Industrial and safety product distributor Distribution Solutions (NASDAQ: DSGR) fell short of the market’s revenue expectations in Q1 CY2025, but sales rose 14.9% year on year to $478 million. Its non-GAAP profit of $0.31 per share was 12.3% below analysts’ consensus estimates.
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Distribution Solutions (DSGR) Q1 CY2025 Highlights:
- Revenue: $478 million vs analyst estimates of $497.2 million (14.9% year-on-year growth, 3.8% miss)
- Adjusted EPS: $0.31 vs analyst expectations of $0.35 (12.3% miss)
- Adjusted EBITDA: $42.79 million vs analyst estimates of $47.13 million (9% margin, 9.2% miss)
- Operating Margin: 4.2%, in line with the same quarter last year
- Free Cash Flow was -$10.41 million, down from $2.94 million in the same quarter last year
- Market Capitalization: $1.21 billion
Bryan King, CEO and Chairman, said, "Our financial results met expectations for the quarter, despite macro uncertainties that affected all U.S. companies. We are pleased with first quarter sales of $478 million, up 14.9%, comprising inorganic revenue of $51 million and an increase in organic average daily sales of 4.3%. On a constant currency basis our organic ADS was up 4.7%, which includes a full quarter of contribution from Source Atlantic. First quarter's Adjusted EBITDA grew to $42.8 million, up 18.6% and expanded to 9.0% as a percent of sales compared to 8.7% in the year-ago period.
Company Overview
Founded in 1952, Distribution Solutions (NASDAQ: DSGR) provides supply chain solutions and distributes industrial, safety, and maintenance products to various industries.
Sales Growth
A company’s long-term sales performance is one signal of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last three years, Distribution Solutions grew its sales at an incredible 50.3% compounded annual growth rate. 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 stretched historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Distribution Solutions’s annualized revenue growth of 17.8% over the last two years is below its three-year trend, but we still think the results suggest healthy demand. 
This quarter, Distribution Solutions’s revenue grew by 14.9% year on year to $478 million but fell short of Wall Street’s estimates.
Looking ahead, sell-side analysts expect revenue to grow 10.2% over the next 12 months, a deceleration versus the last two years. Despite the slowdown, this projection is healthy and indicates the market is baking in success for its products and services.
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Operating Margin
Distribution Solutions was profitable over the last four years but held back by its large cost base. Its average operating margin of 5.2% was weak for an industrials business. This result is surprising given its high gross margin as a starting point.
On the plus side, Distribution Solutions’s operating margin rose by 3.2 percentage points over the last four years, as its sales growth gave it operating leverage.
In Q1, Distribution Solutions generated an operating profit margin of 4.2%, 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 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.
Distribution Solutions’s EPS grew at an astounding 24.9% compounded annual growth rate over the last two years, higher than its 17.8% annualized revenue growth. However, this alone doesn’t tell us much about its business quality because its operating margin didn’t expand during this time.
In Q1, Distribution Solutions reported EPS at $0.31, up from $0.25 in the same quarter last year. Despite growing year on year, this print missed analysts’ estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects Distribution Solutions’s full-year EPS of $1.50 to grow 15.3%.
Key Takeaways from Distribution Solutions’s Q1 Results
We struggled to find many positives in these results. Its revenue missed significantly and its EBITDA fell short of Wall Street’s estimates. Overall, this quarter could have been better. The stock traded down 8.7% to $23.81 immediately following the results.
Distribution Solutions’s latest earnings report disappointed. One quarter doesn’t define a company’s quality, so let’s explore whether the stock is a buy at the current price. We think that the latest quarter is only one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.
