Energy and industrial distributor DistributionNOW (NYSE: DNOW) beat Wall Street’s revenue expectations in Q2 CY2025, but sales were flat year on year at $628 million. Its non-GAAP profit of $0.27 per share was 26.6% above analysts’ consensus estimates.

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Company Overview

Spun off from National Oilwell Varco, DistributionNOW (NYSE: DNOW) provides distribution and supply chain solutions for the energy and industrial end markets.

Revenue Growth

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Unfortunately, DistributionNOW struggled to consistently increase demand as its $2.40 billion of sales for the trailing 12 months was close to its revenue five years ago. This wasn’t a great result and is a sign of poor business quality.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. DistributionNOW’s annualized revenue growth of 2.2% over the last two years is above its five-year trend, but we were still disappointed by the results.

This quarter, DistributionNOW’s $628 million of revenue was flat year on year but beat Wall Street’s estimates by 2.6%.

Looking ahead, sell-side analysts expect revenue to grow 3.2% over the next 12 months, similar to its two-year rate. Although this projection indicates its newer products and services will catalyze better top-line performance, it is still below average for the sector.

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Operating Margin

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

DistributionNOW was profitable over the last five years but held back by its large cost base. Its average operating margin of 3.8% was weak for an industrials business. This result isn’t too surprising given its low gross margin as a starting point.

On the plus side, DistributionNOW’s operating margin rose by 9.4 percentage points over the last five years.

In Q2, DistributionNOW generated an operating margin profit margin of 5.1%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Earnings Per Share

Revenue trends explain a company’s historical growth, but the long-term change in 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.

DistributionNOW’s full-year EPS flipped from negative to positive over the last five years. This is encouraging and shows it’s at a critical moment in its life.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

Sadly for DistributionNOW, its EPS declined by 4.9% annually over the last two years while its revenue grew by 2.2%. This tells us the company became less profitable on a per-share basis as it expanded.

In Q2, DistributionNOW reported adjusted EPS at $0.27, up from $0.25 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. We also like to analyze expected EPS growth based on Wall Street analysts’ consensus projections, but there is insufficient data.

Key Takeaways from DistributionNOW’s Q2 Results

We were impressed by how significantly DistributionNOW blew past analysts’ EPS expectations this quarter. We were also excited its EBITDA outperformed Wall Street’s estimates by a wide margin. Zooming out, we think this quarter featured some important positives. The stock traded up 1.1% to $15.38 immediately following the results.

DistributionNOW may have had a good quarter, but does that mean you should invest right now? What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free.