Stock Story -
Home warranty company Frontdoor (NASDAQ:FTDR) reported Q2 CY2024 results topping analysts' expectations, with revenue up 3.6% year on year to $542 million. The company expects next quarter's revenue to be around $537.5 million, in line with analysts' estimates. It made a non-GAAP profit of $1.27 per share, improving from its profit of $0.86 per share in the same quarter last year.
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Frontdoor (FTDR) Q2 CY2024 Highlights:
- Revenue: $542 million vs analyst estimates of $536.7 million (small beat)
- EPS (non-GAAP): $1.27 vs analyst estimates of $1.00 (26.7% beat)
- Revenue Guidance for Q3 CY2024 is $537.5 million at the midpoint, roughly in line with what analysts were expecting
- The company reconfirmed its revenue guidance for the full year of $1.83 billion at the midpoint
- Gross Margin (GAAP): 56.3%, up from 51.6% in the same quarter last year
- Free Cash Flow of $92 million, up 26% from the previous quarter
- Market Capitalization: $3.08 billion
Specialized Consumer ServicesSome consumer discretionary companies don’t fall neatly into a category because their products or services are unique. Although their offerings may be niche, these companies have often found more efficient or technology-enabled ways of doing or selling something that has existed for a while. Technology can be a double-edged sword, though, as it may lower the barriers to entry for new competitors and allow them to do serve customers better.
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. Unfortunately, Frontdoor's 6.6% annualized revenue growth over the last five years was sluggish. 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 consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. Frontdoor's recent history shows its demand slowed as its annualized revenue growth of 4.8% over the last two years is below its five-year trend.
This quarter, Frontdoor reported reasonable year-on-year revenue growth of 3.6%, and its $542 million of revenue topped Wall Street's estimates by 1%. The company is guiding for revenue to rise 2.6% year on year to $537.5 million next quarter, slowing from the 8.3% year-on-year increase it recorded in the same quarter last year. Looking ahead, Wall Street expects sales to grow 4.9% over the next 12 months, an acceleration from this quarter.
Cash Is KingAlthough earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can't use accounting profits to pay the bills.
Frontdoor has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company's free cash flow margin averaged 10.3% over the last two years, slightly better than the broader consumer discretionary sector.
Frontdoor's free cash flow clocked in at $92 million in Q2, equivalent to a 17% margin. This quarter's result was good as its margin was 8.6 percentage points higher than in the same quarter last year, but we wouldn't read too much into the short term because investment needs can be seasonal, causing temporary swings. Long-term trends carry greater meaning.
Over the next year, analysts' consensus estimates show they're expecting Frontdoor's free cash flow margin of 13.2% for the last 12 months to remain the same.
Key Takeaways from Frontdoor's Q2 Results We were impressed by how significantly Frontdoor blew past analysts' EPS expectations this quarter. We were also happy its revenue narrowly outperformed Wall Street's estimates. On the other hand, its full-year revenue guidance was underwhelming. Zooming out, we think this was still a decent, albeit mixed, quarter, showing the company is staying on track. The stock traded up 4.5% to $41.25 immediately following the results.
