contract revenues for the quarter. The adjusted EBITDA margin is expected to increase 50-100 bps from the year-ago level. For the period, Dycom expects the effective tax rate to be 26% and diluted shares of 29.7 million. Interest expense, net, is likely to be $13.3 million and amortization expense to be $6.1 million.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
The consensus estimate has shifted -6.3% due to these changes.
VGM Scores
Currently, Dycom Industries has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Dycom Industries has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Dycom Industries, Inc. (DY) : Free Stock Analysis Report
