Stock Story -
Data center products and services company Vertiv (NYSE:VRT) reported results in line with analysts' expectations in Q2 CY2024, with revenue up 12.6% year on year to $1.95 billion. The company expects next quarter's revenue to be around $1.96 billion, in line with analysts' estimates. It made a non-GAAP profit of $0.67 per share, improving from its profit of $0.22 per share in the same quarter last year.
Is now the time to buy Vertiv? Find out by reading the original article on StockStory, it's free.
Vertiv (VRT) Q2 CY2024 Highlights:
- Revenue: $1.95 billion vs analyst estimates of $1.94 billion (small beat)
- EPS (non-GAAP): $0.67 vs analyst estimates of $0.57 (17% beat)
- Revenue Guidance for Q3 CY2024 is $1.96 billion at the midpoint, roughly in line with what analysts were expecting
- The company reconfirmed its revenue guidance for the full year of $7.67 billion at the midpoint
- EPS (non-GAAP) Guidance for Q3 CY2024 is $0.67 at the midpoint, above analyst estimates of $0.63
- Gross Margin (GAAP): 38%, up from 34.3% in the same quarter last year
- Free Cash Flow of $378.4 million, up from $101 million in the previous quarter
- Organic Revenue rose 14% year on year (25.2% in the same quarter last year)
- Market Capitalization: $34.07 billion
Formerly part of Emerson (NYSE:EMR) Electric, Vertiv (NYSE:VRT) manufactures and services infrastructure technology products for data centers and communication networks.
Electrical SystemsLike many equipment and component manufacturers, electrical systems companies are buoyed by secular trends such as connectivity and industrial automation. More specific pockets of strong demand include Internet of Things (IoT) connectivity and the 5G telecom upgrade cycle, which can benefit companies whose cables and conduits fit those needs. But like the broader industrials sector, these companies are also at the whim of economic cycles. Interest rates, for example, can greatly impact projects that drive demand for these products.
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. Thankfully, Vertiv's 10.2% annualized revenue growth over the last five years was solid. This is encouraging because it shows Vertiv was more successful in expanding than most industrials companies.
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. Vertiv's annualized revenue growth of 17.7% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated.
Vertiv also reports organic revenue, which strips out one-time events like acquisitions and currency fluctuations because they don't accurately reflect its fundamentals. Over the last two years, Vertiv's organic revenue averaged 19.2% year-on-year growth. Because this number is better than its normal revenue growth, we can see that some mixture of divestitures and foreign exchange rates dampened its headline performance.
This quarter, Vertiv's year-on-year revenue growth clocked in at 12.6%, and its $1.95 billion of revenue was line with Wall Street's estimates. The company is guiding for revenue to rise 12.5% year on year to $1.96 billion next quarter, slowing from the 17.7% year-on-year increase it recorded in the same quarter last year. Looking ahead, Wall Street expects sales to grow 12.7% over the next 12 months.
Operating Margin Operating margin is an important measure of profitability. It’s the portion of revenue left after accounting for all core expenses–everything from the cost of goods sold to advertising and wages. Operating margin is also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.
Vertiv was profitable over the last five years but held back by its large expense base. It demonstrated mediocre profitability for an industrials business, producing an average operating margin of 8%.
On the bright side, Vertiv's annual operating margin rose by 10.9 percentage points over the last five years.
In Q2, Vertiv generated an operating profit margin of 17.2%, up 5.3 percentage points year on year. This increase was solid, and since the company's operating margin rose more than its gross margin, we can infer it was recently more efficient with its general expenses like sales, marketing, and administrative overhead.
EPS We 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.
Vertiv'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 more recent period because it can give insight into an emerging theme or development for the business. Vertiv's EPS grew at an astounding 127% compounded annual growth rate over the last two years, higher than its 17.7% annualized revenue growth. This tells us the company became more profitable as it expanded.
Diving into Vertiv's quality of earnings can give us a better understanding of its performance. Vertiv's operating margin has expanded 15.3 percentage points over the last two years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; taxes and interest expenses can also affect EPS but don't tell us as much about a company's fundamentals.
In Q2, Vertiv reported EPS at $0.67, up from $0.22 in the same quarter last year. This print easily cleared analysts' estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Vertiv to grow its earnings. Analysts are projecting its EPS of $1.49 in the last year to climb by 79.5% to $2.68.
Key Takeaways from Vertiv's Q2 Results We enjoyed seeing Vertiv exceed analysts' EPS expectations this quarter. We were also glad its full-year EPS guidance exceeded Wall Street's estimates. Overall, this quarter seemed fairly positive and shareholders should feel optimistic. The stock traded up 6.3% to $96.77 immediately after reporting.
