DNOW's Q4 2024 Earnings Call: Conflicting Views on M&A Strategy, Market Outlook, and Inflation Impact

These are the key contradictions discussed in DNOW's latest 2024Q4 earnings call, specifically including: M&A Strategy and Capital Allocation, International Market Outlook, Market Activity Outlook, and Tariffs and Inflation Impact:



Revenue and Earnings Growth:
- DNOW Inc. reported revenues of $571 million in Q4 2024, approximately 6% lower than the previous quarter, while EBITDA for the quarter was $45 million, or 7.9% of revenue, exceeding expectations.
- Despite a decline in U.S. operating rigs and completions, the company achieved growth due to expanded gross margins and implemented cost control initiatives.

Water Management Expansion:
- The recent acquisition of Trojan, a water management solutions provider, aligns with DNOW's strategic focus on Process Solutions, which represent 27% of U.S. revenue.
- This acquisition aims to strengthen DNOW's water management capabilities and expand its footprint in the oil and gas industry, particularly in areas with high water production.

Inventory Optimization:
- DNOW's inventory velocity improved to approximately 7 times a year, with an annualized turn rate of 5.0 times.
- This optimized inventory position reduces logistics costs and improves gross margins, contributing significantly to free cash flow generation.

Share Repurchase and Cash Flow:
- DNOW generated $289 million in free cash flow in 2024, its largest since 2015, and completed a $80 million share repurchase program.
- The company plans to continue share repurchases with a new $160 million authorization, reflecting confidence in its cash generation capabilities.