HD Supply Q3 Results Top Estimates, But Provides Weak Q4 Outlook

(RTTNews) - Industrial distribution company HD Supply Holdings, Inc. (HDS) reported Tuesday a profit for the third quarter that increased from last year, reflecting improved operating margins and net sales growth. Both adjusted earnings per share and quarterly net sales topped analysts' expectations. The company also provider earnings and net sales guidance for the fourth quarter, below Street view.

"I was very pleased with our strong performance this quarter. We remain focused on controllable execution to deliver profitable growth in excess of our market growth estimate," CEO Joe DeAngelo said in a statement.

The Atlanta, Georgia-based company posted net income of $60 million or $0.30 per share for the third quarter, higher than $51 million or $0.26 per share in the prior-year quarter.

Excluding certain items, adjusted net income for the quarter was $111 million or $0.55 per share, compared to $76 million or $0.39 per share in the year-ago quarter.

On average, 16 analysts polled by Thomson Reuters expected the company to report earnings of $0.53 per share for the quarter. Analysts' estimates typically exclude special items.

Net sales for the quarter grew 9 percent to $2.49 billion from $2.27 billion in the same quarter last year, and topped fifteen Wall street analysts' consensus estimate of $2.47 billion.

Net sales for August, September and October were $785 million, $750 million and $953 million, respectively. There were 20 selling days in August, 19 selling days in September and 25 selling days in October. Average year-over-year daily sales growth for August was 10.1 percent, September was 10.0 percent and October was 8.6 percent.

The company noted that this was the eighteenth consecutive quarter of year-over-year average daily sales growth.

Facilities maintenance net sales for the quarter increased 8 percent to $660 million, waterworks net sales grew 10 percent to $695 million, power solutions net sales improved 6 percent to $502 million, and construction & industrial - white cap net sales increased 17 percent to $411 million from last year.

The company noted that its preliminary net sales in November was $668 million, and average daily sales were up 6.5 percent from a year ago.

The company said operating margin for the quarter improved about 110 basis points, driven by higher net sales and 10 basis points gross margin improvement, partially offset by higher operating expenses.

On December 1, HD Supply agreed to sell its hardware solutions business unit, formerly known as Crown Bolt, to Home Depot, Inc. (HD). About 98 percent of hardware solutions units 2013 sales were attributable to Home Depot. The deal is expected to close by the end of fiscal 2014.

Looking ahead to the fourth quarter, the company expects adjusted earnings in a range of $0.07 to $0.12 per share, on net sales between $1.990 billion to $2.065 billion. Analysts project earnings of $0.13 per share, on revenue of $2.09 billion for the quarter.

The company also affirmed its previously disclosed expectations for fiscal 2014 of about 4 percent estimated end market growth.

HDS closed Monday's regular trading session at $29.76, down $0.27 on a volume of 1.50 million shares.