Dycom (DY) Q2 Earnings Beat, Enjoys Robust Industry Trends

Dycom Industries Inc. (NYSE:DY) continued its winning streak for the eighth consecutive quarter as its second-quarter fiscal 2018 adjusted earnings of 12 cents per share surpassed the Zacks Consensus Estimate by 9.1%. The bottom line also came in at the higher end of the recently projected range of 9-12 cents.

However, earnings were substantially lower than the year-ago tally of 82 cents.

About a fortnight ago, the company had lowered its outlook for fiscal second-quarter results on account of reduction in number of available workdays due to adverse weather conditions, which had a negative impact on productivity and margins during the quarter. Also, the company adjusted its fiscal year end from the last Saturday of July to the last Saturday of January, resulting in the commencement of fiscal 2019 on Jan 28, 2018.

Inside the Headlines

Dycom’s fiscal second-quarter contract revenues came in at $655.1 million, down 6.6% year over year. The top line matched the Zacks Consensus Estimate and also came within the company’s expected range of $645-$675 million.

Increase in demand for deployment of 1-Gigabyte wireline networks and wireless/wireline converged networks by two major customers fuelled top-line growth during the quarter. This was, however, more than offset by a near-term moderation in spending by an important customer. Organic revenues contracted 10.6% year over year.

The company reported non-GAAP adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $59.6 million for the quarter compared with $86.2 million a year ago. Difficult winter weather conditions and the costs related to initiations of large customer programs 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 Jan 27, 2018, Dycom had cash and cash equivalents of $84 million compared with $38.6 million as of Jul 29, 2017. The company’s long-term debt was $733.8 million at the quarter-end compared with $738.3 million on Jul 29, 2017.

Guidance

Dycom reiterated its guidance for fiscal 2019 and also updated its outlook for the current quarter. For fiscal 2019, the company anticipates revenues to be in the range of $3.30 to $3.50 billion, with earnings per share of $5.22-$6.14. For first-quarter fiscal 2019 (ending on Apr 28, 2018), the company expects adjusted earnings per share in the band 63-78 cents, projecting revenues to lie between $720 million and $750 million.

The company expects revenues in the fiscal second quarter 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 newly emerging wireless technologies. However, the company’s margins will likely suffer due to timing volatility, customer spending modulations and an adverse mix of work activities.

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 will also serve to expand this Zacks Rank #2 (Buy) company’s growth prospects.

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

Other Stocks to Consider

Other stocks in the same space worth a look include EMCOR Group, Inc. (NYSE:EME) , Primoris Services Corporation (NASDAQ:PRIM) and MasTec, Inc. (NYSE:MTZ) , each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

EMCOR pulled off an average positive earnings surprise of 28.1% in the last four quarters, having surpassed estimates strongly in each of the trailing four quarters.

Primoris Services delivered an average beat of 10.7%, having surpassed estimates thrice in the trailing four quarters.

MasTec came up with a four-quarter average positive earnings surprise of 27.4%, having outpaced estimates in each.

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