Dycom (DY) is trading lower after reporting strong 1Q18 (Oct) earnings but providing weak 2Q18 (Jan) guidance. In case you're not familiar, Dycom is a provider of contracting services to various utilities, including telecom/cable providers and electric and gas utilities primarily in North America. It provides program management, engineering, construction, maintenance, and installation services.
Dycom supplies telecom providers with a broad range of contracting services, from program management, engineering, construction, maintenance, and installation to underground facility locating. Engineering services include the design of aerial, underground, and buried fiber optic, copper, and coaxial cable systems that extend from the telephone company central office to the consumer's home or business. Dycom also obtains rights of way and permits.
Construction, maintenance, and installation services include the placement and splicing of fiber, copper, and coaxial cables. In addition, DY digs trenches in which to place these cables; it also installs poles, anchors, conduits, manholes, cabinets etc. It provides these services for both telco and cable operators.
Dycom also provides tower construction, lines and antenna installation, and foundation and equipment pad construction for wireless carriers, as well as equipment installation and material fabrication and site testing services. For cable TV operators, the company installs and maintains customer premise equipment such as set top boxes and modems. It also performs construction and maintenance services for electric and gas utilities.
In terms of what has been driving its business, telcos/cable operators are racing to put in higher bandwidth networks to enable video offerings as services like Netflix become more popular. Dycom says it's really the expansion of bandwidth to 1GB that's driving the growth.
On a quick note, Dycom announced in September 2017 that it will change its fiscal year end from July to January. Beginning with a six month transitional period ending January 27, 2018, the company's fiscal year will end on the last Saturday of January. The Company will file a transition 10-K report for the six month period from July 30, 2017 to January 27, 2018. Dycom's 2019 fiscal year will start on January 28, 2018.
Turning to the Q1 (Oct) results, non-GAAP EPS came in at $0.99, much better than prior guidance of $0.81-0.96. Revenue fell 5.4% year/year to $756.2 mln, also well above prior guidance of $715-745 mln. The problem is the guidance for Q2 (Jan) was well below market expectations. DY sees non-GAAP EPS of $0.24-0.36 and revenue of $645-675 mln.
There is little commentary in the press release and the call is just getting underway. But at a recent conference, Dycom said it sees a number of drivers for its business. It continues to see telephone companies deploying fiber-to-the-home to enable 1GB connections; cable operators are deploying fiber to small and medium enterprises, as well as fiber deployments to extend capacity. Dycom is also seeing a new trend where it's seeing fiber deployments to support the convergence of wireline and wireless networks and the facilitation of new wireless technologies. And then, as all of this occurs, its customers continue to get bigger, and as they get bigger, they're consolidating their supply chains which is good for Dycom.
In sum, the stock is trading lower today but it's off its lows from earlier. Despite the near term weakness, if you look at Dycom from a broader perspective, the build out to 1GB sounds like it still has a lot of runway ahead of it. Also, Dycom is benefitting from not only a higher spend per home but also more of that spending is being outsourced to companies like Dycom. It's sort of a double benefit.