Dycom Industries (DY) Q3 Earnings, Revenues Beat, Up Y/Y

Dycom Industries Inc. (NYSE:DY) posted an earnings beat in the third quarter of fiscal 2016 after a miss in the preceding quarter. The specialty contracting services provider reported adjusted earnings per share of $1.08 in the quarter, crushing the Zacks Consensus Estimate of 75 cents by 44%.

Also, the bottom line witnessed 86.2% growth compared with the year-ago tally of 58 cents per share.

Investors cheered the stellar earnings performance as the stock rallied 11.4% to close at $80.80 in after-hours trading on May 24.

The bottom-line performance was strongly supported by the robust top-line growth and diligent operational initiatives undertaken by the company.

Inside the Headlines

Dycom’s third-quarter fiscal 2016 contract revenues came in at $664.6 million, up 35% year over year. Also, the top line comfortably surpassed the Zacks Consensus Estimate of $598 million by 11.1%. Contract revenues grew 28.7% on an organic basis. Acquisitions too, added $30.8 million in revenues, significantly supplementing the revenue stream.

Extensive deployment of 1-Gigabyte wireline networks by major customers and increasing rollout of fiber by cable operators in small and medium businesses drove the top line. Solid performance across the majority of business lines including engineering & design, and aerial and underground construction services and healthy inorganic growth also added to revenues.

The company reported non-GAAP adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $91.9 million for the quarter compared with $63.0 million recorded a year ago.

Liquidity

Dycom exited the quarter with cash and cash equivalents of $19.3 million compared with $21.3 million as of Jul 25, 2015. The company’s long-term debt was $723.9 million as of Apr 23, 2016, compared with $521.8 million as of Jul 25, 2015.

Guidance

Dycom issued an outlook for fourth-quarter fiscal 2016, wherein adjusted earnings per share are projected in the range of $1.45-$1.60 and revenues within $750–$780 million.

The Zacks Consensus Estimate for fourth-quarter fiscal 2016 earnings is currently pegged at $1.36 per share, well below the company’s guided range but will likely be revised downward in the future.

Our Take

We believe that over the past few quarters, Dycom’s top line has benefited significantly from favorable industry trends which are boosting client spending. The deployment of fiber-to-the-home and fiber-to-the-node technologies by major telecom operators, to enable video offerings and 1-gigabit high-speed connections, are opening up significant growth opportunities for the company. Going forward, we believe that the significant investments in wireline networks, cable capacity projects and the ongoing Connect America Fund II project will help Dycom maintain its growth momentum.

Also, the company’s diligent capital expenditure strategy has supplemented organic revenue growth over the past twelve months. We also believe that investments made in assets will boost operating efficiency, accelerating the delivery of backlogs, which in turn bodes well for long-term growth. This apart, an enviable client list including telecom biggies like AT&T, Inc. (NYSE:T) , CenturyLink (NYSE:T) and Verizon Communications Inc. (NYSE:VZ) and healthy backlog levels work in favor of this Zacks Rank #2 (Buy) company.