Heavy equipment distributor Custom Truck One Source (NYSE:CTOS) fell short of the market’s revenue expectations in Q4 CY2024, with sales flat year on year at $520.7 million. On the other hand, the company’s full-year revenue guidance of $2.02 billion at the midpoint came in 8.3% above analysts’ estimates. Its GAAP profit of $0.12 per share was significantly above analysts’ consensus estimates.
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Custom Truck One Source (CTOS) Q4 CY2024 Highlights:
- Revenue: $520.7 million vs analyst estimates of $540.8 million (flat year on year, 3.7% miss)
- EPS (GAAP): $0.12 vs analyst estimates of $0.04 (significant beat)
- Adjusted EBITDA: $102 million vs analyst estimates of $105.2 million (19.6% margin, 3% miss)
- Management’s revenue guidance for the upcoming financial year 2025 is $2.02 billion at the midpoint, beating analyst estimates by 8.3% and implying 11.8% growth (vs -3.4% in FY2024)
- EBITDA guidance for the upcoming financial year 2025 is $380 million at the midpoint, below analyst estimates of $386.3 million
- Operating Margin: 12.9%, up from 10.2% in the same quarter last year
- Free Cash Flow was -$37.76 million compared to -$102.4 million in the same quarter last year
- Backlog: $368.8 million at quarter end
- Market Capitalization: $932.7 million
Company Overview
Inspired by a family gas station, Custom Truck One Source (NYSE:CTOS) is a distributor of trucks and heavy equipment.
Specialty Equipment Distributors
Historically, specialty equipment distributors have boasted deep selection and expertise in sometimes narrow areas like single-use packaging or unique lighting equipment. Additionally, the industry has evolved to include more automated industrial equipment and machinery over the last decade, driving efficiencies and enabling valuable data collection. Specialty equipment distributors whose offerings keep up with these trends can take share in a still-fragmented market, but like the broader industrials sector, this space is at the whim of economic cycles that impact the capital spending and manufacturing propelling industry volumes.
Sales Growth
Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Luckily, Custom Truck One Source’s sales grew at an incredible 46.8% compounded annual growth rate over the last five years. Its growth beat the average industrials company and shows its offerings resonate with customers.
Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Custom Truck One Source’s recent history shows its demand slowed significantly as its annualized revenue growth of 7% over the last two years is well below its five-year trend. 
Custom Truck One Source also breaks out the revenue for its most important segments, Equipment Rental and Aftermarket Parts and Services, which are 33.1% and 7.8% of revenue. Over the last two years, Custom Truck One Source’s Equipment Rental revenue ( lifts, cranes, trucks) averaged 3% year-on-year declines. On the other hand, its Aftermarket Parts and Services revenue (maintenance and repair) averaged 2.6% growth.
This quarter, Custom Truck One Source missed Wall Street’s estimates and reported a rather uninspiring 0.2% year-on-year revenue decline, generating $520.7 million of revenue.
Looking ahead, sell-side analysts expect revenue to grow 5.4% over the next 12 months, a slight deceleration versus the last two years. This projection is underwhelming and indicates its products and services will face some demand challenges.
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Operating Margin
Custom Truck One Source was profitable over the last five years but held back by its large cost base. Its average operating margin of 4.4% was weak for an industrials business. This result is surprising given its high gross margin as a starting point.
On the plus side, Custom Truck One Source’s operating margin rose by 9.6 percentage points over the last five years, as its sales growth gave it immense operating leverage.
This quarter, Custom Truck One Source generated an operating profit margin of 12.9%, up 2.7 percentage points year on year. The increase was encouraging, and since its gross margin actually decreased, we can assume it was recently more efficient because its operating expenses like marketing, R&D, and administrative overhead grew slower than its revenue.
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.
Although Custom Truck One Source’s full-year earnings are still negative, it reduced its losses and improved its EPS by 34.3% annually over the last five years. The next few quarters will be critical for assessing its long-term profitability.
Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.
Sadly for Custom Truck One Source, its EPS declined by 65.5% annually over the last two years while its revenue grew by 7%. This tells us the company became less profitable on a per-share basis as it expanded.
In Q4, Custom Truck One Source reported EPS at $0.12, up from $0.07 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street is optimistic. Analysts forecast Custom Truck One Source’s full-year EPS of negative $0.12 will reach break even.
Key Takeaways from Custom Truck One Source’s Q4 Results
We were impressed by how significantly Custom Truck One Source blew past analysts’ EPS expectations this quarter. We were also glad its full-year revenue guidance trumped Wall Street’s estimates. On the other hand, its revenue missed. Zooming out, we think this was still a decent quarter featuring some areas of strength. The stock traded up 10.5% to $4.42 immediately after reporting.
Is Custom Truck One Source an attractive investment opportunity at the current price? If you’re making that decision, you should consider the bigger picture of valuation, business qualities, as well as the latest earnings. We cover that in our actionable full research report which you can read here, it’s free.