Stock Story -
Refrigerant services company Hudson Technologies (NASDAQ:HDSN) fell short of analysts' expectations in Q2 CY2024, with revenue down 16.8% year on year to $75.28 million. The company's full-year revenue guidance of $245 million at the midpoint also came in 5.6% below analysts' estimates. It made a GAAP profit of $0.20 per share, down from its profit of $0.41 per share in the same quarter last year.
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Hudson Technologies (HDSN) Q2 CY2024 Highlights:
- Revenue: $75.28 million vs analyst estimates of $79.17 million (4.9% miss)
- EPS: $0.20 vs analyst expectations of $0.25 (20.8% miss)
- The company dropped its revenue guidance for the full year from $257.5 million to $245 million at the midpoint, a 4.9% decrease
- Gross Margin (GAAP): 30%, down from 40.5% in the same quarter last year
- Free Cash Flow of $40.64 million is up from -$1.89 million in the previous quarter
- Market Capitalization: $345.9 million
Founded in 1991, Hudson Technologies (NASDAQ:HDSN) specializes in refrigerant services and solutions, providing refrigerant sales, reclamation, and recycling.
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 GrowthA company’s long-term performance can give signals about its business quality. Even a bad business can shine for one or two quarters, but a top-tier one tends to grow for years. Over the last five years, Hudson Technologies grew its sales at a solid 9.8% compounded annual growth rate. This shows it was successful in expanding, a good starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Hudson Technologies's recent history marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 4.4% over the last two years.
This quarter, Hudson Technologies missed Wall Street's estimates and reported a rather uninspiring 16.8% year-on-year revenue decline, generating $75.28 million of revenue. Looking ahead, Wall Street expects sales to grow 9.4% over the next 12 months, an acceleration from this quarter.
Operating MarginOperating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling them, and, most importantly, keeping them relevant through research and development.
Hudson Technologies has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 23.8%. This result isn't surprising as its high gross margin gives it a favorable starting point.
Analyzing the trend in its profitability, Hudson Technologies's annual operating margin rose by 20.7 percentage points over the last five years, as its sales growth gave it immense operating leverage.
This quarter, Hudson Technologies generated an operating profit margin of 17%, down 13.6 percentage points year on year. Since Hudson Technologies'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.
Hudson Technologies's full-year EPS flipped from negative to positive over the last five years. This is a good sign and shows it's at an inflection point.
Like with revenue, we also analyze EPS over a shorter period to see if we are missing a change in the business. Sadly for Hudson Technologies, its EPS declined more than its revenue over the last two years, dropping by 37%. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.
Diving into the nuances of Hudson Technologies's earnings can give us a better understanding of its performance. Hudson Technologies's operating margin has declined 30.9 percentage points over the last two years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; taxes and interest expenses can also affect EPS but don't tell us as much about a company's fundamentals.
In Q2, Hudson Technologies reported EPS at $0.20, down from $0.41 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 expects Hudson Technologies to grow its earnings. Analysts are projecting its EPS of $0.77 in the last year to climb by 13% to $0.87.
Key Takeaways from Hudson Technologies's Q2 Results We struggled to find many strong positives in these results. Its full-year revenue guidance missed and its revenue fell short of Wall Street's estimates. Overall, this was a mediocre quarter for Hudson Technologies. The stock traded down 8.6% to $6.88 immediately after reporting.
