Dycom Industries (DY) Beats On Q1 Earnings, Revenues Miss

After two successive earnings beats, Dycom Industries Inc. (NYSE:DY) followed up with another beat in its first-quarter fiscal 2017 results. The specialty contracting services provider reported adjusted earnings per share of $1.67 in the quarter, surpassing the Zacks Consensus Estimate of $1.65.

The bottom-line figure was even more remarkable on a year-over-year basis, surging a striking 34.7% compared with the year-ago tally of $1.24 per share.

Robust top-line growth drove earnings, while diligent operational initiatives undertaken by the company supported the bottom line.

Inside the Headlines

Dycom’s fiscal first-quarter contract revenues continued their strong momentum and came in at $799.2 million, up 21.2% year over year. However, the top line missed the Zacks Consensus Estimate of $801 million by a whisker. Contract revenues grew 18% on an organic basis. Acquisitions too, added $56.6 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 boosted top-line growth. Solid performance across the majority of business lines, including engineering & design and aerial and underground construction services, and healthy inorganic growth also augmented revenues.

The company reported non-GAAP adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $129.2 million for the quarter, compared with $105.7 million recorded a year ago.

Liquidity

Dycom exited the quarter with cash and cash equivalents of $21.7 million compared with $33.8 million as of Jul 30, 2016. The company’s long-term debt was $774.5 million as at quarter-end, compared with $706.2 million as of Jul 30, 2016.

Outlook for Goodman Networks

Last quarter, Dycom had acquired certain telecom-related assets of Goodman Networks Incorporated for about $107.5 million in cash. It had purchased certain assets and associated liabilities in Goodman's current wireline and wireless network deployment businesses.

Initially, Dycom projected the buyout to generate about $150–$165 million in revenues over the next 12 months, by providing services like wireless network construction in Texas, Georgia, Southern California and other markets. This specialty contracting services provider also projected the EBITDA (earnings before interest, taxes, depreciation and amortization) of the acquired business, as a percentage of revenue, to be roughly in line with its own ratio in fiscal 2018.

However, concurrent with the earnings release, Dycom announced that the recently-acquired operations of Goodman Networks are now forecast to generate revenues of about $10 million per quarter, which is much lower than the initial expectations. Consequently, Dycom has reduced its contract backlog by about $211 million.

Guidance

Dycom issued guidance for second-quarter fiscal 2017, wherein adjusted earnings per share are projected in the range of 61–73 cents on revenues within a range of $640–$670 million.

The Zacks Consensus Estimate for first-quarter fiscal 2017 earnings is currently pegged at 71 cents per share, within the company’s guided range.

DYCOM INDS Price, Consensus and EPS Surprise

Our Take

We believe that Dycom’s top line has benefited significantly from favorable industry trends over the past few quarters, which are driving client spending. 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, have been opening up considerable growth opportunities for the company. Going forward, we expect 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 improvement over the past 12 months. We also believe that investments made in assets will enhance operating efficiency, accelerating the delivery of backlogs, which in turn bodes well for long-term growth.

This apart, Dycom has a highly concentrated client base, among which the biggest ones – i.e. AT&T, Inc. (NYSE:T) , Comcast Corporation (NASDAQ:CMCSA) , Verizon Communications Inc. (NYSE:VZ) and Centurylink – contributed about 56% of revenues in fiscal 2015.

However, uncertainties in the macroeconomic environment, especially fluctuations in oil prices and unfavorable weather conditions, remain headwinds for the company. As a matter of fact, pronounced seasonal impact from businesses acquired by the company in 2015 has hampered earnings significantly in the past and could affect operations in the future as well.

Dycom presently carries a Zacks Rank #4 (Sell).

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