Stock Story -
Temporary space provider WillScot (NASDAQ:WSC) fell short of analysts' expectations in Q2 CY2024, with revenue up 3.9% year on year to $604.6 million. The company's full-year revenue guidance of $2.45 billion at the midpoint also came in 2.7% below analysts' estimates. It made a non-GAAP profit of $0.39 per share, down from its profit of $0.45 per share in the same quarter last year.
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WillScot Mobile Mini (WSC) Q2 CY2024 Highlights:
- Revenue: $604.6 million vs analyst estimates of $614.8 million (1.7% miss)
- EPS (non-GAAP): $0.39 vs analyst expectations of $0.41 (5.5% miss)
- The company dropped its revenue guidance for the full year from $2.56 billion to $2.45 billion at the midpoint, a 4.3% decrease
- EBITDA Guidance for the full year is $1.11 million at the midpoint, below analyst estimates of $1.13 billion
- Gross Margin (GAAP): 54.1%, down from 56.3% in the same quarter last year
- Free Cash Flow of $120.9 million, down 40.2% from the previous quarter
- Market Capitalization: $7.80 billion
Originally focusing on mobile offices for construction sites, WillScot (NASDAQ:WSC) provides ready-to-use temporary spaces, largely for longer-term lease.
Construction and Maintenance ServicesConstruction and maintenance services companies not only boast technical know-how in specialized areas but also may hold special licenses and permits. Those who work in more regulated areas can enjoy more predictable revenue streams - for example, fire escapes need to be inspected every five years–. More recently, services to address energy efficiency and labor availability are also creating incremental demand. But like the broader industrials sector, construction and maintenance services companies are at the whim of economic cycles as external factors like interest rates can greatly impact the new construction that drives incremental demand for these companies’ offerings.
Sales GrowthA company’s long-term performance can indicate its business quality. Any business can put up a good quarter or two, but many enduring ones tend to grow for years. Over the last five years, WillScot Mobile Mini grew its sales at an incredible 19.4% compounded annual growth rate. This is a great starting point for our analysis because it shows WillScot Mobile Mini's offerings resonate with customers.
Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. WillScot Mobile Mini's annualized revenue growth of 10.2% over the last two years is below its five-year trend, but we still think the results were good and suggest demand was strong.
WillScot Mobile Mini also breaks out the revenue for its most important segments, Leasing and Delivery and Installation, which are 75.9% and 17.9% of revenue. Over the last two years, WillScot Mobile Mini's Leasing revenue (recurring) averaged 14.7% year-on-year growth while its Delivery and Installation revenue (non-recurring) averaged 8.1% growth.
This quarter, WillScot Mobile Mini's revenue grew 3.9% year on year to $604.6 million, falling short of Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 8.7% over the next 12 months, an acceleration from this quarter.
Operating MarginOperating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses–everything from the cost of goods sold to advertising and wages. It's also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.
WillScot Mobile Mini 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 20.3%. This result isn't surprising as its high gross margin gives it a favorable starting point.
Analyzing the trend in its profitability, WillScot Mobile Mini's annual operating margin rose by 7.1 percentage points over the last five years, as its sales growth gave it immense operating leverage.
This quarter, WillScot Mobile Mini's breakeven margin was down 29.5 percentage points year on year. Since WillScot Mobile Mini'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.
WillScot Mobile Mini'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. WillScot Mobile Mini's EPS grew at an astounding 20.7% compounded annual growth rate over the last two years, higher than its 10.2% annualized revenue growth. However, this alone doesn't tell us much about its day-to-day operations because its operating margin didn't expand during this timeframe.
We can take a deeper look into WillScot Mobile Mini's earnings quality to better understand the drivers of its performance. A two-year view shows that WillScot Mobile Mini has repurchased its stock, shrinking its share count by 16.6%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings.
In Q2, WillScot Mobile Mini reported EPS at $0.39, down from $0.45 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 WillScot Mobile Mini to grow its earnings. Analysts are projecting its EPS of $1.66 in the last year to climb by 34.8% to $2.23.
Key Takeaways from WillScot Mobile Mini's Q2 Results We struggled to find many strong positives in these results. Its revenue and EPS missed due to underperformance in its Leasing segment, and it lowered its full-year revenue guidance. Its full-year EBITDA forecast also fell short of Wall Street's estimates. Overall, this was a bad quarter for WillScot Mobile Mini. The stock traded down 5.8% to $37.50 immediately after reporting.
