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Why HD Supply Holdings Stock Fell 18% This Morning

By Rich Smith – Jun 6, 2017 at 6:31AM

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An earnings miss coupled with an infrastructure exit just crushed this stock.

What happened

Shares of building-supplies distributor HD Supply Holdings (HDS) are down 18% as of noon EDT Tuesday.

So what

HD Supply narrowly exceeded revenue estimates when it released first-quarter 2017 earnings this morning, reporting sales of $1.87 billion that edged out analyst expectations for $1.86 billion. The company's $0.42 per share in GAAP (generally accepted accounting principles) profits, on the other hand, appears to have fallen well short of analysts' projected profits of $0.66.

Compared to last year's Q1, sales were up 5%, and the profits -- although below expectations -- were much better than the $0.07-per-share loss that HD Supply reported in Q1 2016.

Leaking pipe

Don't look now, but HD Supply stock just sprang a leak. Image source: Getty Images.

Now what

Guidance-wise, HD Supply management told investors to expect sales of about $1.34 billion in Q2 and "adjusted" net income of between $0.60 and $0.65 per share. HD Supply did not provide a GAAP number for its guidance, but the numbers it did provide appear to fall well short of Wall Street's expectations. According to data from Yahoo! Finance, analysts had been hoping that HD Supply would generate sales in excess of $2.1 billion this quarter, and profits of $1.05 per share.

In related news, HD Supply announced today that it will be selling its HD Supply Waterworks division, "the nation's largest distributor of water, sewer, storm and fire protection products," to private equity firm Clayton, Dubilier & Rice for $2.5 billion -- $500 million of which HD intends to spend on share buybacks. If and when President Trump's trillion-dollar infrastructure building program ever materializes, though, this means that HD Supply will largely miss out on the boom.

HD Supply hopes to close this sale in Q3.

Rich Smith has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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