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Blog: HD Supply May Re-align Power Solutions Business

 

By Jack Keough

 

HD Supply recently reported strong third quarter results and in a follow-up call with financial analysts it also indicated it may readjust staffing levels in its Power Solutions business that could also lead to some facilities being closed.

 

HD Supply recently estimated that its Power Solutions business net sales rose only one percent to $472 million in the third quarter of fiscal 2013 as compared to $468 million in the third quarter of fiscal 2012. Adjusted EBITDA was flat at $21 million during the third quarter of fiscal 2013 and the third quarter of fiscal 2012. Its competitors in the electrical market have posted stronger numbers.

 

Joe DeAngelo, CEO of HD Supply, said during the call that uncertainty in the market has led the company to re-evaluate its Power Solutions cost structure and make sure that the proper talent is in place to ensure the business is well positioned to perform despite slower growth.

 

“We’re encouraged by the momentum this business is building. And believe we are taking appropriate actions to further enhance our differentiated position,” DeAngelo said.

 

He added: “We do not plan to change our strategy or investment approach; rather our focus will be to ensure that we identify our best functional talent and drive increased focus on key business activities that enable us to accelerate strategic growth and also reduce costs.”

 

HD Supply Power Solutions offers products, services and solutions for the Public Power, Investor-owned utilities, construction and industrial markets. The unit comprises the combining of the HD Supply Utilities and HD Supply Electrical. Its products include wire and cable, connectors, transformers, and lighting products.

 

Newly-appointed CFO Evan Levitt said that the company would take action to ensure the Power Solutions cost structure is aligned for market realities.

 

“We’re in the early stages of analyzing our functional associate staff levels, as well as potential facility closures associated with footprint optimization,” he said according to a transcript of the call as provided by www.seekingalpha.com.

 

“We would expect any one-time charges to be focused on strategic to better position us for profitable long-term growth. Our preliminary estimates of potential charges range from $5 million to $20 million. But we will continue our evaluation and communicate the details of the final analysis in the upcoming months,” Levitt said.

 

HD Supply executives pointed out that the bulk of its Power Solutions business is in electrical utilities as compared to some of its competitors.

 

“HD Supply has a very large electrical utility business, a much smaller electrical and end use contractor business. So when you look at those electrical utilities customers, they tend to be very conservative customers,” said Ron Domanico who will be retiring as CFO in April.

 

“We’re going to make sure that we’re very lean in terms of our support structure, and we’re very focused in making sure that all of our resources are field oriented, particularly within the wall of those utilities, so that we can gain more of their wallet share even if their spending is constricted,” he said according to the transcript. “So I think it’s one where we have various different dynamics in total than other competitors that have a much larger electrical contractor or end use business.”

 

Company officials noted that HD Supply in the comparable period last year had a large utility project in Pennsylvania that began shipping in the third quarter of 2012 and continued through the first half of 2013. In August, the pace of that project slowed significantly due to overall budget evaluation and rationalization of multiple capital projects.

 

Overall, HD Supply, one of the largest industrial distributors in the country, reported good revenues for the third quarter and its stock jumped after it released its earnings results. Since it went public in June, its stock price has climbed more than 20 percent.

 

The company reported net sales for the quarter of $2.3 billion, an increase of $151 million, or 7 percent, as compared to the third quarter of fiscal 2012.  The third quarter performance represents the fourteenth consecutive quarter of year-over-year sales growth in HD Supply’s business segments: Facilities Maintenance, Waterworks, White Cap and Power Solutions.

 

With the rebound in the housing market, revenue for its White Cap construction business in the third quarter was $352 million, up $34 million, or 10.7% versus $318 million in the third quarter of 2012.

 

Net sales for the first nine months of fiscal 2013 increased $581 million, or 10 percent to $6.6 billion, as compared to $6.0 billion the first nine months of fiscal 2012.

 

 

Jack Keough was the editor of Industrial Distribution magazine for more than 26 years. He often speaks at many industry events and seminars. He can be reached at john.keough@comcast.net or keoughbiz@gmail.com

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