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Truck and heavy equipment distributor Custom Truck One Source (NYSE:CTOS) missed analysts' expectations in Q2 CY2024, with revenue down 7.4% year on year to $423 million. The company's full-year revenue guidance of $1.89 billion at the midpoint also came in 3.5% below analysts' estimates. It made a GAAP loss of $0.10 per share, down from its profit of $0.05 per share in the same quarter last year.
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Custom Truck One Source (CTOS) Q2 CY2024 Highlights:
- Revenue: $423 million vs analyst estimates of $456.2 million (7.3% miss)
- EPS: -$0.10 vs analyst estimates of -$0.02 (-$0.08 miss)
- The company dropped its revenue guidance for the full year from $2.04 billion to $1.89 billion at the midpoint, a 7.4% decrease
- EBITDA Guidance for the full year is $357.5 million at the midpoint, below analyst estimates of $404.7 million
- Gross Margin (GAAP): 21.1%, down from 24.2% in the same quarter last year
- Free Cash Flow was -$51.88 million compared to -$89.93 million in the previous quarter
- Market Capitalization: $1.20 billion
Inspired by a family gas station, Custom Truck One Source (NYSE:CTOS) is a distributor of truck and heavy equipment, including sales, rentals, and custom modifications.
Specialty Equipment DistributorsHistorically, specialty equipment distributors have boasted deep selection and expertise in sometimes narrow areas like single-use packaging or unique lighting equipment. Additionally, the industry has evolved to include more automated industrial equipment and machinery over the last decade, driving efficiencies and enabling valuable data collection. Specialty equipment distributors whose offerings keep up with these trends can take share in a still-fragmented market, but like the broader industrials sector, this space is at the whim of economic cycles that impact the capital spending and manufacturing propelling industry volumes.
Sales GrowthReviewing a company's long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one tends to sustain growth for years. Thankfully, Custom Truck One Source's 47.7% annualized revenue growth over the last five years was incredible. This shows it expanded quickly, a useful starting point for our analysis.
Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Custom Truck One Source's annualized revenue growth of 11.4% over the last two years is below its five-year trend, but we still think the results were good and suggest demand was strong.
Custom Truck One Source also breaks out the revenue for its most important segments, Equipment Rental and Aftermarket Parts and Services, which are 32.7% and 8.7% of revenue. Over the last two years, Custom Truck One Source's Equipment Rental revenue ( lifts, cranes, trucks) averaged 5.6% year-on-year growth while its Aftermarket Parts and Services revenue (maintenance and repair) averaged 3% growth.
This quarter, Custom Truck One Source missed Wall Street's estimates and reported a rather uninspiring 7.4% year-on-year revenue decline, generating $423 million of revenue. Looking ahead, Wall Street expects sales to grow 11.6% over the next 12 months, an acceleration from this quarter.
Operating MarginOperating margin is a key measure of profitability. Think of it as net income–the bottom line–excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
Custom Truck One Source was profitable over the last five years but held back by its large expense base. It demonstrated lousy profitability for an industrials business, producing an average operating margin of 3.9%. This result is surprising given its high gross margin as a starting point.
On the bright side, Custom Truck One Source's annual operating margin rose by 9.2 percentage points over the last five years, as its sales growth gave it immense operating leverage
This quarter, Custom Truck One Source generated an operating profit margin of 4.2%, down 4.5 percentage points year on year. Since Custom Truck One Source's operating margin decreased more than its gross margin, we can assume the company was recently less efficient because expenses such as sales, marketing, R&D, and administrative overhead increased.
EPSAnalyzing long-term revenue trends tells us about a company's historical growth, but the long-term change in its earnings per share (EPS) points to the profitability of that growth–for example, a company could inflate its sales through excessive spending on advertising and promotions.
Although Custom Truck One Source's full-year earnings are still negative, it reduced its losses and improved its EPS by 33.5% annually over the last five years. The next few quarters will be critical for assessing its long-term profitability.
In Q2, Custom Truck One Source reported EPS at negative $0.10, down from $0.05 in the same quarter last year. This print missed analysts' estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street is optimistic. Analysts are projecting Custom Truck One Source's EPS of negative $0.06 in the last year to reach break even.
Key Takeaways from Custom Truck One Source's Q2 Results We struggled to find many strong positives in these results. Its full-year revenue guidance missed and its EBITDA guidance for the full year fell short of Wall Street's estimates. Overall, this quarter could have been better. The stock traded down 9% to $4.23 immediately following the results.
