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Why HD Supply Holdings Stock Popped 10% This Morning

By Rich Smith - Dec 5, 2017 at 12:30PM

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Earnings beats beget more of the same.

What happened

Shares of maintenance and construction supplies distributor HD Supply Holdings (HDS) jumped more than 10% in early Tuesday trading, before retracing to notch about an 8.3% gain as of 11:35 a.m. EST. The reason, as you might have guessed, is earnings.

This morning, HD Supply reported Q3 2017 earnings of $2.42 per diluted share on sales of $1.37 billion. The company noted that its "adjusted earnings" for the quarter were only $0.80 per share, but even that was better than the $0.75 that Wall Street had expected. HD Supply's revenues, likewise, exceeded expectations.

Contractors studying blueprints on a house

HD Supply has plans for a great fiscal 2017. Image source: Getty Images.

So what

HD Supply's sales grew approximately 7.5% year over year. Gross profit margins on these sales declined 60 basis points in comparison to Q3 2016, to 39.6%.

Nevertheless, the company's total gross profit increased 5.9% year over year, operating profits increased 14.5%, and net income exploded higher -- rising $2.12 per share, thanks to a big gain on HD Supply's sale of its Waterworks business.

Now what

Looking forward through the end of this year, HD Supply predicts that Q4 sales will be approximately $1.16 billion and "adjusted earnings" should range between $0.41 and $0.46 per diluted share. (Management did not provide any GAAP guidance).

This should bring full-year sales at HD Supply to anywhere from between $5.08 billion and $5.12 billion. Adjusted earnings for the full year should range between $2.23 and $2.29 per diluted share. Even at the lower levels of these ranges, all these numbers are above what Wall Street has been telling investors to expect for this fiscal year.

Given that HD Supply has just "beat earnings" once, and now appears to be telling investors it will surely beat earnings again in Q4, investors' enthusiasm for HD Supply stock today is not surprising in the least.

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