Richelieu Hardware reported Q2 2023 results on July 6. Against the backdrop of a powerful Q2 2022, the Montreal-based distributor and manufacturer of specialty hardware delivered revenues and earnings that were down from a year ago.

On the top line, its revenues were 3.2% lower than a year ago, at $472.1 million. On the bottom line, its earnings before interest, taxes, depreciation, and amortization (EBITDA) fell 21.0%, to $61.5 million, versus $77.8 million in Q2 2022.

While its numbers in the second quarter were down from last year, the company remains an excellent long-term buy for investors.

RCH stock is whooping the Canadian main board so far in 2023. The Hardware manufacturer’s share price is up 13.6%, while the S&P/TSX 60 has managed to only eke out a 1.5% gain.

It’s Building a Good Business South of the Border

In the first half of 2023, Richelieu Hardware completed six acquisitions, two of which were in the U.S. Through Q2 2023, its U.S. sales were $192.6 million, accounting for nearly 42% overall.

The two acquisitions in the U.S. were Maverick Hardware and Westlund Distributing. Maverick Hardware is a supplier of cabinet hardware based in Eugene, Oregon. Westlund Distributing is one of the Midwest’s top wholesale suppliers of cabinetry materials and supplies. It operates from Monticello, Minnesota.

In addition to the two acquisitions in the U.S., Richelieu opened a new distribution center in Minneapolis in the second quarter, while also expanding and modernizing distribution centers in Atlanta, Nashville, Seattle, and Pompano Beach, Florida. These projects will add 500,000 square feet of U.S. distribution space.

The six acquisitions completed in the first half added $26 million in annual revenue. It now operates 62 distribution centers in the U.S., with 50 in Canada.

“Six acquisitions have been completed since the beginning of 2023, including two in the United States in the second quarter. We will remain focused on market penetration, the integration of recent acquisitions, strict monitoring of operating costs, and our innovation and acquisition strategies,” Richelieu CEO M. Richard Lords said in the company’s Q2 2023 earnings statement.

Q2 Strength Was Hidden

At first glance, Richelieu Hardware’s revenues in the second quarter were disappointing, with Canadian revenues down 4.3% and, excluding currency, a 7.9% decline in the U.S.

However, this would hide a very strong Q2 2022, which saw Canadian and U.S. revenues increase by 17.8% and 58.6%, respectively, from Q2 2021. Internal growth accounted for 11.3% of the Canadian revenue increase, with 6.5% from acquisitions. In the U.S., internal growth accounted for 22.7%, and acquisitions for 32.1%. Richelieu Hardware’s revenues increased by 31.4% in 2022’s second quarter, with the growth evenly split between internal growth (16.1%) and acquisitions (15.3%).

Through the first six months of 2022, Richelieu Hardware made $42.4 million in acquisitions, all three in the U.S. The three businesses acquired had annual revenues of $60.7 million.

CEO Lord called last year’s second quarter “a great performance,” highlighting the positive impact of acquisitions and investments in new market segments made over the last few years.

Compared with the first half of 2021, Richelieu Hardware sales in 2023’s first half increased nearly 31%, with an 11.6% increase in EBITDA.

The Analyst’s View

While National Bank analyst Zachary Evershed lowered his price target by $1 to $48 a share following the results, that’s still $2 above analysts’ average target price.

“Despite the expectation of slightly easier comps in the rest of Q3, we lower our organic growth forecast to negative 8.2 % year-over-year in Q3/23 (was down 7%),” Evershed wrote in a note to clients.

He went on to say that the bank reiterated “our Outperform rating as we remain bullish on management execution and end-market growth in the long term.”

Fund sentiment for RCH stock is above average, with a 76.12 score on Fintel’s quant dashboard, putting the shares in the top quintile of shares currently scored. Among the biggest holders currently are the iShares Core MSCI Total International Stock ETF (IXUS) and the Schwab Fundamental International Small Company Index ETF (FNDC).

As a reminder, that score, formerly the Ownership Accumulation score, is a proprietary quantitative model that ranks companies based on levels of ownership accumulation. To calculate the ranking, we look at two key factors: the change in the number of disclosed owners over the prior quarter, and the change in portfolio allocation of existing owners over the prior quarter.

The other score worth noting is Richelieu Hardware stock’s Value score of 77.92 ranks the Toronto-traded shares at 5,73 out of 22,913.

This article originally appeared on Fintel

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