Dycom Industries' Fiscal Q1 Earnings Crush Analysts’ Estimates

Dycom Industries (DY 0.63%) reported its fiscal first-quarter 2016 earnings after the market closed on Monday. The specialty contractor, which is heavily involved in telecommunications work, posted revenue and earnings growth that exceeded its guidance and analysts' estimates. It also provided a sunnier outlook for its fiscal second quarter than what analysts were forecasting.

Shares of Dycom Industries rose 3% on Tuesday, to close at $88.56, an all-time closing high. The stock has soared 153% in 2015 and 238% during the past year, through Tuesday. The company has been benefiting from actions by the telecommunications industry to significantly increase network bandwidth in order to carry soaring amounts of voice, data, and streaming video. Dycom provides program management, design, engineering, aerial and underground construction, and fulfillment services for this industry in the U.S. and Canada.

Additionally, it provides underground facility-locating services to various utilities, and other construction and maintenance services to electric and gas utilities, and others.

Key quarterly numbers

Data source: Dycom.

Notably, profit margin nicely expanded -- earnings grew much faster than revenue. Earnings on a generally accepted accounting principles (GAAP) basis were $0.91 per share.

Dycom comfortably beat Wall Street's revenue expectations and crushed its bottom-line ones. Analysts were projecting adjusted earnings of $1.01 per share on revenue of $625.6 million. 

Higher-level overview

• In addition to benefiting from broad industrywide growth, Dycom Industries increased market share. 
• Growth continues to be driven primarily by a number of major telecommunications companies deploying significant wireline networks across broad sections of the U.S. These networks are generally designed to provide bandwidth enabling 1 gigabit speeds to individual consumers.
• Telephone companies are deploying fiber-to-the-home and fiber-to-the-node technologies to enable video offerings and 1 gigabit high-speed connections.
• Some of those telephone companies previously deploying fiber-to-the-node architectures have definitively transitioned to fiber-to-the-home deployments, while others are beginning to provision video over their fiber-to-the-node architectures.
• Cable operators are continuing to deploy fiber to small and medium businesses.
• Growth was driven by a broad increase in demand from all top five customers: AT&T (19.1% of revenue), CenturyLink (15.6%), Comcast (12%), Verizon (9.7%), non-disclosed customer (8.5%).
• Revenue from Dycom's relatively small wireless business was down 40% from the year-ago period. This is an industrywide phenomenon, not one specific to Dycom.
• Gross margins increased 215 basis points due to job mix, a drop in fuel prices, a broadly improved operating performance, and a reduction of 95 basis points in general and administrative expenses.
• Company closed on acquisition of TelCom Construction for a purchase price of approximately $49 million. TelCom, based in Clearwater, MN, provides construction and maintenance services for telecommunications providers throughout the U.S.
• Company repurchased more than 954,000 shares of common stock, at an average price of $73.35 per share during the quarter, for a total of $70 million. 

Customer-specific overview

• AT&T: Renewed construction and maintenance agreements in NC, SC, GA, and FL.
• Windstream: Received a new construction and maintenance agreement for NC.
• Comcast: Secured a new construction and maintenance services agreement in WA.
• Verizon: Renewed engineering services agreements for MA, RI, NY, NJ, MD, and VA. Secured rural and municipal broadband builds in WI, NC, and SC.

What management had to say 
CEO Steven Nielsen said on the conference call:

Currently, we are providing program management, engineering and design, aerial and underground construction and fulfillment services for 1 gigabit deployments. These services are being provided across the country in dozens of metropolitan areas to a number of customers.

Revenues and opportunities driven by this new industry standard accelerated during the first quarter of fiscal 2016. Customers are publicly outlining multi-year initiatives, which are being implemented and managed on a market by market basis.

The company expects the good times to continue. Nielsen added: "We remain confident that our competitively unparalleled scale in market share, as well as our robust financial strength, position us well to deliver valuable service to our customers for those opportunities which have the highest likelihood of benefiting our shareholders."

Looking forward
Dycom expects fiscal second-quarter revenue in the range of $530 million to $550 million, solidly higher than the consensus estimate of $527.3 million. It guided for adjusted earnings per share of $0.52-$0.60, significantly more than the $0.39 analysts were projecting, and GAAP earnings per share of $0.44-$0.52. The second quarter is the company's slowest quarter due primarily to the much shorter days, as well as the colder weather in many parts of the country.

Dycom Industries may be of interest to growth investors. Its industry is experiencing powerful demand from telecommunications companies to deploy wireline networks across much of the country so that they can provide their consumers with 1 gigabit speed connections, and enable video offerings.