Dycom's (DY) Shares Up More Than 8% On Q3 Earnings Beat

Dycom Industries Inc.’s (NYSE:DY) shares jumped 8.8% on Nov 26, after the company reported third-quarter fiscal 2020 (ended Oct 26, 2019) results. Its top and bottom lines not only beat the Zacks Consensus Estimate but also improved from the year-ago level.

During the quarter, the company reported adjusted earnings of 88 cents per share, surpassing the consensus estimate of 72 cents by 22.2%. However, earnings decreased 10.2% on a year-over-year basis due to lower margins, reflecting continued impacts of the complexity of a large customer program.

Revenue & Operating Highlights

Dycom’s quarterly contract revenues came in at $884.1 million, increasing 4.2% year over year. The reported figure also surpassed the consensus mark of $846.4 million by 4.5%.

Organically, revenues (excluding storm restoration services of $3.9 million in the year-ago quarter) grew 4.7% year over year in the fiscal third quarter. This marks the sixth consecutive quarter of organic growth. The upside was backed by higher demand from three of its top five customers owing to the deployment of 1-gigabit wireline networks, wireless/wireline converged networks and wireless networks.

The company’s top five customers contributed 77.3% to total contract revenues, increasing 3.4% organically. Dycom’s largest customer Verizon (NYSE:VZ) accounted for 20.6% of the total revenues. Verizon grew 4.6% year over year organically. CenturyLink (NYSE:CTL) (second-largest customer) added 18.6% to total revenues and increased 38.6% organically. AT&T (NYSE:T) contributed 18.4% to revenues; Comcast (NASDAQ:CMCSA) accounted for 14.9%; and Windstream, representing 4.8% of the total revenues, climbed 43.2% organically. Revenues from all other customers grew 9.6% organically in the quarter.

Dycom’s backlog at the end of the reported quarter totaled $6.349 billion versus $6,691 billion at the end of fiscal second quarter. Approximately $2.524 billion of the backlog is projected to be completed in the next 12 months.

Gross margin during the quarter was 18.1%, which declined 92 basis points (bps) due to higher cost of a large customer program. Adjusted EBITDA margin also contracted 120 bps to 10.4% from 11.6% in the year-ago quarter.

Financials

As of Oct 26, 2019, Dycom had cash and cash equivalents of $11.8 million compared with $128.3 million on Jan 26, 2019. Long-term debt was $970.2 million at the end of the fiscal third quarter compared with $867.6 million at fiscal 2019-end.

Fourth-Quarter Fiscal 2020 Guidance

The company anticipates contract revenues in the range of $700-$740 million, lower than the Zacks Consensus Estimate of $753.5 million (considering the mid-point of the guided range). The said range indicates a decline from the year-ago figure of $748.6 million.

Adjusted earnings are anticipated between loss of 15 cents and earnings of 2 cents per share. Considering the mid-point of this guidance, the estimated range is below the consensus mark of earnings of 13 cents per share for the quarter. Also, the said range suggests a fall from the prior-year reported earnings of 10 cents per share. Dycom expects adjusted EBITDA margin to decrease from the year-ago period.

Notably, the quarterly results were impacted by seasonality including inclement weather, fewer available work days due to holidays, reduced daylight work hours and the restart of calendar payroll taxes.

Zacks Rank & Stocks to Consider

Dycom currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same space include Orion Group Holdings, Inc. (NYSE:ORN) , Gibraltar Industries, Inc. (NASDAQ:ROCK) and MasTec, Inc. (NYSE:MTZ) . While Orion Group Holdings and Gibraltar sport a Zacks Rank #1 (Strong Buy), MasTec carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Gibraltar and Orion Group Holdings’ earnings for 2019 are expected to increase 19.2% and 54.1%, respectively.

MasTec is expected to register an EPS growth rate of 36.6% this year.

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