HD Supply Faces Unexpected Headwinds in 2Q - Modern Distribution Management

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HD Supply Faces Unexpected Headwinds in 2Q

CFO: Weather and weaker-than-expected markets cut sales by $110 million.

HD Supply experienced some unexpected headwinds during the second quarter, according to CEO Joe DeAngelo during the company’s second-quarter earnings call, its first quarterly call as a publicly traded company since the completion of its IPO in July.

Sales for the second quarter ended Aug. 4 increased 10 percent year-over-year, to $2.3 billion, and sales for each of HD Supply’s business units (Facilities Maintenance, Waterworks, Power Solutions and White Cap) increased by at least of 4 percent. Waterworks led the pack, with organic sales up nearly 10 percent.

Emerging new growth in residential markets and continuing steady growth in MRO markets contributed to second-quarter results, DeAngelo said, but the company faced softer-than-expected conditions in some areas.

Non-residential construction and municipal spending were particularly weak. The non-residential market is soft, DeAngelo said, and general softness there could continue for the remainder of 2013. Municipal spending was also softer-than-expected, and DeAngelo said it continues to be impacted by economic and budget uncertainties. HD Supply is seeing pockets of activity in both markets, but CFO Ronald Domanico said the two markets, which were up slightly earlier in the year, were “flat at best” during the second quarter.

Unseasonably cool and wet weather also affected results, DeAngelo said. “We had one of the wettest and coolest second quarters in record of history,” Domanico said. That impacted HD Supply’s outside businesses, Domanico said, most dramatically for Waterworks and White Cap, but also within the facilities maintenance and HVAC sectors.

Domanico estimated the negative impact of unusual weather during the quarter at around $40 million, and he assessed the impact of market-side weakness at around $70 million.

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