Stock Story -
Industrial distributor DXP Enterprises (NASDAQ:DXPE) reported Q2 CY2024 results exceeding Wall Street analysts' expectations, with revenue up 4.1% year on year to $445.6 million. It made a GAAP profit of $1 per share, down from its profit of $1.06 per share in the same quarter last year.
Is now the time to buy DXP? Find out by reading the original article on StockStory, it's free.
DXP (DXPE) Q2 CY2024 Highlights:
- Revenue: $445.6 million vs analyst estimates of $434 million (2.7% beat)
- EPS: $1 vs analyst estimates of $0.80 (25% beat)
- Gross Margin (GAAP): 30.9%, in line with the same quarter last year
- EBITDA Margin: 10.8%, up from 9.3% in the same quarter last year
- Free Cash Flow of $5.91 million, down 75.5% from the previous quarter
- Market Capitalization: $775.7 million
Founded during the emergence of Big Oil in Texas, DXP (NASDAQ:DXPE) provides pumps, valves, and other industrial components.
Maintenance and Repair DistributorsSupply chain and inventory management are themes that grew in focus after COVID wreaked havoc on the global movement of raw materials and components. Maintenance and repair distributors that boast reliable selection and quickly deliver products to customers can benefit from this theme. While e-commerce hasn’t disrupted industrial distribution as much as consumer retail, it is still a real threat, forcing investment in omnichannel capabilities to serve customers everywhere. Additionally, maintenance and repair distributors are at the whim of economic cycles that impact the capital spending and construction projects that can juice demand.
Sales GrowthExamining a company's long-term performance can provide clues about its business quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, DXP grew its sales at a weak 5.8% compounded annual growth rate. This shows it failed to expand in any major way and is a rough 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. DXP's annualized revenue growth of 15.2% over the last two years is above its five-year trend, suggesting its demand recently accelerated.
This quarter, DXP reported reasonable year-on-year revenue growth of 4.1%, and its $445.6 million of revenue topped Wall Street's estimates by 2.7%. Looking ahead, Wall Street expects sales to grow 4.5% over the next 12 months.
Operating MarginDXP was profitable over the last five years but held back by its large expense base. It demonstrated paltry profitability for an industrials business, producing an average operating margin of 6%. This result isn't too surprising given its low gross margin as a starting point.
On the bright side, DXP's annual operating margin rose by 3.8 percentage points over the last five years
In Q2, DXP generated an operating profit margin of 8.4%, in line with the same quarter last year. This indicates the company's cost structure has recently been stable.
EPSWe track the long-term growth in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company's growth was profitable.
DXP's EPS grew at a decent 8.6% compounded annual growth rate over the last five years, higher than its 5.8% annualized revenue growth. This tells us the company became more profitable as it expanded.
We can take a deeper look into DXP's earnings quality to better understand the drivers of its performance. As we mentioned earlier, DXP's operating margin was flat this quarter but expanded by 3.8 percentage points over the last five years. On top of that, its share count shrank by 9.4%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.
Like with revenue, we also analyze EPS over a shorter period to see if we are missing a change in the business. For DXP, its two-year annual EPS growth of 40.3% was higher than its five-year trend. This acceleration made it one of the faster-growing industrials companies in recent history.
In Q2, DXP reported EPS at $1, down from $1.06 in the same quarter last year. Despite falling year on year, this print easily cleared analysts' estimates. Over the next 12 months, Wall Street expects DXP to perform poorly. Analysts are projecting its EPS of $3.54 in the last year to shrink by 5.7% to $3.34.
Key Takeaways from DXP's Q2 ResultsWe were impressed by how significantly DXP blew past analysts' EPS expectations this quarter. We were also excited its revenue outperformed Wall Street's estimates. Zooming out, we think this quarter featured some important positives. The stock traded up 2.8% to $49.11 immediately after reporting.
