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Timing Volatility, High Cost to Ail Dycom's (DY) Q1 Earnings

Zacks Equity Research

Dycom Industries, Inc. DY is slated to report first-quarter fiscal 2020 results on May 21, before the opening bell. In the last reported quarter, the company’s earnings lagged the Zacks Consensus Estimate by 41.2% and declined 16.7% from the prior-year period. The bottom-line results were mainly impacted by tighter-than-expected margins owing to difficulties in large account.

Nonetheless, its total contract revenues of $748.6 million increased 14.3% year over year and topped the consensus mark by 4%. Organic revenues also increased 13.7% year over year during the quarter, backed by deployment of 1-gigabit wireline networks, wireless/wireline converged networks and wireless networks.

Shares of this specialty contracting services provider, which shares space in the Building Products - Heavy Construction industry with EMCOR Group, Inc. EME, MasTec, Inc. MTZ and North American Construction Group Ltd. NOA, have underperformed the industry year to date. The stock has lost 13.6% against its industry’s growth of 13.7% in the said period.


Let’s See How Things are Shaping Up for This Announcement

Dycom’s fiscal first-quarter results are expected to be negatively impacted by timing volatility due to large customer programs, customer spending modulations, and under absorption of labor and field costs. Also, bankruptcy of the company’s fifth largest customer is likely to weigh on overall results in the to-be-reported quarter.

Despite reporting solid contract revenues, the company has been vulnerable to timing uncertainty post initiation of large-scale network deployments. The trend is likely to continue in the fiscal first quarter as well. For the to-be-reported quarter, Dycom anticipates adjusted earnings within 34-56 cents per share, well below the year-ago level of 65 cents.

Notably, the Zacks Consensus Estimate for the to-be-reported quarter’s earnings is pegged at 43 cents, indicating a decline of 33.9% from the comparable period of fiscal 2019.

Dycom Industries, Inc. Price and EPS Surprise

Dycom Industries, Inc. Price and EPS Surprise

Dycom Industries, Inc. price-eps-surprise | Dycom Industries, Inc. Quote

The company is experiencing increased costs associated with the introduction of new initiatives and accelerated complexity of the above-mentioned programs. The same is expected to hurt its adjusted EBITDA margin in the quarter to be reported, as the company already projects the said metric to be lower than the year-ago level.

Meanwhile, the company has been immensely benefiting from extensive deployment of 1-gigabit wireline networks by major customers. The same is expected to benefit fiscal first-quarter earnings as well. Its strong financial position and diligent operational execution allow it to undertake strategic initiatives for expanding market share. Resultantly, the company’s top-line growth will get a boost.

Dycom has a solid track record of booking new contracts and renewing the existing ones. The company’s string of contract wins and strong customer relationships act as major growth drivers. It anticipates contract revenues in the range of $750-$800 million, up from $731.4 million recorded in the prior-year quarter.

Markedly, the Zacks Consensus Estimate for revenues is pegged at $770.6 million, suggesting a 5.4% increase from the prior-year figure of $731.4 million.

What the Zacks Model Says

Our proven model does not conclusively show that Dycom is likely to beat estimates in the to-be-reported quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Dycom currently carries a Zacks Rank #3.

Meanwhile, we caution against stocks with a Zacks Rank #4 and 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

You can see the complete list of today’s Zacks #1 Rank stocks here.

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