HD Supply Ups FY18 View, Announces New $500M Buyback Program

HD Supply Holdings, Inc. (NASDAQ:HDS) , impressed with its results so far in fiscal 2018 (ending January 2019), has increased its financial projections for the year. Concurrently, this industrial service provider announced that its board of directors has authorized a new $500-million share buyback program.

Before we discuss the projections and the share repurchase program, a brief discussion on the company’s recently reported third-quarter fiscal 2018 (ended Oct 28, 2018) results have been provided below.

Snapshot of Third-Quarter Fiscal Results

In the reported quarter, HD Supply’s adjusted earnings per share were $1.00, roughly 2% above the Zacks Consensus Estimate of 98 cents. Further, the bottom-line result increased 25% year over year on the back of solid sales growth and 1.6% decline in outstanding shares.

Total revenues grew 17.7% year over year to $1,612 million, with organic sales expanding roughly 9.4%. Further, the top line surpassed the Zacks Consensus Estimate of $1.59 billion. On a segmental basis, sales of Facilities Maintenance increased 7.4% year over year and that of Construction & Industrial expanded 30.1%.

Margins were weak in the reported quarter as costs of sales grew 18.7% year over year while selling, general and administrative expenses increased 16.4%. Gross margin was down 60 basis points (bps) year over year and operating margin fell 10 bps.

Projections

For the fourth quarter of fiscal 2018 (ending January 2019), HD Supply’s net sales are anticipated to grow 18% at the midpoint to $1,375-$1,425 million. Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) are predicted to be $173-$183 million, reflecting year-over-year growth of 17% at the midpoint while adjusted earnings per share are projected to be 63-68 cents. The bottom-line projection indicates 35% year-over-year growth at the midpoint.

For fiscal 2018 (ending January 2019), HD Supply anticipates overall year-over-year growth of roughly 3% in its end markets. Net sales are now estimated to be $5,976-$6,026 million, above the previously mentioned $5,900-$6,000 million. At the midpoint, new sales numbers are projected to grow 17% year over year.

Adjusted EBITDA will be $857-$867 million, up from $845-$870 million stated earlier. The latest projection reflects year-over-year growth of 18% at the midpoint. Effective tax rate is anticipated to be roughly 26%. Adjusted earnings are predicted to be $3.33-$3.38 per share, representing midpoint growth of 45%. This represents an increase from the earlier forecast of $3.22-$3.35 per share.

For fiscal 2019 (ending January 2020), HD Supply anticipates low- to mid-single-digit growth in the residential and non-residential construction markets to boost the Construction & Industrial segment. For the Facilities Maintenance segment, the company predicts approximately 1-2% growth in “Living Space” MRO.

Details of Share Buyback Program

Under the aforementioned buyback authorization, HD Supply has been allowed to repurchase shares of up to $500 billion. The buyback can be done in the open market or through negotiated transactions. Starting from December 2018, the company has authorization (including past program and the new one) to buy back roughly $656 million worth of shares.

Zacks Rank & Other Stocks to Consider

With a market capitalization of approximately $7.3 billion, HD Supply currently carries a Zacks Rank #2 (Buy). In the past 30 days, the Zacks Consensus Estimate for earnings per share remained stable at $3.31 for fiscal 2018 and $3.28 for fiscal 2019.

HD Supply Holdings, Inc. Price and Consensus