HD Supply faces shareholder class action suit over earnings shortfalls

 

The industrial products distributor HD Supply Holdings, Inc., and two of its executives were recently named as defendants in a securities class action lawsuit over allegations about the company’s projected growth, as well as other issues. To learn more about this case, visit Battea’s HD Supply Holdings case summary.

Specifically, the shareholder class action suit alleges that the company set growth and leverage goals for the full year of 2017 that it could not meet, in part because efforts to improve its facilities maintenance supply chain were not going as the company hoped. Moreover, the company failed to disclose that it was considering the sale of its Waterworks segment and that one of the executives – chief executive officer, chairman and president Joseph DeAngelo – sold much of his personal stock holdings in the company, earning about $54 million. The suit alleges that, in not revealing these details, the company and executives made public statements about HD Supply’s business and operations that were materially false and misleading.

The suit was filed in the U.S. District Court for the Northern District of Georgia, and has a class period from Nov. 9, 2016, to June 5, 2017. In addition to naming HD Supply and DeAngelo, the suit also names chief administrative officer Evan Levitt as a defendant.

HD Supply faces a securities class action suit over multiple issues.HD Supply faces a securities class action suit over multiple issues.

What happened?
The class period opens in Nov. 2016 because at that time, the company said that it was “perfectly positioned to enter 2017 and deliver on [its] commitments.” However, despite two quarterly financial reports (neither of which did much to move the stock upward) being released over the course of the class period, the announcement of first-quarter 2017 results was certainly of concern to investors.

That’s because while net sales were up 5.2 percent on an annual basis, and gross profit grew 3.6 percent, the company announced that it was about to “simplify [its] business mix” and sell its HD Supply Waterworks unit to a company called Clayton, Dubilier and Rice, for $2.5 billion in cash, with the transaction expected to close in the third quarter. In addition, the company shook up some of its senior leadership for its Facilities Maintenance unit at this time.

How the stock moved
At the start of the class period, stock in HD Supply was trading at $35.58 per share but rose quickly based on the company’s announcement of a bright future. By late December, a few weeks after the company announced its third-quarter 2016 results, the price approached $44 per share.

By mid-March of this year, when the company announced fourth-quarter financial results, the stock price hadn’t changed much, and continued to hover in the low-$40 range through the start of June. But when the first-quarter 2017 results were announced, the stock price fell quickly, sliding from $41.27 to $31.34 in a little more than a week. Today, stock in HD Supply trades at $30.62.

For more information on this case or other class action litigations, please contact Sam Wankel, Senior Vice President, Research, Battea Global Litigation Research, Inc., at 203-987-4949 or info@battea.com.