'Atypical' Recovery Clouds Outlook for HD Supply - Modern Distribution Management

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‘Atypical’ Recovery Clouds Outlook for HD Supply

CEO: Residential construction markets showing 'slowing and unpredictable characteristics.'

Sales were strong for Atlanta, GA-based HD Supply (NASDAQ: HDS) during the second quarter, but end-market visibility, particularly for residential markets, remains somewhat elusive for the distributor. "It's fair to say that this construction market recovery has been atypical," CEO Joe DeAngelo said in a call to discuss second-quarter earnings.

The typical recovery, according to DeAngelo, would have seen a sustained residential recovery followed by improving nonresidential markets. But this year the residential construction markets have shown "slowing and unpredictable characteristics," he said.

Year-to-date, single family housing starts have been up around 3 percent over 2013, below HD Supply's expectations. But the fluctuation of growth during the summer months is in some ways more problematic for companies reliant on construction. Starts were up 6 percent in May, up only 1 percent in June and then increased 10 percent in July.

"I think you've seen a lot of cautiousness of new home buyers given the fact that the most recent segment of new home buyers really got burned in the last pass," DeAngelo says, and that cautiousness prolongs the residential recovery.

Nonresidential markets, however, are performing slightly above the company's expectations and continue to improve month-to-month. "We're seeing emerging signs of nonresidential strength in more priority markets and are cautiously optimistic that the momentum will continue," DeAngelo said.

Infrastructure markets remained sluggish during the second quarter, leading HD Supply to forecast both the water and electric infrastructure markets to be "at least flat" for the full year 2014. Maintenance end markets were stable.

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