HD Supply Holdings (HDS 39.01, -2.26) has given up 5.5% in pre-market after missing earnings expectations. In addition to reporting earnings, HD Supply Holdings announced the sale of its Waterworks business to Clayton, Dubilier & Rice for $2.50 billion in cash. The transaction is expected to close in the third quarter. Also of note, the company's Board of Directors authorized the repurchase of up to $500 million of HDS shares.
The industrial distributor reported below-consensus first quarter earnings of $0.63 per share on a 5.2% year-over-year increase in revenue to $1.87 billion, which was just ahead of expectations.
Average daily sales growth slowed throughout the quarter, but is set to rebound in Q2. February average daily sales increased 6.4%, March sales rose 5.3%, and April sales grew 4.2% year-over-year. This trend should be broken in the second quarter, considering the company reported a 5.1% year-over-year increase in preliminary net sales for May. Excluding Waterworks, preliminary May average daily sales increased 6.9%.
Gross margin declined to 33.7% from 34.2% one year ago while operating margin slipped to 9.4% from 10.0%.
Taking a look at the segment breakdown, Facilities net sales grew 0.7% to $682 million. Adjusted Earnings Before Interest, Tax, Depreciation, and Amortization declined 12.7% to $117 million, making up 17.2% of net sales, down from 19.8% one year ago.
Waterworks net sales rose 8.6% year-over-year to $657 million while adjusted EBITDA rose 6.3% to $51 million, representing 7.8% of net sales, down slightly from 7.9% of sales one year ago.
Construction & Industrial net sales increased 7.0% to $536 million while adjusted EBITDA grew 12.2% to $55 million. Adjusted EBITDA as percentage of sales increased to 10.3% from 9.8% one year ago.
Looking ahead, HD Supply Holdings expects second quarter earnings between $0.60 and $0.65 per share while revenue is expected between $1.33 billion and $1.37 billion.