Northwest Pipe (NASDAQ:NWPX) Misses Q4 Sales Targets

Water management company Northwest Pipe (NASDAQ:NWPX) fell short of the market’s revenue expectations in Q4 CY2024, but sales rose 8.6% year on year to $119.6 million. Its GAAP profit of $1 per share was 9.5% above analysts’ consensus estimates.

Is now the time to buy Northwest Pipe? Find out by accessing our full research report, it’s free.

Company Overview

Playing a large role in the Integrated Pipeline (IPL) project in Texas to deliver ~350 million gallons of water per day, Northwest Pipe (NASDAQ:NWPX) is a manufacturer of pipeline systems for water infrastructure.

HVAC and Water Systems

Many HVAC and water systems companies sell essential, non-discretionary infrastructure for buildings. Since the useful lives of these water heaters and vents are fairly standard, these companies have a portion of predictable replacement revenue. In the last decade, trends in energy efficiency and clean water are driving innovation that is leading to incremental demand. On the other hand, new installations for these companies are at the whim of residential and commercial construction volumes, which tend to be cyclical and can be impacted heavily by economic factors such as interest rates.

Sales Growth

A company’s long-term performance is an indicator of its overall quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for years. Thankfully, Northwest Pipe’s 12% annualized revenue growth over the last five years was excellent. Its growth beat the average industrials company and shows its 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. Northwest Pipe’s recent history shows its demand slowed significantly as its annualized revenue growth of 3.7% over the last two years is well below its five-year trend.

This quarter, Northwest Pipe’s revenue grew by 8.6% year on year to $119.6 million, missing Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to remain flat over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and indicates its products and services will see some demand headwinds.

Today’s young investors won’t have read the timeless lessons in Gorilla Game: Picking Winners In High Technology because it was written more than 20 years ago when Microsoft and Apple were first establishing their supremacy. But if we apply the same principles, then enterprise software stocks leveraging their own generative AI capabilities may well be the Gorillas of the future. So, in that spirit, we are excited to present our Special Free Report on a profitable, fast-growing enterprise software stock that is already riding the automation wave and looking to catch the generative AI next.

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.

Northwest Pipe has done a decent job managing its cost base over the last five years. The company has produced an average operating margin of 8.6%, higher than the broader industrials sector.

Analyzing the trend in its profitability, Northwest Pipe’s operating margin might fluctuated slightly but has generally stayed the same over the last five years. This raises an eyebrow about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

This quarter, Northwest Pipe generated an operating profit margin of 8.8%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Earnings Per Share

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Northwest Pipe’s EPS grew at a weak 3.6% compounded annual growth rate over the last five years, lower than its 12% annualized revenue growth. However, its operating margin didn’t change during this time, telling us that non-fundamental factors such as interest and taxes affected its ultimate earnings.

Diving into the nuances of Northwest Pipe’s earnings can give us a better understanding of its performance. A five-year view shows Northwest Pipe has diluted its shareholders, growing its share count by 3%. This has led to lower per share earnings. Taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

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.

For Northwest Pipe, its two-year annual EPS growth of 4.6% is similar to its five-year trend, implying stable earnings.

In Q4, Northwest Pipe reported EPS at $1, up from $0.54 in the same quarter last year. This print beat analysts’ estimates by 9.5%. Over the next 12 months, Wall Street expects Northwest Pipe’s full-year EPS of $3.40 to grow 1.2%.

Key Takeaways from Northwest Pipe’s Q4 Results

We were impressed by how significantly Northwest Pipe blew past analysts’ EBITDA expectations this quarter. We were also happy its EPS outperformed Wall Street’s estimates. On the other hand, its revenue slightly missed. Overall, we think this was a decent quarter with some key metrics above expectations. The stock remained flat at $48.02 immediately following the results.

So do we think Northwest Pipe is an attractive buy 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.