Jack Keough: HD Supply Bullish For 2016

Jack Keough discusses statements made by HD Supply the company's recent post-quarterly earnings conference call, where CEO Joe DeAngelo touched on the state of the company after another divestment.

HD Supply’s fiscal Q1 earnings clearly shows that the construction market is rebounding which is good news for industrial and construction distributors. And HD Supply remains assertive on sales for all of its business units for the year.

As recently reported by Industrial Distribution, HD Supply, posted Q1 sales of $1.78 billion, up 7.2 percent year-over-year.

HD Supply’s Construction and Industrial-White Cap sales were $447 million during the first quarter of 2016, up $40 million or 9.8 percent. Revenue for its Facilities Maintenance business was $677 million during the first quarter of 2016, up $42 million or 6.6 percent from the first quarter of 2015. Waterworks sales increased 6.1 percent to $605 million. The company estimated that the MRO market grew approximately 2 percent in the first quarter of 2016.

And despite weather problems during the early part of the year, including flooding in Texas, and cool weather causing less demand for its HVAC products, HD Supply said it is bullish on its economic outlook.

"We remain optimistic in our current views of a prolonged, moderated non-residential and residential construction market recovery," CEO Joe DeAngelo told analysts in a call with analysts following release of its quarterly earnings. "Our local field perspective continues to be bullish based on current and potential future activity. Municipality financial positions are better and project activity seems to be marginally improved this spring relative to last year.".

The company expects residential construction to increase to mid single digits in 2016, non-residential construction to increase in mid single digits, water infrastructure to be down low single digits to up low single digits and for the MRO market to remain stable increasing 1 to 2 percent.

HD Supply, No. 4 on Industrial Distribution’s 2015 Big 50’s list, has undertaken a number of strategic plans to focus on its core businesses.

During the quarter, HD Supply moved its HD Supply Home Improvement Solutions business to its construction and industrial team.HD Supply Home California specialty retailer that provides home improvement products and building materials to remodeling contractors, tradesmen and Do-It-Yourself customers. It also supplies products to the rapidly growing single and multi-family rental markets.

In May, HD Supply also concluded the sale of its Interior Solutions business, formerly known as Creative Touch Interiors, to Interior Specialists for an undisclosed sum.With its sales of its interior unit, HD Supply will be now be broken into three business segments:facilities maintenance, water works and construction and industrial.

"We’re down to the three we intended to be with, and we have an exceptionally strong team in construction and industrial and specifically on the West coast so it (Home Improvement Solutions Business) was a natural snap in for a very good niche business," DeAngelo said. "It allowed us to finally finalize our portfolio restructuring so we have the portfolio right now and we can just execute going forward flat-out," DeAngelo said.

HD Supply divested itself of two businesses last year. In October, it sold its Power Solutions business unit, a provider of a diverse product and services to the investor owned utility, public power, construction and industrial markets, to Anixter Inc. for $825 million.

And in January last year, Home Depot completed its previously announced acquisition of substantially all of the assets of HD Supply Hardware Solutions, formerly known as Crown Bolt, a supplier of fasteners and builders hardware to retailers in the United States.

HD Supply will move its business operations on the West Coast and Florida to its corporate headquarters outside Atlanta, where some 200 employees are located. The company will construct a new corporate headquarters and its HD Supply Leadership Development Center that is expected to be completed in 2018.

The $75 million, 200,000-square-foot office tower, which will be eight or nine stories, could accommodate up to 1,000 employees.