Small-cap industrials are like assorted chocolate candies. You never really know what you're getting until you start chewing. Dycom's (NYSE:DY) second fiscal quarter of 2009 went down like a stale chocolate-covered macadamia nut -- regrettable, but people have ingested worse.
Where to begin
For starters, Dycom relies on spending from telecommunications providers, since its core business focuses on providing specialty contracting services through its subsidiaries. AT&T (NYSE:T) and Verizon (NYSE:VZ) make up more than a third of Dycom's sales, so when the big guys spend less, it affects Dycom, too.
Obviously, the telecommunication industry has seen better days. Charter Communications (NASDAQ:CHTR), another one of Dycom's large clients, has announced plans to file for bankruptcy, and so far, the much-hyped stimulus package now seems like it was just a tease.
Dude, where's my bailout?
With all of the talk about massive, imminent government spending, you might expect that a company like Dycom would be gladly riding a taxpayer-fueled crazy train. Think again.
In a preliminary earnings conference call, management reported that only about 35% of the $7.2 billion it expects for federally funded cable infrastructure projects will affect the specialty contracting niche. By itself, Dycom brought in $1.23 billion in revenue last year, so this stimulus probably won't amount to a life-changing cash infusion for Dycom.
Goodwill hunting
Dycom is also taking its goodwill in for a checkup, and the preliminary prognosis is bleak. Management expects non-cash writedowns of $95 million -- give or take $10 million.
Though it's off-putting, the impairment charge won't affect cash flows or its ability to draw on a revolving credit line. Theoretically, Dycom's liquidity position could strengthen relative to the book value of its total assets.
Box of lemons
Sometimes, when you open a box of chocolates, you find it inexplicably full of lemons. My condolences go out to investors who held Dycom's shares throughout 2008. Stay strong, brothers. I liked Dycom at $6.67, which means I should love it at $4.92.
Since I'm still waiting for my own government stimulus to kick in, I have yet to put my money where my mouth is. That said, if Dycom shares continue to trade for less than the price of two Arby's toasted subs, I may be morally obligated to join the ranks of its shareholders.
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