Building services and installation company TopBuild (NYSE:BLD) fell short of analysts' expectations in Q2 CY2024, with revenue up 3.7% year on year to $1.37 billion. The company's full-year revenue guidance of $5.4 billion at the midpoint also came in 2% below analysts' estimates. It made a non-GAAP profit of $5.42 per share, improving from its profit of $5.25 per share in the same quarter last year.
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TopBuild (BLD) Q2 CY2024 Highlights:
- Revenue: $1.37 billion vs analyst estimates of $1.40 billion (2.3% miss)
- EPS (non-GAAP): $5.42 vs analyst expectations of $5.67 (4.5% miss)
- EBITDA guidance for the full year is $1.09 billion at the midpoint, below analyst estimates of $1.13 billion
- Gross Margin (GAAP): 31%, down from 32% in the same quarter last year
- Adjusted EBITDA Margin: 20.3%, in line with the same quarter last year
- Free Cash Flow of $74.26 million, down 53.3% from the previous quarter
- Market Capitalization: $13.45 billion
we delivered our highest level of sales and profitability in our history,” said Robert Buck, President and Chief Executive Officer.
Established in 2015 following a spinoff from Masco Corporation, TopBuild (NYSE:BLD) is a distributor and installer of insulation and other building products.
Home Builders
Traditionally, homebuilders have built competitive advantages with economies of scale that lead to advantaged purchasing and brand recognition among consumers. Aesthetic trends have always been important in the space, but more recently, energy efficiency and conservation are driving innovation. However, these companies are still at the whim of the macro, specifically interest rates that heavily impact new and existing home sales. In fact, homebuilders are one of the most cyclical subsectors within industrials.
Sales Growth
A company’s long-term performance can give signals about its business quality. Even a bad business can shine for one or two quarters, but a top-tier one tends to grow for years. Luckily, TopBuild's sales grew at an incredible 15.4% compounded annual growth rate over the last five years. This is a great starting point for our analysis because it shows TopBuild's offerings resonate with customers. 
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. TopBuild's annualized revenue growth of 9.9% over the last two years is below its five-year trend, but we still think the results were good and suggest demand was strong.
This quarter, TopBuild's revenue grew 3.7% year on year to $1.37 billion, falling short of Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 6.7% over the next 12 months, an acceleration from this quarter.
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Operating Margin
Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses–everything from the cost of goods sold to advertising and wages. It's also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.
TopBuild has been an optimally-run company over the last five years. It was one of the more profitable businesses in the industrials sector, boasting an average operating margin of 15.1%. This result was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it's a show of well-managed operations if they're high when gross margins are low.
Analyzing the trend in its profitability, TopBuild's annual operating margin rose by 4.9 percentage points over the last five years, as its sales growth gave it operating leverage.
This quarter, TopBuild generated an operating profit margin of 15.4%, down 2.6 percentage points year on year. Since TopBuild's operating margin decreased more than its gross margin, we can assume the company was recently less efficient because expenses such as sales, marketing, R&D, and administrative overhead increased.
EPS
Analyzing long-term revenue trends tells us about a company's historical growth, but the long-term change in its earnings per share (EPS) points to the profitability of that growth–for example, a company could inflate its sales through excessive spending on advertising and promotions.
TopBuild's EPS grew at an astounding 32.8% compounded annual growth rate over the last five years, higher than its 15.4% annualized revenue growth. This tells us the company became more profitable as it expanded.
We can take a deeper look into TopBuild's earnings to better understand the drivers of its performance. As we mentioned earlier, TopBuild's operating margin declined this quarter but expanded by 4.9 percentage points over the last five years. Its share count also shrank by 8.8%, and these factors together are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth. 
Like with revenue, we also analyze EPS over a shorter period to see if we are missing a change in the business. For TopBuild, its two-year annual EPS growth of 20.6% was lower than its five-year trend. We still think its growth was good and hope it can accelerate in the future.
In Q2, TopBuild reported EPS at $5.42, up from $5.25 in the same quarter last year. Despite growing year on year, this print missed analysts' estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects TopBuild to grow its earnings. Analysts are projecting its EPS of $20.35 in the last year to climb by 10% to $22.38.
Key Takeaways from TopBuild's Q2 Results
We struggled to find many strong positives in these results. Its revenue unfortunately missed and its EPS fell short of Wall Street's estimates. Overall, this was a mediocre quarter for TopBuild. The stock traded down 7.4% to $394 immediately following the results.
TopBuild may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.