Hughes Supply Shares Jump on Boosted Guidance

Shares of Hughes Supply (HUG) moved higher Tuesday after the company boosted its first-quarter guidance due to stronger sales and higher commodity prices.

The construction and maintenance products distributor said after the bell Monday that it now expects earnings in the quarter to rise to 88 cents to 93 cents a share from 51 cents a share a year earlier. The revised outlook includes a federal tax credit that will contribute 6 cents a share to first-quarter earnings.

In addition, Hughes anticipates revenue will now grow to $965 million to $975 million -- an increase of 23% to 25% -- on same-store sales growth of 11% to 13%.

A Thomson First Call consensus estimate had expected the company to earn 64 cents a share on revenue of $923 million.

The company's shares were recently up $5.55, or 10.4%, to $58.71.

Hughes said it is experiencing stronger sales in most of its businesses due to increased commercial and public sector construction activity and continued strength in the residential construction market.

Also, the recent and significant price increases in commodities such as steel, PVC, copper, nickel and lumber, have contributed to higher sales and improved margins over last year's first quarter. Hughes estimates the price increases account for about one-third of the estimated same-store sales growth rate in the first quarter.

"As we indicated early last month, strength in the commercial construction sector and higher commodity prices were expected to favorably impact sales and margins in the first quarter, but we clearly underestimated the magnitude of the impact," said President and Chief Executive Tom Morgan in Monday's statement.

In subsequent quarters, the company expects "costs of goods sold" relative to sales will increase as a result of the higher prices, and as previously experienced, commodity price spikes to correct themselves.

As a result, Hughes sees the first quarter as "unusual" and not necessarily sustainable. The company said it also remains cautious that construction activity, while clearly higher than a year ago, is inconsistent and may moderate.

Hughes will report its first-quarter earnings on May 25.

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