It appears Powell Industries (POWL 45.27%) isn’t feeling the impact of the much-discussed industrial slowdown. Shares of the electrical equipment distributor traded up 48% as of 10:30 a.m. ET Wednesday after Powell easily topped earnings expectations and raised its dividend.
Results that were significantly better than expectations
Powell Industries is a maker of custom-engineered products that manage, control, and distribute electrical energy. At a time when a lot of industrial companies are complaining about tepid growth and fears about the future, Powell is seeing strong demand for its products.
The company reported fiscal first-quarter earnings of $1.98 per share on revenue of $194 million, easily topping analyst expectations for $0.84 per share in earnings on $182.04 million in sales. Revenue was up 53% year over year, and gross margin came in at 24.8%, 950 basis points better than the prior year. Powell’s fiscal Q1 ended Dec. 31, 2023.
“Our first fiscal quarter was very much a continuation of the trends and strong results that we saw in our fourth quarter,” CEO Brett A. Cope said in a statement. “Despite what is typically a seasonally slower period, we recorded $198 million of new orders which was higher sequentially by 15%.”
The company also announced a 1% increase in its dividend.
Is Powell Industries stock a buy after a blowout earnings report?
CFO Michael Metcalf said Powell is “encouraged by the commercial activity across most of our core end markets, and optimistic that this will continue throughout the remainder of fiscal 2024.” If so, investors have a lot to look forward to from here.
Powell’s backlog of about a quarter’s worth of revenue is a good sign that even if economic conditions do shift for the worse as the year goes on, the company should be able to glide into a recession. The results could also be viewed as an indication of how vital Powell’s products are to new economic activity, a promising sign that the company won’t be drawn too deep into a potential down cycle.
The only caution is that with shares of Powell now up more than 200% in the last year alone, a lot of that positive momentum is arguably already priced in. Should the company stumble even a little in the months to come, there could be an oversize negative reaction to the share price.
For those comfortable with volatility, Powell is establishing itself as an attractive long-term investment candidate. Just be aware that not all quarters are likely to go as well as this one did.
Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
